College Dollars Unveiled
HBCUs are uniquely positioned to address this critical void in family education around core financial aid concepts, particularly given their historical track record of positioning low-income families for academic success. However, a core barrier to innovative financial aid strategies for HBCUs lies within the very framework of the institutions’ financing. Unlike most private institutions, a large portion of the cost of attendance at HBCUs is garnered from federal funding. The U.S. Department of Education’s Integrated Postsecondary Education Data System reported that during the 2006–07 academic year 90% of HBCU students received financial aid. In fact, federal aid contributed 56 to 66% of the total cost of attendance across HBCUs, compared with 37% at non-HBCU public comprehensive colleges, and just 19% at private higher-endowment non-HBCUs (Gasman, 2013).
Without access to large endowments to supplement campus budgets, HBCUs generally rely more heavily on student tuition and fees to fund their operating budgets. Only three institutions — Howard University, Spelman College, and Hampton University — have been able to secure large enough endowments to be recognize in the top three hundred U.S. higher education institutions (Gasman, 2009). A tuition-heavy business model makes it difficult for HBCUs to offer sufficient tuition breaks for minority students, a factor that has led numerous PWI institutions to launch high-dollar scholarship efforts to attract high-achieving, high-need minority students. Smaller endowments mean fewer dollars available for operating costs and institutional financial aid. To put these numbers in perspective, Morehouse College, for example, reports that 80% of its operating budget comes from tuition and fees, while at a comparable Predominantly White University (PWI), Harvard, student tuition and fees account for less than 10% of operating budget (Gasman, 2013).
Elite schools, such as Harvard and Yale, offer tuition-free financial aid packages to minority students who meet their eligibility requirements, and other institutions, such as American University and Emory University, are following suit with minority-specific scholarship packages designed to bolster campus diversity. Without comparable college funding options, many HBCU students are forced to rely on loans to close the gaps in their financial aid packages. It is worth noting that half of all HBCU graduates from 2000-2014 reported graduating with more than $25,000 in loan debt, whereas only 34% of predominantly white college graduates reported similar debt levels (Postsecondary National Policy Institute, 2015).
The urgency of the financial aid crisis, and its direct correlation with HBCU retention rates, is more important than ever, as evidenced by the Obama Administration’s announcement of the establishment of a national College Rating System to hold colleges accountable for affordability and student loan defaults. Although the Administration eventually backed down from enforcing sanctions against colleges, the long-term probability of a comprehensive financial aid overhaul is high. Recently, the Federal Government used the reauthorization of the 1965 Higher Education Act to create an inequitable tightening of its oversight on college funding practices across all types of institutions, which includes a close examination of three-year cohort default rate sanctions. For universities to remain eligible for federal financial aid programs, they must prove that alumni have made significant gains in loan repayments. By 2018, schools with high ratings could be eligible for larger Pell Grants and lower student loan rates. However, the future position of HBCUs in this space is uncertain, at best. With Title IV funding in jeopardy, colleges are feeling increased accountability pressure for what happens after students graduate (Johnson, M., Bruch, J., & Gill, B., 2015).
Numerous studies suggest a significant relationship between student loan defaults and dropping out. A recent New America Foundation analysis shows that nearly two-thirds of those who default on student loans have no degree (Perna, 2004). Perhaps even more concerning is research suggesting that dropouts with debt are disproportionately students of color. To be clear, 7 out of 10 African-American dropouts report student debt as a primary completion barrier, compared with fewer than half of white students. In fact, dropping out of college is consistently the biggest predictor of whether or not someone will default on a student loan, and financial obligations (either the cost or the need to work to financially support oneself while in school) is the largest reason cited for dropping out (Huelsman, 2015).
HBCUs do not deserve to bear the brunt of responsibility. In 2011, when the Federal Government restricted students’ rights to use Pell Grants to 12 semesters (from the previous 18), HBCU students, whose average graduation timeline spans five years, were disproportionately impacted. To further complicate matters, during the same timeframe, the U.S. Department of Education tightened credit history standards for PLUS loans. The changes in credit standards introduced in 2011 were intended to bring the standards in line with those used by banks (Nelson, 2012). HBCUs were hit particularly hard by these changes, due to the large percentage of students from low-income families. Roughly 14,616 students at HBCUs learned that the U.S. Department of Education had rejected applications, and HBCUs lost an estimated $168 million in anticipated aid. Although other types of federal loans increased among HBCU students in the aftermath, there were still persistent gaps, because some students opted to explore other options, such as part-time enrollment, full-time employment, or ultimately transferring to lower-cost institutions (Gasman, 2013). Collectively, the disproportionate reliance on tuition payments, coupled with the loss of federal funds, has resulted in HBCU-wide rigid payment plan structures and firm deadlines that force students to drop out. With fewer loan options, marginal private aid opportunities and diminishing institutional financial aid resources, a growing number of families are beginning to explore more financially viable options outside the HBCU community.