Historically Black Universities Face Daunting Trends

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DALLAS - After rising from junk-bond status in the wake of a financial scandal, Texas Southern University continues to struggle with the daunting economic forces affecting historically black colleges and universities.

Its three-year-old investment-grade rating remains intact, but TSU suffered a one-notch downgrade to Baa2 from Baa1 by Moody's Investors Service on April 16.

Falling enrollment and growing budget pressures prompted Moody's to retain a negative outlook on TSU's $90.2 million of outstanding debt.

"The negative outlook reflects operating pressure arising from the unexpected deterioration of enrollment in fall 2013, uncertainty regarding recovery of enrollment, and ongoing expense pressures from the need for capital investment and growing mandatory pension contributions," wrote Moody's analyst Caitlin Bertha.

The historically black state university in Houston lost its Moody's investment-grade rating in July 2007 after a financial scandal that led to convictions of top officials, including the school's president. The rating returned to investment grade Baa3 in August 2010.

Fitch Ratings downgraded TSU to BB-plus from BBB in April 2009, but returned the rating to BBB in November 2010. Fitch raised the rating to BBB-plus with a stable outlook in 2013.

The university is especially vulnerable to changes in federal aid policies, as evidenced by the loss of 1,164 students from fall 2011 to fall 2013 after Pell Grants were limited to six years. About 70% of TSU's undergraduates receive Pell funding and 82% receive federal student loans.

Fall 2013 enrollment fell by 9.3% to 7,744 full-time equivalent students from 8,537 in fall 2012.

"This is a stark departure from the recent trend of growing enrollment experienced during fall 2009 to fall 2012, and was not expected by TSU's management team," Bertha wrote. "In spite of application growth in fall 2013, the university enrolled its smallest incoming freshman class in recent history."

As a result of tighter credit standards, many families and higher education institutions were shocked to find that parents approved for loans one year were denied the next. Students in the middle of their academic careers were forced to cover a much larger portion of their bill upfront or drop out.

"The fact that it was activated like flipping a switch caught a ton of kids who were already on the path of what they thought they could do financially," said Wendy Adair, TSU's vice president for university advancement. "It was a timing issue as much as anything."

TSU is one of 102 historically black colleges and universities (HBCU), defined as those founded before 1964 to serve the black community. All but six are located in the former Confederacy, where blacks were once legally barred from attending all-white public colleges and universities. Half of the black colleges and universities are private and half are public.

Before desegregation, more than three-quarters of black college graduates attended HBCUs, according to a 2012 report from the Ford Foundation. Fifty years later, fewer than one-sixth of college-going black students attend the institutions.

"Historically black" no longer means "black only." Since desegregation, the universities have recruited students of all races and nationalities.

West Virginia State University in Charleston, for example, is still classified as an HBCU, even though its enrollment is 78% white. Texas Southern's student body was 83% African-American, 6% Hispanic, 5% Asian, 3% Anglo, and 3% international in 2010.

"When you talk about the role of HBCU's now, it transcends the African-American community," Adair said. "There are so many Hispanic and Asian students that there's a real broadening of the university's appeal."

Fourteen historically black colleges have closed since 1924, all of them private.

Among those struggling financially are some of the marquee names in African-American academia, including Howard University in Washington, D.C., and Morehouse College in Atlanta, alma mater of Dr. Martin Luther King Jr.

Last September, Moody's downgraded Howard's $290 million of debt to Baa1 from A3, citing a financial drain from the university's hospital and a reduction in federally guaranteed student loans.

Five months earlier, Moody's dropped Morehouse's $61 million of debt to Baa1 from A2 and retained a negative outlook.

Alvin J. Schexnider, a former chancellor of Winston-Salem State University and the author of a book entitled "Saving Black Colleges," said that the HBCUs are facing pressure from minority recruitment at traditional universities, aggressive for-profit competitors and community colleges that can offer tailored job programs.

"This is almost a perfect storm for a lot of historically black colleges and universities," Schexnider told The Bond Buyer. "Right now, the (for-profit) University of Phoenix is the largest producer of black graduates. Students have more options than I had when I attended Grambling in 1964, and they're exercising those options."

Schexnider, a consultant who has held numerous administrative posts in colleges and universities, said the only alternative to Grambling during his youth was McNeese State University in his hometown of Lake Charles, La.

"I didn't want to stay in Lake Charles," he said. "And LSU was not available."

Half a century after President Lyndon Johnson signed the landmark 1964 Civil Rights Act, the once-segregated colleges and universities that served African-Americans are struggling to find a sustainable mission in a nation whose first black president graduated from Columbia University and Harvard Law School.

As a state university, TSU's future appears safe, Schexnider said, noting that TSU President John M. Rudley has a deep financial background, including six years as vice chancellor for administration and finance at the University of Houston System and vice chancellor for business and finance at the Tennessee Board of Regents.

Secretary of Education Arne Duncan last month named Rudley to serve on the Historically Black Colleges and Universities Capital Financing Advisory Board. The board provides advice on bond financing of construction on historically black college and university campuses.

TSU is using the federal HBCU Capital Finance Program to build a $41 million freshman dorm designed to improve the first-year experience for TSU students and provide guidance that will lead to graduation, Adair said.

TSU's creation as a state university with schools for law, pharmacy and other graduate degrees sprang from a historic civil rights case, Sweatt v. Painter, in which an African-American named Heman Marion Sweatt sought admission to the University of Texas Law School. To maintain segregation, the Texas Legislature created a law school at TSU in addition to other programs mirroring those in the white universities.

Sweatt, a Houston native whose father graduated from Prairie View A&M west of Houston, became the first black student admitted to UT Law School after winning his case before the U.S. Supreme Court in June 1950.

Among TSU's most celebrated graduates is the late Congresswoman and civil rights pioneer Barbara Jordan.

TSU's Thurgood Marshall School of Law counts among its graduates Houston controller Ronald Green and his wife Hilary Green, a former trial attorney now serving as justice of the peace.

As an active member of the alumni association, Green is teaching a seminar in public finance as an adjunct professor. He said the students in his class and others benefit from the personal attention that comes from small classes and real-world experience.

"The students know they can call me at any time," Green said, despite demands of his job as the second-highest elected official in Houston. Green said Houstonians value TSU for its historic role in finding opportunity where often none appeared to exist.

"There would not be a black middle class in Houston if there had not been a TSU," Green said. "This was created at a time when there were no alternatives for black people in this city."

Prairie View A&M University in nearby Waller County has a comparable enrollment of 8,608 students and is considerably older than TSU, having been founded by the state constitution in 1876 as an all-black teachers' college.

Under a constitutional amendment approved by voters in 1984, Prairie View shares in returns from Texas' $19 billion Permanent University Fund that endows the University of Texas and Texas A&M systems.

Unlike Prairie View, TSU is independent of the state's major university systems.

The TSU financial scandal in 2007 led to state intervention and an infusion of $40 million in additional funding to improve academic standards to get the troubled institution back on its feet.

The university also faced an existential threat to its academic standing as its accreditation was put on probation.

Gov. Rick Perry commissioned a study of what the university needed to restore its credibility after TSU President Priscilla Slade and chief financial officer Quentin Wiggins were convicted of misusing university funds for Slade's personal use.

The scandal neared its resolution just as the Great Recession was beginning. According to a recent analysis by the Association of Public and Land-Grant Universities, the recession has taken a particularly heavy toll on historically black colleges.

Because they tend to have smaller endowments and receive less in both government support and private donations than other academic institutions, the HBCUs were less insulated from the deep recession, Schexnider said.

"There are major changes going on throughout higher education," Shexnider said. "I think historically black colleges and universities are feeling the brunt of it more than others."

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