Photo: Photo by Alex Wong (Getty Images)

If you want to see how systemic—and endemic—racism in the U.S., follow the money.

You’d see the racial wealth gap—a phenomenon that has only gotten worse, even as unemployment rates for black Americans dip. You’ll see predatory loans, which disproportionately affect people of color (and which helped fuel the housing crisis). You’ll also see that the student debt crisis disproportionately affects black grads: four years after receiving their bachelor’s degrees, black students on average incur twice the amount of loan debt than their peers.

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Now, a new study coming out from the Journal of Financial Economics has found another way race affects finances and wealth—this time, by looking at institutions. Namely, how much historically black colleges and universities have to pay to take on debt.

As the Atlantic reports, taking on debt—specifically bond debt—is a way for schools to get funds for new buildings and repairs as public funding dwindles. Not only do HBCUs typically have smaller endowments than their primarily white counterparts (PWIs), but they get most of their revenue from state and federal funding.

With many states cutting deeply into their higher-ed budgets, that leaves schools needing to take on debt to keep up their campuses.

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The Atlantic explains the process:

There are a couple of steps colleges have to go through to issue bond debt. First, they have to find a bank to buy the debt. The bank will then sell the debt to public investors. The banks are the gatekeepers, and they’re essentially signing off on the fact that the loan isn’t a scam. But the banks don’t do this for free. They typically sell the debt at a slight markup as compensation for expenses and management fees—and that ultimately falls back on the college to pay off.

The study, which looked at 23 years of bond issues among 965 four-year, not-for-profit colleges, found that black institutions pay more to banks issue debt.

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For every $100 raised, the typical PWI has to pay 81 cents back to the bank. Meanwhile, the typical HBCU would have to pay 92 cents back (another way to phrase this is that HBCU’s have an 11 point difference). Consider that these bond issuances are often in the 8 digit range, that cost quickly adds up.

And here’s where the study gets really interesting: researchers controlled for the kinds of bonds issued, the quality of the banks issuing the bond, and institutional credit scores. In these cases, they found the same thing: a 16 point difference in how much more HBCU’s had to pay back to banks than white collegiate institutions.

That would be damning enough, but researchers took it another step further, testing out whether regions with long, violent histories of racial segregation would show an even larger difference.

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They did.

From The Atlantic:

“If racial animus is the primary reason why HBCU-issued bonds are harder to place,” the researchers wrote, “then these frictions should be magnified in states where anti-Black racial resentment is most severe.” And sure enough, by separating out black colleges in Alabama, Mississippi, and Louisiana, the researchers found that the markup rates for HBCUs were 30 points higher than non-HBCUs in those three states, nearly triple the 11-point difference elsewhere in the country.

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So not only do HBCUs typically have less money to spare than PWIs to begin with (thanks to years and years of funding discrepancies), but when they take on debt in order to improve, or simply maintain, their campuses, they have to pay more back in order to do so, further widening the financial gaps between HBCUs and PWIs.

The financial woes affecting HBCUs—and the effects they are having on their students—have long been documented, and it’s worthwhile to keep those institutions accountable, particularly in cases where funds are being mismanaged. But it’s also important to remember that HBCUs, much like the students who attend them, face a very different fiscal reality than their white peers.