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Ed Department Faulted for Low HBCU Loan Participation

Ed Department Faulted for Low HBCU Loan Participation 
Approximately $200 million remained unused as of August.

By Charles Pekow

About half of special federal loan money for historically Black colleges and universities sits untapped because of numerous problems with the U.S. Department of Education’s administration of the loan program, including failure to market the funds and lax oversight, according to a stinging Government Accountability Office report.

While about 104 institutions can participate in the HBCU Capital Financing Program, established in 1992, only 23 ever applied and only 14 actually borrowed money. As of August, about $207 million of the $375 million remained unused.

Despite low interest rates, loan availability for broad needs and 30-year repayment periods, compared to 20 years or less in most markets, “some loan terms discourage participation,” the GAO states in “Capital Financing: Department Management Improvements Could Enhance Education’s Loan Program for HBCUs.”

GAO faulted the Education Department for not meeting with HBCUs regularly, not complying with a law requiring biannual meetings of the HBCU Capital Financing Advisory Board and not monitoring its contractor, Commerce Capital Access Program. The board had met only three times in the past 12 years. Program officials blamed turnover among department staff and HBCU presidents for the lack of meetings; six HBCU presidents must serve on the board.

Borrowers complained that the department and CCAP don’t provide updates on their loan status. They also complained that it takes so long to get a loan that costs have increased by the time the loan is approved. CCAP’s Web site says “it takes approximately 2-3 months to process the loan.” But GAO found that two-thirds of the loans awarded since 2001 took seven to 18 months to process. One school said it took more than six months to get an answer on whether a project qualified. Others complained that neither the Education Department nor CCAP told them of delays in title searches, an issue because some HBCUs didn’t get property deeds from their founders back in the 1800s.

Participating HBCUs complained that they have to place 5 percent of proceeds in a pooled escrow fund and make monthly payments, although most other markets allow biannual payments.

GAO also said “we found significant weaknesses in management controls that compromise the extent to which [the Department of] Education can ensure program objectives are being achieved effectively and efficiently.”

By failing to accurately report costs, the Education Department is not complying with the Federal Credit Reform Act of 1990, GAO charged. The department has not reported surcharges paid by borrowers, thereby overstating costs. Also, it has not established policies for receiving fees collected by CCAP. The contractor currently keeps fee money in a trust, when the law says it should go to the department. The department doesn’t even know how much is in the trust and does not have any plans in place to collect the funds.

Though the Education Department has used CCAP for five years, it has never evaluated the contractor’s performance and hasn’t checked its marketing activities to see if it is allocating loans fairly. GAO found “poor recordkeeping” by CCAP, including missing documents, and the office says CCAP “was unable to provide us with entirely complete files for any” borrowers. GAO also said that the contractor has not filed required annual reports or financial statements.

GAO suggested that CCAP’s marketing may not be up to par, as officials from four eligible schools said they had never heard of the company. Administrators at eight other schools said they heard about it only through colleagues.

To make the program more attractive over the past five years, the department has been offering a choice of fixed- or variable-rate loans. CCAP stepped up its marketing, promoting the program at conferences and on a Web site, www.invest.commerce But some school officials complained that CCAP didn’t target the conferences very well, as they weren’t geared specifically to HBCUs or to the officials involved in facilities planning.

The Education Department accepted GAO’s findings, agreeing to convene the advisory board regularly, improve guidance on loan processing and keep colleges better informed of loan status. The department also consulted the U.S. Department of the Treasury and the Office of Management and Budget for help in incorporating fees into its accounting. It said it will require CCAP to file quarterly reports and find missing documents. A new policy will deny loans with incomplete files and the Education Department has promised to audit CCAP.

The department has also said it will better target its marketing to “facilities officers,” including those at two-year schools, as no community college has ever gotten a loan under the program. The department told GAO “we must also identify the most effective means and sites of outreach, such as conference participation and school visits, and track the outcomes of these efforts.” 

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