07.26.18

By:  Melissa Korn
Source: The Wall Street Journal

GAO Seeks Better Promotion of Loan Program for Black Colleges

Nearly 30% of payments toward a loan program for historically black colleges and universities were delinquent last year, and three of the 46 schools have outright defaulted, according to a government watchdog report being released Thursday.

Still, the Government Accountability Office says the U.S. Department of Education should more aggressively encourage HBCUs to participate in the program.

The HBCU Capital Financing Program, created in 1992 to provide low-cost loans to the cash-strapped schools, had made more than $2 billion in loans as of last November, with $1.8 billion outstanding.

Years of underinvestment by states and the federal government, as well as small endowments and low alumni giving rates, have made capital investments, like building repairs, difficult for HBCUs. The GAO report says the loan program could offer much-needed financing for campus upgrades, or lower borrowing costs by refinancing existing debt.

Forty-six of 99 eligible schools have taken out loans.

The GAO said the Education Department should try to engage more public schools in the program, including by reaching out more to state university systems; just 13 of the 46 participating schools are public. Some are currently unable to take out loans because of state restrictions on using campuses as collateral or on participating in a pooled escrow account.

The GAO also criticized the department for not having conducted much analysis of the costs and benefits of the current program, including adjustments it has made to existing loans and modifications it could offer to other schools struggling with their payments.

Two of the participating schools defaulted on their loans last year, according to the GAO report. Twenty-nine percent of payments made in 2017 were late, and four colleges were considered delinquent as of April 2018. Stillman College in Tuscaloosa, Ala., for example, last year appealed to alumni and the local community to cover its payments.

The federal government has tried to ease the burden of loan payments for some schools, including forgiving more than $300 million in outstanding debt for four schools hit by Hurricanes Katrina and Rita.

The latest federal budget also provided the Education Department with $10 million to defer loan payments for up to six years for some schools facing financial difficulties.

According to the GAO, the Education Department “has no plans to analyze the potential benefits to HBCUs and the program’s cost of offering such modifications in the future,” and could hinder policy makers’ efforts to help the schools.

A senior Education Department official said that in 2010 it had estimated annual costs of $150 million for potential loan deferments, according to the report, but the program office and the department budget office were “not able to provide evidence of analysis it conducted.”

The latest federal budget included a mandate for the Education Department to execute a plan to increase outreach to public universities, which could lead to the program’s expansion. The GAO said that weighing the potential benefits of additional loan modifications against program costs and other risks would be especially helpful now.

A representative from the Education Department didn’t respond to request for comment.

“This report identifies important challenges that act as a barrier to a thriving network of HBCUs, including policies that unfairly hinder the financial health of these institutions,” said Rep. Bobby Scott of Virginia. He and fellow Democrats Sen. Patty Murray of Washington, Sen. Bob Casey of Pennsylvania and Rep. G.K. Butterfield of North Carolina requested the GAO look into the loan program in the summer of 2016.

Mr. Scott said he echoes the GAO's calls for further analysis of the program’s financial impact and costs.