"My family is going to create a grant to eliminate their student loans," he told the newly minted graduates in Atlanta.
The announcement -- in which Smith urged the graduates to follow his lead in paying it forward -- was met with a standing ovation and chants of "MVP!"
"We were like what?" said recent graduate Maximillian Sanders. "Wait, wait, wait... what does he mean by debt? Does he mean debt over the last year, debt of the last 4 years? Does he mean the people in the front row? We were confused and then we were like wait he means everybody!"
In the weeks before graduating, like many of his classmates, Bryn Mawr native & @Morehouse graduate Maximilian Sanders was already dreading the plan of how he would pay back his student loans. Thanks to an EPIC graduation surprise that’s one less thing he has to worry about @6abc pic.twitter.com/PXyfZSZW8t— Christie Ileto (@Christie_Ileto) May 20, 2019
Sanders is a William Penn Charter graduate from Bryn Mawr.
Speaking exclusively to Action News, he says in the weeks leading up to graduating he, like many of his classmates, were already wondering how they would pay back their student loans.
"It was a conversation I was not looking forward to having with my parents, and now it's a conversation I don't need to have," Sanders said.
The sum among the 396 students adds up to about $40 million, said Morehouse President David A. Thomas. He called Smith's gesture "a liberation gift."
"When you have to service debt, the choices about what you can go do in the world are constrained," he said. "(Smith's gift) gives them the liberty to follow their dreams, their passions."
Robert F. Smith's full announcement to graduates:
Students say they're overwhelmed with gratitude
Students couldn't believe their ears when Smith made the announcement, three graduates of the all-men's college told CNN.
"We're looking at each other like, 'Is he being serious?' That's a lot of money," salutatorian Robert James, 21, said.
Jonathan Epps, 22, said Sunday afternoon he still hadn't fully grasped the magnitude of the "tremendous blessing," which he called the kindest, most generous thing he'd ever witnessed.
"It'll sink in as the years go on. I know that for a fact," he said. "I still don't really have words. ... It makes a great day just that much better."
Epps said he has about $35,000 in student loan debt that his parents in Pleasanton, California, had pledged to help him pay off. He couldn't wait to break the news to them, he said.
A classmate, Elijah Nesly Dormeus, is the first of nine kids to graduate college. His mother made many sacrifices working minimum-wage jobs to provide for him and his eight siblings after Dormeus' father died when he was 5.
In addition to the 22-year-old New Yorker's own $90,000 debt, he said his mother took out a loan to help get him through school.
"All her serving, all her giving was not in vain," Dormeus said when asked what Smith's gift meant to his family.
Smith has made many other charitable donations
Their benefactor also received an honorary degree on Sunday, along with actor Angela Bassett and psychologist Edmund Gordon.
The entrepreneur, founder of the investment firm Vista Equity Partners, is worth about $5 billion, according to Forbes.
The 56-year-old was a chemical engineer for Goodyear and Kraft before attending business school. He worked for Goldman Sachs, specializing in technology investments, before starting Vista Equity in 2000.
Vista Equity invests solely in software, data, and technology companies and boasts capital commitments of $46 billion, the company's website says.
Smith has quite the generous streak. In 2016, Cornell University, one of his alma maters, renamed its chemical and biomolecular engineering school in honor of the Austin, Texas, investor after he committed to donating $50 million to the school. He's also donated millions to cancer research and the arts.
His Fund II Foundation provides grants under five pillars: preserving the African-American experience, safeguarding human rights, conserving the environment, providing music education and sustaining "critical American values such as entrepreneurialism," the organization says.
In 2017, Smith signed the Giving Pledge, an effort spearheaded by billionaires Warren Buffett and Bill and Melinda Gates to convince wealthy Americans to give away half of their fortunes.
In signing the pledge, Smith said he would focus on causes that support equality for black Americans and the environment. His wife, model Hope Dworaczyk Smith, will focus on helping children, he wrote.
"I will never forget that my path was paved by my parents, grandparents and generations of African-Americans whose names I will never know," Smith said. "Their struggles, their courage, and their progress allowed me to strive and achieve. My story would only be possible in America, and it is incumbent on all of us to pay this inheritance forward."
The-CNN-Wire & 2019 Cable News Network, Inc., a Time Warner Company contributed to this story. All rights reserved.