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Historically Black colleges and universities pay higher borrowing costs, a discrepancy mainly caused by racial discrimination, according to a new study—a difference which limit the resources they can offer to students.

The study was produced by scholars at Drexel University in Philadelphia, the University of Notre Dame in Indiana, Duke University in North Carolina, and the University of California, San Diego.

According to the report, “What’s in a (School) Name? Racial Discrimination in Higher Education Bond Markets,” underwriter fees for bonds issued by HBCUs are about 15-20 percent higher than those issued by predominantly-White institutions, even if those schools bear the same debt rating.

Researchers examined 4,145 tax-exempt municipal bond issues by 965 four-year colleges and universities from 1988 to 2010, totaling approximately $150 billion. Of those bond issues, 102 were completed by 45 different HBCUs.

For institutions with the same bond rating, a $30 million bond cost HBCUs about $50,000 more on average ($290,000) than it cost White institutions ($242,000), the report showed.

“That could be a scholarship for 10 students,” Sidney Evans, who most recently served as chief financial officer for Morgan State University in Baltimore, told Marketplace.org.

“HBCUs are already facing scarce resources,” he added. “If you don’t have the capacity to borrow, you can’t advance your institution.” 

The report’s authors concluded that “the high spreads HBCUs are charged reflect, in turn, high selling costs borne by underwriters. Indeed, conversations with municipal bond traders suggest that bonds issued by HBCUs are particularly illiquid, or in industry parlance, ‘harder to place.’ Further, it is perceived that racial animus by potential investors is the source of this illiquidity.”

That discrimination plays a major role, the researchers said, is evident in data showing that cost margins were three times larger in states in the Deep South, where anti-Black sentiment is most prominent.

The paper was published by the Social Science Research Network and can be accessed here.