Loan Forgiveness ‘Transformative’ for HBCUs

HBCUs will now be able to invest in infrastructure improvements, new construction and student recruitment efforts, their leaders say.

January 19, 2021
 
Courtesy of Saint Augustine's University
Saint Augustine's University campus

Historically Black colleges and universities received much-needed debt relief from the federal government as part of the recent COVID-19 relief bill, a change leaders say allows them more financial freedom to invest in their futures.

Congress passed a behemoth spending bill last month that included a variety of COVID-19 relief measures and earmarked $20.2 billion for colleges and universities. Also buried in the omnibus spending package is $1.3 billion in loan forgiveness for HBCUs that borrowed money through the federal government's HBCU Capital Financing Program. The program was established in the 1990s to provide access to low-rate capital that would allow HBCUs to refinance existing debt, make infrastructure repairs and renovations, and work on new construction.

With more than a billion dollars wiped from their cumulative books, the country's HBCUs will be able to invest in overdue infrastructure improvements, new construction and student recruitment and retention efforts that had been put off due to high monthly loan payments.

Representative Alma Adams, a Democratic member of the U.S. House of Representatives from North Carolina, first introduced HBCU debt relief in June as HR 7380 -- called the HBCU Capital Finance Debt Relief Act.

Adams is laser focused on HBCUs, according to Lodriguez Murray, senior vice president for public policy and government affairs at the United Negro College Fund.

“She is the woman who makes sure that everything the House does addresses HBCUs,” he said.

Adams’s home state boasts 10 historically Black colleges and universities, which generate $1.7 billion in total economic impact for North Carolina each year and employ more than 15,000 people, according to a UNCF report. Several of those institutions, including Bennett College, Shaw University and Saint Augustine’s University, will benefit from the new loan forgiveness plan.

“I’m proud to announce the inclusion of my legislation, H.R. 7380, the HBCU Capital Finance Debt Relief Act, which relieves over $1.3 billion in debt for our HBCUs, allowing these institutions to continue their mission of empowering communities of color,” Adams said in a press release about the spending bill. “Combined, these measures will help ensure that higher education continues to be an accessible bridge to the middle class.”

Debt relief will be monumental for Saint Augustine’s University in Raleigh, N.C., said Ed Patrick, the university’s senior vice president of the division of business and administration. The relief measure will wipe out $20 million in debt for the private university, which it incurred decades ago to refinance a 1998 Educational Facilities bond and to purchase a privately held student housing complex. Debt of $20 million is not chump change for the university, which enrolls around 1,000 students each year and spends more than $30 million on operations. The university's debt also dwarfed its $14.8 million endowment.

“When you remove $20 million in debt off of my balance sheet, my balance sheet looks a whole lot better,” Patrick said. “Your cash is freed up as well. You can invest in academic facilities; you can add labs.”

With cash available for infrastructure improvements, Patrick said he’ll be able to seek out new revenue streams for the college, such as grant funding. The university recently submitted a grant application to the U.S. Department of Defense, but it was denied because the university didn’t have enough lab space.

Another university in Raleigh, Shaw University, will receive $23 million in loan forgiveness through the new relief measure. Shaw took out its existing loan in 2010 to refinance its outstanding debt, said Paulette Dillard, president of the university. A few years earlier, the university had taken on several new building projects, but it struggled to pay for them after its revenue streams were crushed by the 2008 financial crisis.

In 2018, Shaw had its loan payments deferred for six years as part of an earlier piece of legislation, Dillard said. The university put the money that it no longer had to pay toward student recruitment and retention efforts and worked to improve its graduation rates.

The pandemic put increased pressure on Shaw’s finances. Without the prior deferment and recent debt cancellation, Dillard doesn’t know how the university would have overcome added expenses for personal protective equipment and other COVID-19 prevention measures.

She called the loan forgiveness transformative for the university.

“Having this debt relieved will allow us to work on private-public partnerships, to improve infrastructure and to work on a number of initiatives that are difficult to do when you have many of your assets as collateral for the $23 million loan,” Dillard said.

Florida Memorial University in Miami Gardens, Fla., Huston-Tillotson University in Austin, Tex., and Wilberforce University in Wilberforce, Ohio, are among those also receiving some amount in loan forgiveness. The three universities declined to comment for this article.

Debt and a limited ability to access capital has historically hindered HBCUs. They serve students whose families often have less wealth than those attending predominantly white institutions, and they often find themselves with relatively limited philanthropic or borrowing options when they need to raise cash. As a result, many have struggled to maintain accreditation status because of poor financial health. They have also struggled to keep up with infrastructure repairs -- HBCUs that responded to a 2018 Government Accountability Office survey said that, on average, nearly half of their building space needed repairs or renovations.

“When accreditors review these institutions, one of the main concerns they have with HBCUs are financial issues,” UNCF's Murray said. “One point three billion collectively coming off of their books should go a long way in alleviating the concerns of accreditors."

The challenges HBCUs face accessing capital are similar to the challenges individual Black Americans face in the housing, insurance and financial markets.

“Historically Black colleges are a lot like African American people, which makes sense because HBCUs are where many African American college students go to school,” Murray said. “That is important for this reason: Black people have a hard time getting access to capital. Even when they do get access to capital, it’s at worse rates, worse terms, worse conditions.”

In the 1990s, Congress recognized that HBCUs struggled to access capital at reasonable rates and created the HBCU Capital Finance Program.

The capital finance program worked well until the HBCU marketplace was disrupted about 10 years ago, Murray said. First it was disrupted by the Great Recession in 2008, then once again when the Obama administration raised credit standards for Parent PLUS loans -- federal loans that parents take out to help finance their children's education -- in 2011. Thousands of families were denied loans as a result, and enrollment at HBCUs fell to 290,000 students from 330,000.

“Those two events, working in concert together, had tremendous negative consequences on the finances of HBCUs,” Murray said.

UNCF worked with Congress in 2018 to defer Capital Finance loan payments for 13 HBCUs, including Shaw, for six years. The 2018 legislation was the first step toward total loan forgiveness, Murray said. That same year, the Department of Education forgave hurricane-relief loans that it had issued to HBCUs that weathered hurricane damage.

Saint Augustine's Patrick emphasized that the new loan forgiveness is critical to allowing HBCUs to forge financially healthy futures after a long history of financial marginalization.

"Some people might feel like this is a handout," he said. "It's not."

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