Return on Inclusion | April 16, 2024

The brilliant case for impact investing in America’s HBCUs

Erika Brice

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Guest Author

Erika Brice

Editor’s Note: This article is part of a partnership between ImpactAlpha and Mission Investors Exchange (MIE) to present new ideas and perspectives in impact investing. The MIE 2024 National Conference takes place May 7-9 in Los Angeles. If you are a foundation or other philanthropic asset owner, learn more about MIE and the National Conference here.

Historically Black Colleges and Universities are engines of economic mobility, with benefits that reach far beyond the institutions. In a post-affirmative action world, expanding access to affordable capital to HBCUs is imperative.

Philanthropists and impact investors, working through community-minded intermediaries like Community Development Financial Institutions, can help.

Taken together, America’s 107 HBCUs generate $14.8 billion in annual economic impact. But that doesn’t mean it’s easy for these institutions to get a fair approach to financing and access to capital to expand and grow. In fact, HBCUs often face the same bias and challenges to capital access as other communities made up of people of color. 

The Biden administration has made an effort to address the underfunding of America’s HBCUs. It provided more than $2.7 billion via the American Rescue Plan, and estimates put its total support for these schools around $7 billion.

That’s a commendable set of investments, but it doesn’t make up for decades and decades of underfunding. More must be done. In 2023, U.S. Secretary of Education Miguel Cardona and U.S. Secretary of Agriculture Thomas Vilsack sent letters to 16 state governors, calling out those states for underfunding 16 land grant HBCUs by $12 billion between 1987 and 2020.

This lack of capital access – what has been termed the “Black tax” – has had a cascading and long-term impact on institutions that disproportionately produce the nation’s Black college graduates. HBCUs have a more precarious revenue composition than non-HBCUs, meaning they’re often operating with less stability. In bond markets, they pay more for debt – often as much as 11 to 15 basis points higher than institutions with similar credit ratings. 

Looking at their endowments and other assets, they hold somewhere between 54 to 79% less than other non-HBCU institutions. In 2020, the 10 largest HBCU endowments totaled $2 billion. The same year, the top 10 predominantly white institutions held endowments of $200 Billion. Meanwhile, these institutions often do more to support students with subsidized tuition in the form of scholarships and other financial breaks.

Investing in HBCUs

First a brief history break. The Higher Education Act of 1965 defined HBCUs as those in existence at that time serving predominantly Black students. They are situated in 19 states, clustered in the south and northeast. They serve students of all races but historically came into existence to educate Black students other institutions overlooked – or outright barred. 

Now let’s break down the current moment.

We’re four years into a social justice movement that saw big corporations and impact investors alike vowing after the summer of 2020 to better prioritize communities of color. Some reports show little has come of those commitments. We’re also living in a post-affirmative action world. This means students will continue to grow up in a racially biased system, but will no longer, as a rule, have that fact be weighed alongside others as admissions decisions are made.

It’s a moment that calls for a response. One response is the HBCU Brilliance Fund, spearheaded by Reinvestment Fund. This Fund, including $3.5 million in debt and a $750,000 grant from The Kresge Foundation, provides critical capital to HBCUs, enabling them to expand their academic programs, upgrade infrastructure, and enhance student services. 

By leveraging impact investing principles, the Brilliance Fund channels resources toward institutions that have historically been underserved by traditional financing mechanisms. This innovative approach not only addresses immediate funding needs but also fosters long-term sustainability and resilience among HBCUs. 

The imperative for expanding access to affordable capital to HBCUs is clear, and there is a significant role for CDFIs in addressing these inequities. The Brilliance Fund is one way forward, and it’s a way forward that we expect to bring both financial and social returns. On the latter side, the United Negro College Fund released a report in 2022 outlining the impact of HBCUs on students’ social mobility. It found mobility rates at HBCUs outperformed all other categories and were double the national average.  

I’m a proud product of an HBCU. As a Howard graduate, my education at one of the nation’s oldest and most prestigious HBCUs set me up for a successful and rewarding career in community development and now social investing. And more than just giving me a strong education, being in a community of fellow students who shared my culture and background allowed me to bloom into myself in an environment where I felt safe, respected and fully seen.

I was hardly unique in that experience. Forty percent of the African American members of Congress went to an HBCU, as did 12.5% of African American CEOs, 40% of African American engineers and 80% of African American judges – and people I encounter in my work every day.

But if the underfunding gap isn’t repaired soon, future generations of Black students won’t have that opportunity.

Erika Brice is a social investment officer at The Kresge Foundation.