BWC Consulting’s Four-Part Series:

Part 1: COVID 19 and the Future of Historically Black Colleges & Universities

GREENSBORO, NC – June 3, 2020 – For over 15 years, Bridget Chisholm and her team at North Carolina-based black-owned economic development firm, Building Wealth & Communities (BWC) Consulting, LLC has had first-hand experience with providing high-level financial solutions to Historically Black Colleges and Universities (HBCUs).

As seasoned professionals, the firm has helped to build financial strategies to ensure infrastructure improvements on black college campuses and access to capital for major projects in underserved communities to the tune of over $153 million in transactions for HBCUs alone. But now, as the coronavirus crisis and stay-at-home orders have inflicted financial damage on institutions of higher learning like existing debt obligations amid declining revenues, HBCUs are left to tackle long-term economic issues that threaten indefinite school closures and ultimately the elimination of as many as half of existing HBCUs.

The state and fate of these institutions certainly warrants attention, and the question is not whether we should support HBCUs, but how best to support them during this time of economic crisis.

In this four-part series, BWC Consulting will lay out the HBCU value proposition and highlight key opportunities for building a 21st century educational playbook for higher educational institutions that ensures proactive measures are in place to create more agile and resilient learning environments. These solutions will help HBCUs meet the needs of the changing educational landscape by reimagining the unique experience provided at HBCUs and remodeling business strategies, endowment programs and virtual learning opportunities that enhance the overall campus appeal and learning experience.

By exploring non-traditional approaches to capital campaigns and endowment growth, such as an increased focus on securing engagement and support from the largely white-led philanthropy sector, and restructuring the federally-funded HBCU Capital Financing Program, BWC hopes to empower college and university administrators and policymakers to correct historical economic and social injustices that persist in our nation to ensure equity in education and non-discriminatory access to opportunity.

“HBCUs provide immense value-add to society and contribute more to the overall [black] community than most colleges and universities because they offer an opportunity for students to learn in a culturally-enriched environment and in today’s world, provide a safe and nurturing space,” said Bridget Chisholm, the firm’s founder and managing partner.

She adds, “We know how difficult it is for HBCUs to compete with historically white institutions on a level playing field in terms of availability and access to funding and fundamental educational resources like technology. The COVID-19 pandemic presents HBCUs with an opportunity and the motivation to revamp, and where it makes sense, replace antiquated business models with new business strategies designed to meet the needs of students better in an emerging 21st century higher education system. HBCUs have worked tirelessly for over a hundred years to produce black professionals in every field and we anticipate seeing them overcome the current challenges they face.”

Unlike predominantly white institutions (PWIs), HBCUs have historically struggled to address issues that have plagued these institutions of higher learning for decades. Disparities that exist between HBCUs and PWIs include inadequate state and federal funding, smaller endowments, access to financial capital and resources that best serve their unique circumstances – not just funding for major campus infrastructure improvements – and a lack of resources to support students from underserved communities.

The COVID-19 pandemic has shined a high beam in the face of academic inequality, the lack of economic resiliency for communities of color and ineffective crisis management and contingency planning for the education system. Despite these discrepancies, HBCUs continue their mission to promote black excellence and nurture the growth, vitality, and upliftment of the black community. For many local municipalities across the country, HBCUs are a major economic engine for the surrounding community; thus, the impact of the coronavirus will have a lingering effect for many years ahead.

“Most of our HBCUs are tuition-dependent and operate on very thin margins,” said Tijuana Hudson, Vice President for Fiscal Affairs at Claflin University, a private historically black university in Orangeburg, South Carolina. “The economic impact of the virus has been enormous. Claflin depends on the room and board revenue to make [our] budget.  Unfortunately, with our campus having to send students home and refund a prorated portion of room and board, the bottom line has been negativity impacted by roughly $2 million.”

She adds, “The students we serve are the most vulnerable and financially fragile. Any downward trend in enrollment will have profound financial impacts. The truth of the matter is that the impact of this virus will be felt for years to come.”

Despite the multiple rounds of federal stimulus aid allocated to struggling businesses during the coronavirus outbreak, Congress has failed to provide adequate relief aid and the support needed to help HBCUs and institutions with small endowments and limited resources. These endowments, backed by alumni donations and investments, provide an array of funds that support universities and their various programs, including financial aid, research, and athletics.

Schools with large endowments are more financially sound and resilient in times of economic downturn and low enrollment. HBCUs have historically suffered from smaller endowments relative to PWIs and limited financial resources that can directly be attributed to historical inequities that have stained the fabric of American history and serve as major barriers to access and opportunity.

“Endowments are the lifelines of institutions,” said Hudson. “Unfortunately, the endowments for many of our colleges and universities are small. Many of our graduates are not millionaires or billionaires with the ability to give large sums of money to our schools. We depend on the interest revenue from endowment funds to provide scholarships to our students.”

She continues, “Because we serve a disproportionate share of Pell Grant-eligible students, the financial need is great. We take our endowment draw each year to ensure that our students can continue their education.  With very few contributions coming in and annual scholarship withdrawals, it makes it difficult to grow the endowment.”

Berry College, a small, private liberal arts institution in Mount Berry, Georgia, is a good example of the historical disparity in endowment funds between PWIs and HBCUs. Home to approximately 1,900 students, Berry College, a PWI, has an endowment of over $1 billion, resulting from a cash windfall from heiress Lettie Pate Evans who donated shares of Coca-Cola Company stocks to select schools in 1953. Howard University, by comparison, an HBCU in Washington, D.C. produces a significant share of the nation’s black professionals, has an enrollment of around 9,300 and an endowment of approximately $692 million – one of the largest among HBCUs.

The disparity is clear, Berry College has approximately one-fifth of the enrollment size of Howard University, but its endowment exceeds Howard’s by over 40 percent. HBCUs’ lagging endowments are, no doubt, the primary responsibility of alumni and school capital campaign efforts. However, white philanthropy is needed to level the playing field and ensure the financial vitality of black institutions, just as this form of philanthropy has helped PWIs achieve financial stability and greater resiliency.

James L. Hudson, a well-known African American philanthropist and long-time supporter of HBCUs, notes that moving African Americans into the middle class and beyond is a key value proposition that HBCUs offer. “The responsibility cannot singularly be that of black people; white philanthropy must include black institutions in their largess as well. This is the reality.”

Hudson continued by discussing other efforts required to help HBCUs succeed post-coronavirus. “HBCUs should set a goal to take on the coronavirus crisis in a way that will allow them to re-evaluate their value propositions, as well as identify what needs to be done to make these institutions thrive. These efforts would include a right-sized response to student needs based on a worldview of emerging opportunities.”

Reimagining the future of an HBCU education

The COVID-19 pandemic has changed the landscape of higher education. While federally funded initiatives are debated in Congress, HBCUs face challenges that require an immediate response. Regardless of the success and viability of an academic institution pre-COVID-19, the educational playbook for all learning institutions will need to be recalibrated going forward. But what does this mean for HBCU students, facilities, and administrations?

To help policymakers and HBCU administrators prepare for a post-coronavirus higher education environment and society, BWC Consulting recommends several action items:

BWC Consulting’s HBCU Post-Coronavirus Playbook

• Reset current business models and be more responsive rather than reactive, to providing a quality and value-add higher education product and experience in a post-COVID-19 world.
• Right-size HBCU enterprises in part by using this time to recapitalize.
• Utilize a revamped and expanded HBCU Capital Financing Program that includes forgiveness of all the current debt.

Policy Initiative: Restructure the HBCU Capital Financing Program

Established in 1992, the HBCU Capital Financing Program provides low-cost capital to help historically black institutions upgrade their campuses and refinance debt. The program was originally meant to provide a lifeline to schools, many with small endowments, that face challenges in accessing traditional financing at reasonable rates.

The federal government guarantees the payment of principal and interest on qualified bonds, with the proceeds used to finance the loans. To date, the Education Department has approved more than $2 billion in loans to 45 historically black colleges.

The HBCU Capital Financing Program needs to be revamped to meet 21^st century higher education needs. Critical to this revamping would be loan forgiveness for all present borrowers within the program and structural changes to allow refinancing of predatory debt at below-market rates and amortized over an extended period (e.g., 40 years). Furthermore, new collateral-based capital debt could be financed at 2 percent and amortized over 30 years. Short-term lending capabilities could include three-year to 10-year debt at 2 percent and amortized based on the accounting asset class. The program would offer matching grants for HBCUs that receive capital donations that exceed $1 million for development projects under the revised program.

HBCUs have survived hard times in the past; the coronavirus pandemic is no different. However, the work starts now to prepare for a “new” normal and a world that is conscious of potential global economic and health challenges.

To read more on BWC’s recommendations continue to follow this page. To connect with the staff at BWC Consulting, visit the website.