Doctors Without Debt: The Billionaire Who Built Silicon Valley Joins a Growing Movement

jejim/shutterstock

Faced with a projected doctor shortage, an alarming paucity of physicians from diverse backgrounds, and a median student debt of $200,000, donors have been ramping up support for a debt-free medical education, making big gifts to New York University, Weill Cornell Medicine, and Columbia University’s Vagelos College of Physicians and Surgeons.

We can now add Stanford Medicine to the list, thanks to a $55 million challenge gift from Bay Area real estate developer, philanthropist and billionaire alumnus John Arrillaga, whose gift will eliminate debt for qualified incoming students. Stanford plans to raise $90 million in new scholarship funding to eliminate debt for medical students with need over the next 10 years.

“I hope this gift will attract a diverse group of the best and brightest students from every socioeconomic background to the university and bring a Stanford Medical School education within reach for any student who may not have been able to consider it otherwise,” Arrillaga said. “I believe that focusing aid on students with established need is what is best from an equity and opportunity standpoint.”

Not surprisingly, most of these ambitious debt-free plans have been hatched by affluent private universities with a deep bench of wealthy alumni. However, as we’ll see, flagship public universities have also successfully appealed to donors by rolling out more targeted and affordable plans that serve students with demonstrated financial need.

“Time, Mind, and Money”

Arrillaga grew up poor in the Los Angeles suburb of Inglewood and arrived at Stanford in 1955 on a basketball scholarship. He graduated in 1960, and is in the Stanford Athletics Hall of Fame.

Dubbed by Fortune magazine “the secretive billionaire who built Silicon Valley,” Arrillaga and his business partner Richard “Dick” Peery purchased farmland in the region in the 1960s and converted it into office parks. In 2006, the pair’s firm, Peery-Arrillaga, sold half its commercial real estate portfolio for $1.1 billion. Forbes pegs Arrillaga’s real-time net worth at $2.6 billion.

John Arrillaga and family move their philanthropy through the Arrillaga Foundation, with Stanford being a huge recipient. In 2006, he gave his alma mater $100 million. Seven years later, he pledged $151 million, the single largest donation from a living individual in the school’s history at the time.

To coincide with the gift, Arrillaga’s daughter, Laura Arrillaga-Andreessen, penned a piece in Stanford Benefactor laying out her father’s giving philosophy. “While my father taught me many important lessons,” she wrote, “two stand out: Give as much as you possibly can, and give equally from among your resources—time, mind and money.”

Arrillaga has supported many non-Stanford organizations, as well, including the City of Menlo Park, Menlo School, Palo Alto Medical Foundation, Silicon Valley Children’s Fund and the San Francisco Ballet. 

Donors Step Up

In 2018, Columbia University’s Vagelos College of Physicians and Surgeons became the first medical school in the country to institute scholarship-only financial aid. P. Roy Vagelos, the former chairman of Merck & Co., donated $250 million to the program with the hope that debt-free students would pursue careers in less lucrative fields.

Soon after, New York University (NYU) announced it had raised more than $450 million over 10 years to fund a $600 million plan to cover tuition for all NYU School of Medicine students. About $100 million came from Kenneth G. Langone, a co-founder of Home Depot, and his wife Elaine, for whom the medical school is named.

While the NYU officials hoped its approach would inspire graduates to pursue low-paying work, the plan lacked a mechanism compelling them to do so, prompting Slate’s Jordan Weissman to call it “an expensive, unnecessary subsidy for elite medical grads who already stand to make a killing one day as anesthesiologists and orthopedic surgeons.”

Citing the growing debt burden facing graduates hailing from the middle class, NYU School of Medicine Associate Dean for Admissions and Financial Aid Rafael Rivera defended the plan, saying, “I don't think that the need-based models are necessarily going to be a good solution” for tackling increasing medical debt.

In February of 2019, Yale’s School of Medicine announced it would reduce the unit loan—the amount that medical students who receive need-based scholarships are expected to borrow—by 50 percent over two years. In April, the Washington University School of Medicine in St. Louis announced a $100 million commitment to provide scholarships allowing as many as half of its medical students to attend tuition-free.

That same month, the Icahn School of Medicine at Mount Sinai announced it would cap debt at $75,000 for students with a demonstrated financial need during the following academic year. The school had received $25 million to $30 million in pledges from donors to kickstart a fund that will support the scholarships, which it expects to provide at least some aid to 40 percent of students.

And in October, Weill Cornell Medicine announced it had raised $160 million and counting to fund its own free tuition program for students with demonstrated financial need, including a lead gift from the Starr Foundation and support from Joan and Sanford I. Weill and the Weill Family Foundation.

Boosting Underrepresented Demographics

With the exception of NYU, these schools are focusing on students with financial need. Once again, however, under each plan, a student from an affluent family can get a free medical education and go on to become a radiologist in Beverly Hills.

Dr. Ezekiel Emanuel, chair of medical ethics and health policy at the University of Pennsylvania, thinks universities and donors can do better. On the heels of the NYU announcement, he spoke with “60 Minutes,” arguing for a forgivable loan model in which a university tells a student, if “‘you go practice in a rural community, like in South Dakota, or you go into an inner city community that’s underserved, we’re gonna forgive your loan.’” On the other hand, students who pursue more lucrative fields will have to pay back loans with interest.

Universities and donors haven’t rallied around a forgivable loan model just yet. One thing is certain, however. Debt-free models succeed in achieving another top donor goal—boosting access for historically underrepresented students.

Last year, NYU announced it received 2,020 applications from students who identify as minorities underrepresented in medicine, up from 1,000 in 2018. Stanford has seen a similar boost. Twenty-three of its 90 students in the fall 2019 class hailed from traditionally underrepresented demographics in medicine. Meanwhile, the number of students from minority backgrounds matriculating at the medical school has risen from 17 percent in 2014 to approximately 26 percent today.

Stanford attributes these figures to the fact that it has been providing support for qualified medical students for years. Its class of 2019 graduated with a median debt of just over $89,000 thanks to the university’s pre-existing debt-alleviation programs.

Equity-minded donors will be encouraged by NYU and Stanford’s success in boosting the number of diverse applicants, as it suggests a debt-free model can address doctor shortages in non-affluent areas. “If you are from a rural background, you do tend to go back to practice in a rural setting more often than people who are not from a rural background,” NYU’s Rivera said. “If you are from an underrepresented minority group, similarly, you also tend to go back to inner-city underserved areas.”

Gathering Momentum

Can we expect to see more medical schools pivot to a debt-free model? As with most things, it depends. A survey by Kaplan Test Prep found that only 4 percent of surveyed admissions officers said their school will adopt the NYU or Cornell plan over the next five to 10 years. “It’s a wonderful idea, but most schools can’t afford it,” said one admissions officer.

That’s certainly true. It’s no coincidence that Cornell, Columbia, Stanford, Icahn School, Yale, Washington University and NYU are all private schools with formidable endowments.

But in a higher ed philanthropic landscape where universities raised $49.6 billion in 2019, medical schools—both private and public—don’t need to choose between an expensive, all-encompassing NYU-like plan or nothing. A single mega-donation can enable a school to offer some medical students a debt-free education.

For example, in July of 2018, the University of Houston (UH), in the throes of a $1 billion capital campaign, waived tuition for the UH College of Medicine’s 30 students in the 2020 class, thanks to a $3 million donation from an anonymous donor. In March of 2019, UH eclipsed its campaign goal 18 months ahead of schedule.

In 2012, David Geffen’s $100 million donation to UCLA paid for tuition for select students at the medical school named in his honor. Last December, UCLA announced an additional $46 million gift from Geffen that will enable an additional 120 students in the future to attend its medical school for free.

And it took another public fundraising juggernaut, the University of Arizona (UA), to go boldly where its private counterparts feared to tread. The university recently announced that its colleges of medicine in Tucson and Phoenix will cover tuition costs for medical students who commit to practicing primary care or other designated specialties in rural or urban underserved areas of the state. Nearly 100 students, approximately 10 percent of the student body, could receive free tuition at UA’s two medical schools. 

UA’s model stands in contrast to many of these plans, in which officials cross their fingers and hope that debt-free graduates voluntarily seek work in rural areas or inner cities.

Less-affluent schools will want to keep an eye on these public schools for another important reason—they don’t break the bank. UH’s plan comes with a price tag of a mere $3 million, a drop in the bucket for a school that has raised $1.2 billion in a recent campaign, as of February. And by covering tuition solely for students who end up working in a designated field, UA’s model is more affordable than the no-strings-attached approach employed by the Ivies and Little Ivies.

Reaching Critical Mass

Higher ed donors also take cues from employers, public officials, and think tanks. Consider funders’ continued support for STEM initiatives. The National Association of Manufacturing and Deloitte reported that the United States will have to fill 3.5 million STEM jobs by 2025, with more than 2 million of them going unfilled because of the lack of highly skilled candidates in demand. Donors have responded to meet this demand accordingly and continue to do so with undiminished enthusiasm.

We’re seeing a similar phenomenon unfold when it comes to a debt-free medical education. According to the Association of American Medical Colleges, the U.S. will see a shortage of up to 122,000 physicians by 2032. California, facing its own doctor shortage, is spending $340 million to pay off doctors’ debts using Proposition 56 tobacco tax revenue. Meanwhile, the cost of medical education has been rising double the rate of inflation.

Fears over a widespread doctor shortage and unsustainable debt have reached critical mass. Expect more donors to rise to the occasion to close the gap in the months and years ahead.

Don’t just take my word for it. When asked by Stahl if he expects other medical schools to adopt a tuition-free model, Emanuel said, “Absolutely.” He argued that many high-profile medical schools have been quietly gravitating toward a free-tuition model for years. We’ll be hearing from them soon enough.

Emanuel’s argument shakes out. As you’ll recall, NYU’s plan was over a decade in the making. Stanford had been providing medical students with steeply discounted tuition prior to Arrillaga’s gift. David Geffen planted the seeds for UCLA’s plan back in 2012. And Yale’s move to reduce debt by 50 percent may very well be the first step toward eliminating tuition for students with a demonstrated need entirely.

Given recent developments, deans at medical schools who haven’t made free tuition a priority need to do so, “because otherwise,” Emanuel said, “those deans at Harvard and Hopkins… are likely to see the very best medical students attending NYU for free.”