Historically Black Colleges and Universities:
Action Needed to Improve Participation in Education's HBCU Capital Financing Program
GAO-18-455: Published: Jun 26, 2018. Publicly Released: Jul 26, 2018.
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What GAO Found
Historically Black Colleges and Universities (HBCUs), stakeholders, and planning documents identified extensive and diverse capital project needs at HBCUs and GAO found HBCUs rely on a few funding sources—such as state appropriations and tuition and fees—to address those needs. HBCUs responding to GAO's survey reported that 46 percent of their building space, on average, needs repair or replacement. Based on a review of master plans—which assess the condition of HBCU facilities—and visits to nine HBCUs, GAO identified significant capital project needs in the areas of deferred maintenance, facilities modernization, and preservation of historic buildings. The Department of Education's (Education) HBCU Capital Financing Program has provided access to needed funding for some HBCUs and has helped modernize their facilities to improve student recruitment. However, fewer than half of HBCUs have used the program, according to Education data, which was specifically designed to help them address capital project needs (see figure).
Capital Projects at Historically Black Colleges and Universities (HBCUs)
Note: The Department of Education's HBCU Capital Financing program provides low-cost loans to eligible HBCUs.
Education has undertaken several efforts to help HBCUs access and participate in the HBCU Capital Financing Program. For example, Education conducts outreach through attending conferences. However, some HBCUs in GAO's survey and interviews were unaware of the program. Moreover, public HBCUs in four states reported facing participation challenges due to state laws or policies that conflict with program requirements. For example, participants are required to provide collateral, but public HBCUs in two states reported they cannot use state property for that purpose. In March 2018, a federal law was enacted requiring Education to develop an outreach plan to improve program participation. An outreach plan that includes direct outreach to individual HBCUs and states to help address these issues could help increase participation. Without direct outreach, HBCUs may continue to face participation challenges. In addition, two HBCUs recently defaulted on their program loans and 29 percent of loan payments were delinquent in 2017. Education modified a few loans in 2013 and was recently authorized to offer loan deferment, but has no plans to analyze the potential benefits to HBCUs and the program's cost of offering such modifications in the future. Until Education conducts such analyses, policymakers will lack key information on potential options to assist HBCUs.
Why GAO Did This Study
HBCUs play a prominent role in our nation's higher education system. For example, about one-third of African-Americans receiving a doctorate in science, technology, engineering, or mathematics received undergraduate degrees from HBCUs. To help HBCUs facing challenges accessing funding for capital projects, in 1992, federal law created the HBCU Capital Financing Program, administered by Education, to provide HBCUs with access to low-cost loans. GAO was asked to review the program.
This report examines HBCUs' capital project needs and their funding sources, and Education's efforts to help HBCUs access and participate in the HBCU Capital Financing Program. GAO surveyed all 101 accredited HBCUs and 79 responded, representing a substantial, but nongeneralizable, portion of HBCUs. GAO analyzed the most recent program participation data (1996-2017) and finance data (2015-16 school year); reviewed available HBCU master plans; visited nine HBCUs of different sizes and sectors (public and private); and interviewed Education officials and other stakeholders.
What GAO Recommends
GAO recommends Education (1) include direct outreach to individual HBCUs and steps to address participation challenges for some public HBCUs in its outreach plan, and (2) analyze the potential benefits and costs of offering loan modifications in the program. Education outlined plans to address the first recommendation, and partially agreed with the second. GAO continues to believe both recommendations are warranted.
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Recommendations for Executive Action
Status: Closed - Implemented
Comments: In August 2020, ED provided a HBCU Capital Financing Program outreach plan that included the three elements we recommended and some steps it has taken to implement it. First, to increase outreach to individual HBCUs, the plan includes attending conferences to share information with the HBCU Community about the program and provide information directly to eligible HBCU presidents and chancellors. For example, the Executive Director of the Program met with public HBCU presidents and chancellors at a conference for public HBCUs. Second, the plan includes coordinating directly with state university systems to address state-level challenges to participation and share potential solutions. For example, the plan indicates that ED will work with state universities and state systems as resources permit and it is legally feasible, such as working with State Bond Commissions, Board of Regents, and State Attorneys Generals. ED also noted that it worked with the state of Florida to help the state remove obstacles to using HBCU Capital Financing, and Florida A&M University recently closed on a loan from the program. Third, ED's plan includes further leveraging the designated bonding authority in its outreach efforts to public HBCUs. For example, the DBA sent newsletters to HBCUs as well as state authorities that have approvals over state funding. The newsletter included information on how to apply for the loans, a sample of public universities that recently received funding, and highlighted Morgan State University as a case study example.
Recommendation: As Education develops the required HBCU Capital Financing Program outreach plan, the Executive Director of the program should include in the plan (1) ways to increase outreach to individual HBCUs so that HBCU officials are informed of the program; (2) steps to coordinate directly with state university systems to specifically address state-level challenges to participation and share potential solutions to increase public HBCU participation; and (3) ways to further leverage the designated bonding authority in its efforts. (Recommendation 1)
Agency Affected: Department of Education
Comments: Education partially agreed with this recommendation, commenting that it disagreed with the recommendation to the extent that it suggests a modification of loan terms. However, our recommendation does not endorse providing loan modifications to colleges but is focused on analyzing the costs and benefits of modifications authorized by law, as well as other potential modifications. Education noted it will continue to analyze loan modifications and develop cost estimates. Our report noted, however, that Education was not able to provide evidence of analysis it conducted on potential loan modifications. We continue to believe that analysis of costs and benefits is needed to determine whether additional loan modifications are necessary or beneficial for the program. The agency anticipates completing its efforts by December 2025.
Recommendation: The Executive Director of the HBCU Capital Financing Program should lead an agency effort to analyze various Capital Financing Program loan modifications, including the effects of the loan deferments authorized in the 2018 Consolidated Appropriations Act as well as other potential modifications, to assess the potential benefits to HBCUs participating in the program, the potential cost of these options to the government, and their effect on the program's overall financial stability. (Recommendation 2)
Agency Affected: Department of Education