The Tool HBCUs Need to Invest for Long-Term Success
The higher education sector has been hit hard by COVID-19, including Historically Black Colleges and Universities (HBCUs). From increased competition and capped fee structures to excessive student loan debt and reduced international student demand, institutions face many complex issues.
In the second COVID-19 relief bill, HBCUs received a much-needed boost. Within the spending bill, Congress earmarked $20.2 billion for universities and colleges, with $1.2 billion in loan forgiveness for HBCUs that took out money through the HBCU Capital Financing Program.
For HBCUs who long haven’t had fair access to capital, wiping more than $1 billion off the books presents a great opportunity. Instead of paying off high-interest debt, Historically Black Colleges and Universities can now invest more in creating a prosperous future for their institutions and students.
Yet there remains a key question for the road ahead: With all this debt cleared, how should HBCUs best use their resources and capital?
The wrong investment decision can derail an institution’s finances. That can leave a university with less flexibility and capability to serve its students.
So, a lot rides on the financial decisions HBCUs make going forward. In this article, we’ll cover how HBCUs can make the best investments. This way, they can not only put their institutions on a path to financial sustainability and prosperity but also give their students the best possible education and experiences.
How to make the right investment decisions
An article from Inside Higher Ed provides insight into how HBCUs plan to use their capital. Leaders have said:
“With more than a billion dollars wiped from their cumulative books, the country's HBCUs will be able to invest in overdue infrastructure improvements, new construction and student recruitment and retention efforts that had been put off due to high monthly loan payments.”
So, with cash freed up, HBCUs will focus on improving student recruitments, upgrading infrastructure improvements, and constructing new facilities. Success with these investments hinges on proper financial modeling, scenario planning, and project execution.
While higher education enrollment numbers have declined during the COVID-19 pandemic, many HBCUs have actually seen an increase in student enrollment. Since student tuition and fees account for nearly one-quarter of revenue for HBCUs, according to the National Center for Education Statistics (NCES), continuing this upward enrollment trend can help put HBCUs in a much stronger financial position.
Obviously, investing in student recruitment and boosting retention rates can have a significantly positive impact on HBCU finances. The challenge is this: How do you maximize return-on-investment? Challenges abound, such as:
- Set budgets
- Ever-increasing costs
- Potential state funding cuts
- New educational trends such as remote learning
For Historically Black Colleges and Universities, success with student recruitment and retention depends on strategic planning, data analysis, entrepreneurial thinking, and a focus on ROI. You should:
- Tie investments to university goals
- Example: Your university is located in the South and diversity is one of your core values. In an effort to increase the geographic diversity of your class, you run marketing campaigns across the West Coast.
- Tie investments to financial outcomes
- Example: You analyze the ROI of that marketing campaign across the West, examining how college fairs, high school visits, and digital advertising led to more admissions applications. You do cash flow analysis and find that the investment becomes profitable for the university in the third year. More importantly, the student recruitment campaign brings in more West Coast students, improving geographic diversity and making the campus a more stimulating place.
- Continually optimize investments
- Example: Since retention rates are crucial to your organization’s finances, you run surveys with the student body and decide to enhance the student experience with better career services, more facilities, and more extracurricular activities. You also see that digital advertising has the best ROI for student recruitment, so you spend more there.
Upgrading existing infrastructure
Ed Patrick, senior vice president of the Business and Administration Division at Saint Augustine’s University, plans to use his university’s freed-up cash for infrastructure investments. As Patrick says, Saint Augustine’s balance sheet “looks a whole lot better” when you remove $20 million. They can now “invest in academic facilities” and “add labs,” among other initiatives.
Those infrastructure investments can improve the quality of research and education, as well as provide new opportunities for undergraduates, graduates, and faculty. Success with such funding infrastructure upgrades relies on project prioritization and identifying the best funding method.
For instance, a university may wish to do the following infrastructure upgrade projects:
- Dorm remodels
- Parking deck improvement
- Research lab modernization
- Enterprise resource planning software implementation
With four major infrastructure upgrades, the university could wonder:
- Should we do the projects simultaneously or stagger them?
- What’s the best way to fund these projects?
First, the institution may determine if the projects make financial sense. After analyzing all the scenarios, they find each project could have a positive financial impact over the long term. But if they need to hold off on one project, they would delay parking deck improvement, as it holds the most risk for negative ROI.
Second, the institution may examine what’s the best way to finance these projects: 100% funded by the university’s revenues and grants, debt financing, or a mix of university cash and debt financing. For this, scenario analysis helps explore the funding options. Analysts discover a mix of cash and debt issuance would put the university in the best financial standing after 10 years. They also find that delaying the parking deck improvement is wise.
From there, the university can plan and implement their infrastructure improvements in the best possible way.
See how Synario helped Endicott College with infrastructure project funding and prioritization
Implementing new construction projects
Much like infrastructure upgrades, new construction projects require strategic planning and capital planning. You have to see the financial impact of building a new residence hall, research lab, parking lot, etc.
Historically Black Colleges and Universities can guarantee they make smart investments by analyzing the time value of money. Remember: A dollar today isn’t worth a dollar tomorrow, as a Seeking Alpha article notes.
To understand the true value of your capital projects, you could use discounted cash flow analysis (a method to calculate the present value of future cash flows). If that present value is positive, then the investment will be profitable. If it’s negative, then the investment won’t be profitable.
For each calculation, you should analyze different scenarios (base, worst, best, and unexpected cases). Because an unexpected event, such as the COVID-19 pandemic, can dramatically change the outcome of the investment.
Simply put, discounted cash flow analysis, and other financial modeling solutions, can help HBCUs prioritize construction projects and identify any inefficiencies and risks. That will give clarity on the best path forward.
The tool HBCUs need to take advantage of the opportunity
At Saint Augustine’s University, Ed Patrick sees capital loan forgiveness as a tremendous opportunity to “forge financially healthy futures after a long history of financial marginalization.”
For Historically Black Colleges and Universities, now’s the time to invest for long-term success. The challenge is, with multiple projects and initiatives going on simultaneously, how do you ensure you make the right investment choices? Decisions have to account for all that you’re doing, from enrollment and tuition changes to infrastructure upgrades and new construction projects. You also must keep in mind credit ratings, your endowment, budget limitations, and more.
This is why HBCUs need a tool that can do:
- Grant modeling
- Capital planning
- Strategic planning
- Scenario modeling and analysis
- Budget balancing
- Integrated financial modeling
This is precisely why HBCUs must go beyond spreadsheets with their financial modeling. Not only do spreadsheets lack the sophistication to handle all aspects of university financial planning, but they also have too many drawbacks:
- They’re one-dimensional: You can’t see what happens if something doesn’t go as planned.
- They’re static: You have to update data yourself, which leaves you playing catch up.
- They’re too manual: Mistakes or errors in cells can lead to wrong decisions.
- They’re time-consuming: Using them for financial modeling eats up resources.
What HBCUs need is a multi-dimensional, intelligent modeling tool that enables you to clearly identify a successful strategic vision. This tool should lead to boardroom consensus by accurately:
- Projecting revenues
- Assessing debt capacity
- Analyzing the impact of capital projects
- Evaluating new programs and initiatives
Enter Synario – a powerful financial tool designed for colleges and universities
At Synario, we’ve built a financial modeling tool that enables you to achieve clarity and consensus with financial decisions. With pre-mapped algorithms, patented layering technology, and powerful visualizations, HBCUs can leverage our solution to simultaneously test any number of assumptions, choices, and outcomes. We give you pre-programmed sliders and levers so you can easily turn scenarios on and off and quickly run the numbers.
Since you can test different inputs so easily within Synario’s model, the tool is great for planning around an uncertain future (and we all know the future is uncertain). That’s why our solution can help HBCUs forge a financially healthy future. Not only will our tool help you see what the right financial choices are today, but you’ll also know what to do if the unexpected does arrive (whether it be a hurricane, pandemic, or other unforeseen events).
Want to see what Synario can do for your institution? Click the link below. We’re ready to help.