It costs more to issue bonds at a historically Black college than it does at a white college. Many historically Black institutions are financially weaker than predominantly white schools, and racial discrimination is to blame.
When a college wants to issue bonds, ratings agencies review its finances. Institution strength is also taken into account. Different ratings show the risks associated with bonds at different institutions. The ones with equal financial power should be able to issue bonds at the same values, according to Inside Higher Ed.
But a study published by the Social Science Research Network reveals this is not the case. As a control, the study compared HBCUs to financially equal predominantly white institutions. All pools had the same bond ratings. The study analyzed 4,145 bonds issued by tax-exempt colleges between 1988 and 2010, and 102 of those bonds were issued by an HBCU. Forty-five colleges were involved in the 102 bond issues.
Issuing a $30 million bond for an HBCU costs $290,000 on average. For white institutions, it costs $242,000. The more than $50,000 difference for issuing a bond at that value speaks volumes to Sidney Evans, vice president of finance and management at Morgan State University, an HBCU in Baltimore.
“That could be a scholarship for 10 students,” Evans said to Marketplace.
Total, Black colleges spent $5.1 million more than comparable white schools. This cost difference was greatest in the Deep South.
Duke University’s William J. Mayew was one of the study researchers. He told IHE the study took state alumni into account. Most bond investments happen locally, so alumni close to the school would be more likely to buy. Selling skills were also taken into account. The study found Black colleges have to try many more times to make sales. Race played a role in the amount of bonds sold. The typical buyer “is a rich white person,” said Mayew.
The results of the SSRN study show the financial struggles of many HBCUs in the United States.
“HBCUs are already facing scarce resources,” Evans told Marketplace. “If you don’t have the capacity to borrow, you can’t advance your institution.”