- What is the U.S. Department of Education's Historically Black College and University (HBCU) Capital Financing Program?
- What is the Designated Bonding Authority (DBA)?
- Who is eligible to apply?
- How large can the loan be?
- What is the typical borrowing rate?
- My school has been unable to borrow in the tax-exempt market, would that prevent us from borrowing from the HBCU Capital Financing Program?
- Can my school get a better rate in the tax-exempt market?
- Can my school refinance high-interest loans for capital projects and equipment?
- Are there any other charges or fees that my school should be aware of?
- What happens if a school is unable to make its payments?
- Can my school prepay its HBCU Capital Financing Program loan?
- Can my school use HBCU Capital Financing Program with other programs?
- How long does it take to determine if my school is eligible for a loan?
- After my school submits the preliminary application, what’s next?
- What can we do while our preliminary application and Decisional Memorandum are being reviewed?
- When will I know that my school has been approved for a loan through the HBCU Capital Financing Program?
- What are some things that delay the closing process?
- How long does it take to fund the loan?
1. What is the U.S. Department of Education's Historically Black College and University (HBCU) Capital Financing Program?
The U.S. Department of Education's Historically Black College and University (HBCU) Capital Financing Program is a loan program that was established to provide federal assistance to facilitate low-cost capital basis for Historically Black Colleges and Universities, which enables such colleges and universities to continue and expand their educational mission and enhance their significant role in American higher education.TOP
2. What is the Designated Bonding Authority (DBA)?
In 1994, the Higher Education Act of 1965, as amended (HEA) provided for a Designated Bonding Authority (DBA) to act as the Department’s agent. The DBA and the Department work with your school to determine if your school has a qualified project that would be eligible for refinancing if the school has the necessary credit standing to qualify for a loan. The Department and the DBA established loan criteria, which includes, but is not limited to, your school's accreditation standing, Title IV eligibility, cohort default rates, enrollment, debt ratio, debt service coverage, and capital improvement plans. Provided the school has qualifying financials, the DBA could issue bonds for capital projects such as student housing, dining and instructional facilities, in addition to many other projects.TOP
3. Who is eligible to apply?
Any Historically Black College or University that was established prior to 1964, whose principal mission was and is the education of Black Americans is eligible to borrow from the HBCU Capital Financing Program.TOP
4. How large can the loan be?
Typically, the loan size is between $10 and $20 million. The loan can be for a larger amount with approval of the Department of Education.TOP
5. What is the typical borrowing rate?
The typical borrowing rate is approximately the U.S. Treasury rate.TOP
6. My school has been unable to borrow in the tax-exempt market, would that prevent us from borrowing from the HBCU Capital Financing Program?
Unlike the tax-exempt market, the rating agencies, insurers or investors do not make the decision. A school is only required to meet HBCU Capital Financing Program's minimum to qualify for a loan.TOP
7. Can my school get a better rate in the tax-exempt market?
It is possible to get better rates in the tax exempt market if the HBCU can access the municipal markets or if the school has or can get an investment grade credit rating or "AAA" bond insurance. However, we caution schools to look beyond the interest rate and look at the total cost of borrowing to determine the best effective rate of borrowing.TOP
8. Can my school refinance high-interest loans for capital projects and equipment?
Yes. The HBCU Capital Financing Program can refinance eligible projects. The interest rate will be approximately the U.S. Treasury rate.TOP
9. Are there any other charges or fees that my school should be aware of?
The HBCU Capital Financing Program charges an escrow fee that is equal to five percent of the outstanding principal of your HBCU Capital Financing. The escrow is available to the HBCU Capital Financing Program to pay principal and interest on the bonds in the event of any Program borrower' delinquency in loan repayment. Your escrow is return to you in an amount equal to any remaining portion of your school's deposit of loan proceeds following scheduled repayment of the delinquent school's loan.TOP
10. What happens if a school is unable to make its payments?
If a school is unable to make its payments, the school will default on its loan. Your escrow account and escrow accounts of other borrowers will be used to make the defaulted school's loan payments. The HBCU Capital Financing Program will seek to liquidate the collateral of the defaulted school, so that the escrow accounts are restored.TOP
11. Can my school prepay its HBCU Capital Financing Program loan?
If your school chooses a fixed rate loan, then there is a prepayment penalty. However, your school can lessen the affects of the prepayment penalty if it purchases a call option. A second option is a variable interest rate. In the case of a variable interest rate, your school can repay its loan every six months. If you are worried about uncertainty of interest rates, you can purchase a pricing cap.TOP
12. Can my school use HBCU Capital Financing Program with other programs?
We have reviewed programs such as those promoted by Honeywell, Johnson Controls and other vendors that offer technologies to reduce energy costs and other efficiency.TOP
13. How long does it take to determine if my school is eligible for a loan?
It takes about 30 minutes to fill out a brief preliminary application that reviews enrollment figures, operating revenue and expenses, and a brief project description. This review is completed before the school uses precious time and resources for the application process.TOP
14. After my school submits the preliminary application, what’s next?
After your preliminary application and other requested materials are received, a Decisional Memorandum is prepared and reviewed by the Department of Education. If the Department approves the Decisional Memorandum, a closing date will be set. Then, we will forward to all parties involved in the transaction a closing list that includes items necessary for closing, completion dates, responsible party, etc. All items on the closing list must be completed at least one week before the closing date.
If the Department does not approve the Decisional Memorandum, a letter will be sent to the school explaining why it was not approved and possible steps the school can take to receive an affirmative decision.TOP
15. What can we do while our preliminary application and Decisional Memorandum are being reviewed?
Once you complete and submit the completed preliminary application, print out the additional documentation list to ensure that you can put your hands on the documents in that list. For example, you may have four years of audited financials and one year of un-audited financials. In this case, you should start to work with your school's finance team to get the schedule for the audit.TOP
16. When will I know that my school has been approved for a loan through the HBCU Capital Financing Program?
Based on the information in your preliminary application, your school will be informed whether the Department approved or denied the Decisional Memorandum for your school.
Although the Department may approve the Decisional Memorandum for your school, final loan approval occurs when the Secretary of the U.S. Department of Education provides his or her letter of credit at closing.TOP
17. What are some things that delay the closing process?
Obtaining land surveys and dealing with a pre-existing lien holder(s) can be time-consuming. Because the HBCU Capital Financing Program does not require a school to get an appraisal for collateral, we ask for insurance certificates of value and require an American Land Title Association (ALTA) survey. It may take several weeks to obtain the ALTA. The HBCU Capital Financing Program usually wants to be first or at the very least hold parity on liens. Although we work hard for equitable solutions for all parties involved, the negotiations to get resolution can consume most of the closing timetable. If the your school is a public HBCU, negotiations with state officials often take many weeks and require additional steps in the document review process.
In addition, some capital projects can weigh on the closing schedule. For example, a student center that is owned, leased, managed, or operated by a private business that makes a payment to your school for the use of the student center can pose a problem. The HBCU Capital Financing Program can only allow five percent or less of Program loan proceeds to be used for a facility that was just described. Another example of a capital project that can create some difficulty is a facility that provides outpatient care. Under this Program, these facilities have to be primarily outpatient health care for students or faculty at your school. Although we spot many of these issues in the preliminary application process, we want to be flexible so we continue work with schools that believe capital project issues such as the examples can be resolve before closing. If these issues are not resolved timely, they do become major impediments to the closing schedule.TOP
18. How long does it take to fund the loan?
After the HBCU Capital Financing Program receives required financial and project documentation, it takes approximately two to three months to process the loan. However, the HBCU Capital Financing Program has closed loans in as early as six weeks. The timeframe depends on the school's ability to provide the required documents and the level of negotiations involved in the loan transaction.TOP