Donations to Historically Black Colleges and Universities (HBCUs) are increasingly a top priority for philanthropists. Last week, Spelman College, an all-women’s HBCU in Atlanta, Georgia, announced they were receiving a donation of $100 million from businesswoman and philanthropist Ronda Stryker and her husband, William Johnston—the largest-ever single donation to an HBCU. This news followed on the heels of a $100 million donation to the United Negro College Fund (UNCF) from the Lilly Endowment Inc. announced the previous week, to be shared among the thirty-seven private HBCUs that are members of UNCF. These gifts together with earlier donations totaling $560 million by MacKenzie Scott demonstrate that philanthropists recognize the dire need among HBCUs for endowment funding.

This moment should be loudly celebrated: endowing HBCUs with resources will be transformative in helping them fulfill their mission. Much of these funds are unrestricted donations, meaning that recipient institutions can decide whether they want to use them for things such as offering scholarships to prospective students, improving and maintaining facilities, pursuing research initiatives, or expanding and improving academic programs. This is the power of having an endowment: being able to decide an institution’s future path in a way that best fits its mission and serves its students.

These donations will also partly address the funding inequities that HBCUs have experienced throughout history—inequities that resulted from underfunding by federal and state governments. And so while this moment of abundance is cause for joy, it is also a time to recognize once again that while philanthropic efforts can help meet the need for endowment growth at HBCUs, only the federal government has the capacity to solve these inequities and ensure HBCUs become adequately funded.

The Current Funding Challenge that HBCUs Face

Throughout their 150-year history, HBCUs have experienced a history of public underfunding compared to other colleges and universities. One result of this historical underfunding is vast inequities in endowments:

  • On average, endowments per full-time equivalent (FTE) student at public non-HBCUs are three times the size of those at public HBCUs.
  • That inequity is even more outsized among private institutions: on average, private non-HBCU endowments per FTE are four times the size of those at private HBCUs.
  • In some cases, that gap is even more significant. For example, the endowments of flagship institutions in some states are up to seventy times larger than those at public HBCUs.

The endowment inequities are particularly vast when looking at the endowments of the nineteen Black land grant universities. Collectively, the nineteen non-HBCU land grant universities (known as 1862 institutions) in southern states hold more than $45 billion in endowment assets, while the nineteen land grant institutions that are HBCUs (known as 1890 institutions) in those same states hold just $1 billion in endowment assets—an astounding 45-to-1 difference. (See Figure 1.)

FIGURE 1

What Greater Endowment Funding Would Mean for HBCUs

College endowments are funds or assets that universities and colleges receive from donations, investments, and other sources to support their long-term financial stability and fund various academic and operational activities. Endowments are vital to the life of an institution, particularly any college that cannot count on ongoing support from a state government. Endowments allow a college or university to make commitments far into the future and provide a higher quality of service, all while knowing that resources to meet those commitments will continue to be available. In addition, endowments offer financial stability to an institution, leverage other sources of revenue to offset the tuition cost for students who cannot afford it, and provide opportunities for innovative research, innovations in teaching, and academic programs. Endowments can include restricted and unrestricted funds. (Restricted funds are used in ways based on the donor’s wishes.)

Funding endowments would lift the financial burden off HBCUs and provide them with the support to truly live out their missions to their fullest potential. Unfortunately, the vast majority of HBCUs—unlike their predominantly white counterparts—lack the financial stability to make long-range commitments. HBCUs are at the mercy of annual federal appropriations funding through Title III, Part B of the Higher Education Act (see below), which can engender an apprehension of potentially losing a vital source of financial support. This is not freedom, nor is it stability. A healthy endowment would mean that an HBCU could invest in academic programs, facilities, student services, and financial aid to increase student retention and completion rates. These investments would lead to better-prepared graduates with access to career opportunities driven by university partnerships and a stronger and stabler institution overall.

The recent large donations to HBCUs are phenomenal, because these gifts are unrestricted. The lack of restrictions allows university leadership to identify the best places to invest these funds to support students and the entire campus community. At Spelman, President Helene Gayle shared that three-quarters of the gift will go toward endowed scholarships, which will be spread out across the campus, including need-based scholarships. This is critical as data show that, of the bachelor’s degrees earned by African Americans, Black women are the highest degree attainers as well as having the largest debt burden. Further allowing the college to support students who are currently enrolled at Spelman and provides aid to those aspiring to attend in the future. Additionally, the remaining 25 percent of Spelman’s gift will help fund housing improvements and other critical capital projects at the college.

The Lilly Endowment’s gift to UNCF will be used to support its thirty-seven-member HBCUs. The $100 million gift is the first investment in a planned $370 million pooled fund to raise each institution’s endowment by $10 million. The immediate impact of the gift will be to raise each school’s endowment by $2.7 million—doubling the endowments of several of the HBCUs.

Larger endowments can also open doors for an institution in that endowment size has often positioned wealthier institutions to acquire even more wealth. For institutions seeking opportunities to grow, endowment size can be a factor in determining whether a donor wants to make a gift, or a federal agency wants to extend a research grant. For example, data show a correlation between endowment size and the status of “very high research activity” (R1 status) awarded to institutions by the Carnegie Classification of Institutions of Higher Education. The awarding of R1 status to an institution with a large endowment reinforces funding inequities, as many federal agencies use this classification to determine eligibility when reviewing research grant proposals. Currently, no HBCU has R1 status, and only ten are recognized as institutions with “high research activity” (R2 status). Endowment size can also be a factor in being able to attract large investment firms needed to grow college and university endowments.

Federal Initiatives that Utilize Endowment Size in Funding Formulas

Congress has, at multiple points in history, recognized that federal investments in HBCU endowments are an investment in the stability and security of these esteemed institutions and passed legislation that helped their endowments to ensure their long-term viability. While these legislative packages have only taken modest steps to deliver funding equity for HBCUs, they can provide technical context for future, more ambitious legislation.

Higher Education Emergency Relief Fund

Most recently, in addressing dire needs arising from the COVID-19 pandemic in 2020 and 2021, Congress and the U.S. Department of Education acknowledged the importance of institutional endowments in helping colleges and universities buffer economic and health crises. Further, they recognized that HBCUs with small or no endowments had far fewer resources to tap to address pandemic-related needs and, thus, should receive greater federal assistance.

Two COVID-relief bills—the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), enacted in December 2020, and the American Rescue Plan Act (ARPA), passed in March 2021, allocated emergency funding (through the Higher Education Emergency Relief Fund, or HEERF) directly to HBCUs to help them cope with the teaching and learning disruptions created by the COVID-19 crisis. The Department of Education allocated HEERF resources to HBCUs based on three formula factors:

  • Pell Grant enrollment,
  • total student enrollment, and
  • an endowment factor that uses the ratio of the total sum of HBCU endowments to each institution’s endowment.

Notably, the endowment factor used by the Department of Education specified in the ARPA is based on an inverse proportion of an HBCU’s share of the total of all HBCU endowments, which ensures that institutions with the smallest endowments receive the greatest percentage of funding. This reflects Congress’ intent to provide support to HBCUs that have the smallest endowments and receive more financial assistance due to their lack of reserve resources to address unforeseen needs and emergencies.

Title III of the Higher Education Act

While the COVID-19-relief legislation enacted by the U.S. Congress sought to provide more assistance to vulnerable HBCUs with small or no endowments, Congress has spoken more directly about the importance of institutional endowments. Title III of the Higher Education Act (HEA) currently authorizes two statutory initiatives to support HBCU endowments. However, neither initiative is functioning well for HBCUs.

First, Title III, Parts B and F of the HEA authorize the Strengthening HBCUs program to support academic, student support, and other activities. It allows an HBCU to allocate up to 20 percent of its Title III grant allocation to establish or increase its endowment. However, any Title III, Part B (discretionary) and F (mandatory) funds set aside for endowments must be matched dollar-for-dollar with non-federal funds.

Unfortunately, these restrictions serve to undermine endowment building in several ways. First, HBCUs must decide whether to use scarce Title III grant funds for current, essential operating needs, or for future needs through an investment in its endowment. Suppose the institution chooses that endowment building is a priority. In that case, it also must raise state, local, or philanthropic matching funding when it places the federal funds into its endowment, which may be a challenge—especially for smaller HBCUs. On the other hand, larger and better-resourced HBCUs with successful fundraising campaigns may want to allocate more than 20 percent of their Title III allocations to endowments. Still, they would not have the flexibility to do so.

Ultimately, these conditions disrupt the statute’s supportive intention and create systemic barriers that inhibit endowment growth. State funding has declined, and while philanthropic support for select institutions has surged, across the landscape of all HBCUs it is uneven and unpredictable. Data from the Department of Education. indicate that, despite the widespread need to grow endowments, between 2017 and 2022, only thirty-three HBCUs, or about one-third of all HBCUs, invested a portion of their Title III grants in their endowments. These investments totaled $46 million for HBCU endowments during this period, equivalent to about 10 percent of the $443 million appropriated for all the Title III, Parts B, and F programs in the fiscal year 2022. The requirement that HBCUs identify private matching dollars could be a part of the reason why more HBCU leaders are reluctant to place endowments higher on their long list of Title III funding priorities.

Second, Title III, Part C of the HEA authorizes Endowment Challenge Grants to HBCUs to assist them in establishing or increasing their endowments and fostering self-sufficiency. HBCUs must apply for the federal challenge grant—it is not automatic—and the grant may not exceed $1 million per institution. In addition, HBCUs must provide matching funds, may not expend any of the endowment fund grant or matching funds during the grant period, and must comply with other restrictions. Although the Title III Endowment Challenge Grant program is still on the books, it has not received any funding in over twenty-five years. The time is ripe for a refresh on how it might better support HBCU endowments.

It is significant that the HEA already establishes that, due to past state and federal discriminatory practices, HBCUs should receive additional federal funding—including federal funds to grow endowments—to support their stability and growth. Still, current HEA endowment initiatives are outdated, include restrictive criteria that hinder HBCU participation, and fall short in funding or are not funded.

Native American Institutions Endowment Fund

The Native American Institutions Endowment Fund provides an additional example of federal support for endowment building at under-resourced minority-serving institutions. The Native American Institutions comprise thirty-five tribal colleges and universities that are also land-grant institutions.

In 1994, Congress authorized The Native American Institutions Endowment Fund (known as the 1994 Institutions Endowment Fund) in the Equity in Educational Land-Grant Status Act of 1994 (Public Law 103-382). Under this law, Congress appropriates funds annually—$12 million in fiscal year 2022—that are deposited into an account established by the Secretary of the Treasury for the corpus of the 1994 Institutions Endowment Fund. The annual interest income from the 1994 Institutions Endowment Fund is distributed across the thirty-five eligible tribal colleges based on a statutory formula:

  • base funding to each institution, and
  • student enrollment determines the remainder of the allocation.

Importantly, this endowment program helps the tribal colleges and universities with essential resources to support their campuses. According to the U.S. Department of Agriculture in 2023, $4.4 million in interest earnings from the previous year was expected to be distributed to the tribal colleges with no matching requirements. The tribal colleges and universities may use the endowment income for various activities, such as instructional materials, faculty development, instructional equipment, student recruitment and retention and experiential learning, and facility renovation, repair, and maintenance.

Guiding Principles for a Federal HBCU Endowment Fund

In “Achieving Financial Equity and Justice for HBCUs,” The Century Foundation (TCF) has documented significant disparities in endowments among HBCUs. In addition, other colleges and universities highlighted the importance of endowments in sustaining institutions through short-term financial crises and building long-term success. As a result, TCF has recommended a new $40 billion federal investment—$4 billion allocated each year over the next ten years—to build better HBCU endowments.

The examples of Congressional initiatives and programs above show that it is possible to pursue federal efforts to adequately and equitably endow HBCUs. And with a national focus on racial equity and justice, the time is ripe to renew a federal commitment to HBCU endowments. Several guiding principles should guide the development of such an initiative and allocate additional national resources to re-invigorate and grow HBCU endowments:

  • All HBCUs should receive federal financial support for endowments, given the vast disparities in endowment size between HBCUs and non-HBCUs.
  • HBCUs with the smallest or no endowments should receive greater federal financial assistance for their endowments.
  • Federal financial support for HBCU endowments should be formula-based rather than competitive grants so that all institutions benefit and minimize the institutional burden. This particularly impacts HBCUs that lose out in grant competitions because of their challenges in building the capacity to support research and attaining grant writers.
  • Formula-based endowment allocations to HBCUs should be based on enrollment, Pell Grant student enrollment, and endowment size so that HBCUs serving high proportions of low-income students with smaller endowments receive a larger share of resources, and consideration should be given to adding a performance-based factor (such as degrees awarded or students graduated) to incentivize strong student outcomes.
  • Federal financial support for HBCU endowments should be provided without matching requirements and other restrictions that hamper the ability of less-resourced institutions to take advantage of the federal support.
  • HBCUs should have the flexibility to use earnings on federally funded endowments for institutionally driven priorities, including student financial assistance and support, instructional activities, faculty salaries and deferred maintenance and facility needs.

It’s past time that these institutions were expected to do more with less. States have deprived these institutions of their financial stability. As a result, they’re inhibited in their growth and ability to live out their truest potential, putting their survival at risk. HBCUs serve students from across socioeconomic strata and promote social and economic mobility. It has long been known that HBCUs are underfunded, but now is the time to put forth solutions that support the longevity of these storied colleges and universities.