Billionaire’s Gift to Morehouse Students Could Bring a Tax Hit

Morehouse College’s graduating class got quite the surprise over the weekend, when their commencement speaker promised to pay off their outstanding student loans. But students aren’t totally out of the woods yet—they could still be liable for potentially thousands of dollars in taxes on their newly canceled debts.

The potential tax hit from billionaire Robert F. Smith’s pledge depends on how the transfer is structured, tax practitioners said. Smith, founder of Vista Equity Partners, vowed to pay an estimated $40 million for about 400 graduating seniors. In his remarks May 19 in Atlanta, Smith said the money would ...