Historically Black Colleges and Universities: Action Needed to Improve Participation in Education's HBCU Capital Financing Program

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.

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).

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.

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.

Historically Black Colleges and Universities (HBCUs) in the United States  play an important and unique role in our nation’s higher education  system. For example, they educated over 220,000 African-American  students pursuing a higher education degree in 2016, the most recent  year of data available. In addition, more than one-third of African- Americans receiving a doctorate in science, technology, engineering, or  mathematics fields obtained their undergraduate degrees from an  HBCU, and many received their doctorates from an HBCU. Like many of  the nation’s approximately 4,400 colleges and universities (colleges), the  101 HBCUs undertake capital projects to help ensure their students have  well-maintained, safe, and functional facilities. Despite their prominent  role providing access to higher education for African-Americans and  others, HBCUs have faced challenges acquiring the robust revenue  streams needed to undertake capital projects. Moreover, a study in 2015  examined HBCU activity in the bond market and found that HBCUs have  a harder time finding investors, which results in higher costs compared to  similar, non-HBCU colleges.

Recognizing these challenges, in 1992 the HBCU Capital Financing  Program (Capital Financing Program) was created to provide HBCUs with  access to low-cost loans for campus repair, renovation, and construction.  Our 2006 review of this program found that just 14 HBCUs participated in  the Capital Financing Program, despite extensive and diverse capital  project needs reported by HBCU officials.

In light of these issues, you asked us to review funding for capital projects  at HBCUs, and the Department of Education’s (Education) administration  of the Capital Financing Program. This report examines (1) the capital  project needs of HBCUs; (2) the funding sources HBCUs use to meet  their capital project needs; and (3) the extent to which Education helps  HBCUs access and successfully participate in the Capital Financing  Program.

To address all three objectives, we conducted a web-based survey of all  101 accredited HBCUs in the United States in June through August  2017. We reviewed HBCUs’ master plans, where documentation was  available, to supplement survey responses. We interviewed officials at  Education and its contracted designated bonding authority which  administers aspects of the program; officials at 15 HBCUs in 7 states  (Alabama, Georgia, Louisiana, Mississippi, North Carolina, Ohio, and  Virginia) and at 4 state university systems (Florida, Georgia, Mississippi,  and North Carolina). We also interviewed stakeholders at two HBCU  organizations representing most HBCUs, three higher education  organizations that focus on facilities, and from foundations and research  organizations. In addition, we visited nine selected HBCUs to tour  facilities in three states (Alabama, Louisiana, and North Carolina). To  further examine challenges HBCUs might face funding capital projects,  we analyzed data from Education’s Integrated Postsecondary Education  Data System (IPEDS) to learn more about select financial characteristics  of all HBCUs. We also used these data to examine differences between  HBCUs’ and similar non-HBCUs’ institutional, student, and financial  characteristics. We identified the comparison group of similar non-HBCUs  using a statistical matching technique. We used data from the 2015-16  school year, the most recent data available at the time of our analysis.  We assessed the reliability of these data by reviewing related  documentation and interviewing officials responsible for maintaining the  data system, and we found the data to be reliable for our purposes. We  also reviewed relevant federal laws, regulations, and guidance, including  information about Education’s programs that HBCUs identified as other  sources for financing capital projects.

To determine the extent to which Education helps HBCUs access and  successfully participate in the Capital Financing Program, we reviewed  data on program participation from 1996, when the program first issued a  loan, to 2017, and documentation on program performance and  administration. We assessed the reliability of these data by reviewing  related documentation and interviewing knowledgeable agency officials,  and we found these data to be reliable for the purposes of our reporting  objectives. We also reviewed Education documentation from selected  HBCUs affected by Hurricanes Katrina and Rita that received loan  modifications in 2013. We assessed Education’s outreach with states and  HBCUs against federal internal control standards, which state that agency  management should externally communicate the necessary quality  information to achieve its objectives. We reviewed Education’s  coordination efforts against best practices for coordinating with relevant  stakeholders and reviewed Education’s strategic plan, which prioritizes  coordinating with external stakeholders to achieve its goals of supporting  educational institutions and increasing college access. We also  assessed Education’s actions to help HBCUs experiencing financial  challenges successfully participate in the program against federal internal  control standards, which state that agency management should  communicate key information needed to achieve its objectives and plan  for significant changes, including economic changes, and analyze the  effects of such plans and appropriately respond. Appendix I describes our  objectives, scope, and methodology in greater detail.

We conducted this performance audit from October 2016 to June 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The Capital Financing Program provides loans to eligible HBCUs for the  repair, renovation, construction, or acquisition of capital projects or to  refinance existing capital debt. Several offices at Education are involved  in administering the program, including the Office of Postsecondary  Education and the budget office, with one official responsible for overall  program management. Education contracts with a designated bonding  authority to manage the program’s operations. The authorizing legislation  also establishes the HBCU Capital Financing Advisory Board (Advisory  Board) to provide advice to Education and its designated bonding  authority on implementing the program. (See table 1.)

The loan process for an HBCU to participate in the Capital Financing  Program consists of multiple steps. HBCUs must first complete a  preliminary application with the designated bonding authority that includes  information such as enrollment, financial data—including a description of  existing debt—and proposed capital projects. The designated bonding  authority reviews this information to assess the ability of an HBCU to take  on debt and determine whether the college should formally complete an  application. The application includes more detailed financial information,  such as audited financial statements, as well as capital improvement  plans and assessments. To be approved for the loan, an HBCU must  satisfy certain credit criteria and have qualified projects. Upon reviewing  the college’s application, designated bonding authority representatives  may visit the HBCU and will recommend to Education whether the college  should receive a Capital Financing Program loan. If Education agrees  and approves the loan, it goes through a closing process during which  certain terms and conditions of the loan may be negotiated. (See table 2.)

The Capital Financing Program’s statute caps total outstanding loans at  $1.1 billion, but since fiscal year 2012, Congress has annually passed  appropriation bills allowing Education to lend above that amount. As of  November 2017, Education has lent over $2 billion in total with $1.8 billion  outstanding.

Loan Modifications for Selected HBCUs Following 2005 Gulf Coast Hurricanes

In 2005, Hurricanes Katrina and Rita struck New Orleans and surrounding  areas, resulting in significant damage to four HBCUs in the Gulf Coast  region: Dillard University, Southern University at New Orleans, Xavier  University of Louisiana, and Tougaloo College. The Emergency  Supplemental Appropriations Act for Defense, the Global War on Terror,  and Hurricane Recovery, 2006 (Emergency Act) was enacted in June  2006, in part to assist these colleges in their recovery efforts. The  Emergency Act amended certain provisions of the Capital Financing  Program for these colleges. For example, the Emergency Act included  provisions such as a lower interest rate and lower fees for cost of  issuance (both set at one percent or less), elimination of the escrow  requirement, and deferment of both principal and interest payments for a  3-year period. Despite these more generous loan provisions, these four  HBCUs experienced challenges repaying these loans due to difficulties  they faced rebuilding their enrollment and finances to the levels before  the hurricanes. In 2011, federal law authorized Education to further  modify the terms and conditions of the Capital Financing Program loans  made to these four HBCUs under the Emergency Act. To assist these  four colleges, Education used this authority to modify Emergency Act loan  terms in the following ways:

Payment forbearance: The HBCUs were granted a 5-year  forbearance on their loan payments starting in 2013. During the  forbearance period, the colleges were not responsible for making  payments toward the principal, interest, or associated fees, but  interest and fees continued to accrue during that time. At the end of  the forbearance period, the colleges would be responsible for the  outstanding principal, accrued interest, and fees.

Expense-based repayment: After the forbearance period, colleges  would pay the lesser of an amount based on a percentage of each  college’s operating expenses or the reamortized payment schedule.

Debt adjustment: Any unpaid loan amounts at the original loan  maturity date—June 1, 2037—would be forgiven. The HBCUs would  not be held responsible for any unpaid balances as of that date.

In February 2018, before the end of the forbearance period, Congress  passed the Bipartisan Budget Act of 2018 which authorized the Secretary  of Education to forgive any outstanding balance owed by these HBCUs.  In March 2018, Education forgave these colleges’ loans, eliminating over  $300 million of outstanding debt.

Education also administers the Strengthening HBCU Program to eligible  HBCUs. These grants can be used for a number of purposes, including  physical infrastructure, financial management, academic resources, and  endowment-building. The program is non-competitive and Education  awards funds on a 5-year cycle through formula-based grants. In 2017,  Education awarded 98 new grants totaling about $245 million.

Municipal bonds are debt securities issued by states, cities, counties and  other governmental entities to fund day-to-day obligations and to finance  capital projects. Municipal borrowers can also issue bonds on behalf of  private entities such as private colleges, or those colleges can issue their  own debt that would not be tax exempt. To issue a bond, entities are  typically rated by a credit rating agency. This rating indicates the credit  quality of the bonds and likelihood of default. The entity may hire  municipal advisors and is required to have an underwriter to prepare and  sell the bonds to investors. Entities are provided the funding up front to  finance the project and then pay the principal, interest, and any fees to  investors until the bond matures, often up to 30 years.

HBCUs, Stakeholders, and Planning Documents Identified Extensive and Diverse Capital Project Needs

HBCUs, Stakeholders, and Planning Documents Cited Substantial Need for Repairs and Building Replacement

Almost all the HBCUs responding to our survey (70 of 79) reported that,  on average, 46 percent of their building space needed to be repaired or  replaced. For example, of the 35 public HBCUs that responded to our  survey question on building condition, 8 reported more than three- quarters of their building space is in need of repair or replacement. Like  all institutions of higher education, HBCUs are facing increasing capital  project needs due to aging campus facilities, according to higher  education organization officials and facilities experts. HBCUs’ planning  documents we reviewed also support our survey findings around capital  project needs. For example, consultants hired by one public HBCU found  that a quarter of its buildings were in poor condition with the potential for  demolition, according to the college’s master plan. Severe weather was  also cited as a challenge by officials at another public HBCU we visited  where nearly all their building space had been damaged, requiring them  to shut down portions of their functional buildings, construct new  buildings, and build flood walls. According to officials from this college,  however, damages remain unaddressed in part due to a lack of funding  (see fig. 1)

HBCUs, Planning Documents, and GAO Site Visits Identified Deferred Maintenance, Modernization Efforts, and Historical Buildings as Key Reasons for Needs

Through our survey, site visits, and review of master plans, we identified  three main reasons for capital project needs: a backlog of deferred  maintenance, HBCUs’ efforts to modernize campuses to be more  competitive, and historical building requirements. A majority of HBCUs  responding to a survey question on planned capital projects over the next  5 to 10 years reported plans to prioritize repairing or replacing academic  buildings or residence halls (see fig.2).

Half of HBCUs that responded to our survey question on their current  deferred maintenance backlog (24 of 48)—repairs that were not  performed when they should have been—reported a backlog of $19  million or more. In addition, 30 HBCUs reported in our survey that their  deferred maintenance backlog had increased in the last 3 years (2015  through 2017), and 7 HBCUs reported their backlog decreased. Public  HBCUs, on average, reported deferred maintenance backlogs of $67  million and private HBCUs of $17 million. To better understand deferred  maintenance, colleges hire consultants to conduct facilities condition  assessments. For example, consultants conducted a facility condition  assessment to understand a public HBCU’s deferred maintenance  backlog, among other things, and found the backlog was $9.7 million for  various repair or replacement projects ranging from repairing HVAC  systems to needing a new roof for an administrative building. A higher  education association reported deferred maintenance can erode safe  physical conditions, financial health, and the morale of an institution.

Officials from most HBCUs we interviewed (11 of 15) said they attempt to  prioritize their deferred maintenance but that financial emergencies or  funding constraints prevent them from doing so. For example, officials at  an HBCU we visited said that the main pipes that feed into three  residence halls and their student center burst, and this unplanned capital  project cost the college nearly $1 million. This HBCU had to borrow  funding from its operating budget, which took away from funds that could  have been used to address planned deferred maintenance projects.

Officials from all 15 HBCUs we interviewed said that student interests in  updated residence halls or academic programs require modern building  spaces in order for a college to remain competitive. Officials from several  HBCUs we interviewed (7 of 15) said residence halls on their campuses  are outdated or in need of repairs (see fig. 3). For example, officials at  one HBCU we visited said some of their residence halls were built in the  1960s and 1970s and the concrete block construction only allowed  minimal changes. Officials at some HBCUs (3 of 15) said students’  interest in living on-campus increased their need for housing. Officials at  one HBCU said student enrollment impacts their capital project planning  and that they have plans to repair residence halls and to build new  housing facilities as enrollment increases, but have not yet identified  funding. One HBCU’s master plan cited anticipated growth in its student  population between 2014 and 2024 will continue to impact capital project  needs, including a need for additional buildings for academics and  student services.

Officials from several HBCUs we interviewed (5 of 15) also reported  building new facilities to remain competitive in certain academic fields.  For example, officials from one HBCU reported investments in building  new facilities and repairing existing buildings to better accommodate  Science, Technology, Engineering and Mathematics (STEM) majors (see  fig. 4).

Most HBCUs responding to our survey (42 of 79) reported having  buildings designated as historic, making up, on average 11 percent of  their building space. Many of those HBCUs indicated historical building  needs are significant or often take priority. According to officials from two  HBCUs we visited and another we interviewed, historical buildings require  maintenance that can be expensive, especially for buildings designated  as historic by the National Register of Historic Places. Further, the  Department of the Interior reported in 2018 that HBCUs have historic  building rehabilitation needs and these colleges lack the resources to  repair them. For instance, a 2016 master plan for a public HBCU shows  that a historic building constructed in 1916, which serves as a residence  hall and has only been updated once in 1971, needs over $6 million in  repairs to better accommodate students. An official at another HBCU we  visited also said that the prohibitive cost of repairing the campus’ historic  building has made it non-functional. This historic building had previously  been used as a residence hall (see fig. 5).

HBCUs Use A Few Funding Sources for Capital Project Needs and Fewer than Half Use Education’s Capital Financing Program

HBCUs Rely on a Few Funding Sources to Address Capital Project Needs

HBCUs primarily rely on a few sources of funding to address capital  project needs, such as state grants and appropriations for public HBCUs  and private giving and tuition and fees for private HBCUs, according to  HBCUs responding to our survey and our interviews. Officials from almost  half of the HBCUs we interviewed (7 of 15) said relying on a few funding  sources can affect a college’s ability to fund capital projects. Education  officials and several stakeholders also said this reliance can put the  HBCUs at a financial disadvantage when seeking additional external  funding, such as from the bond market. Diversity of revenues is a key  metric when determining a college’s credit rating, which uses a college’s  financial profile to assess its ability to pay its financial obligations.  Colleges with lower credit ratings, for example, may face challenges  accessing the bond market, or pay more to issue a bond, according to  several stakeholders. Using IPEDS data from the 2015-16 school year,  we found that HBCUs may face challenges with revenue diversity  because a large proportion of their revenue is from government funding  (federal, state, and local) and tuition and fees. A college’s wealth, such as  the size of its endowment, can also affect a college’s credit rating,  according to officials from two credit rating agencies. Officials from a  higher education association and a foundation noted that many HBCUs  have small endowments and as a result may face challenges accessing  financing. Our analysis of IPEDs data shows that HBCUs’ median  endowments are about half the size of similar non-HBCUs (see table 3).

Not all HBCUs face these challenges, however. According to a  representative of one higher education facilities association, some more  affluent private HBCUs have more diversified revenue streams and have  successfully raised funds from private giving and public-private  partnerships to address their capital project needs. Nevertheless, many  HBCUs face continued challenges securing external funding.

Public HBCUs generally rely on state funding—such as annual  appropriations for repairs or one-time grants for new construction—to  address their capital project needs; however, those funds are often  insufficient to meet their needs, according to some stakeholders and  HBCU officials. A majority of public HBCUs (28 of 41) reported using  state grants and appropriations to address capital project funding,  according to survey responses (see fig.6). Officials from most public  HBCUs we interviewed (5 of 6), however, said state appropriations are  often limited to academic or administrative buildings, and colleges are  responsible for financing and maintaining other projects and building  spaces, such as residence halls or student centers. Furthermore, officials  from all public HBCUs we interviewed (6 of 6) reported that state funds  are often not sufficient to adequately address both routine repairs and  their deferred maintenance backlog. Declines in state funding for higher  education in recent years have also introduced financial uncertainty,  particularly for HBCUs, according to officials from half of the public  HBCUs and many stakeholders we spoke with. For example, officials at  one public HBCU we visited said that as a result of cuts in the state’s  capital budget, the college does not have enough funding to address  emergency or deferred maintenance needs and they are running a deficit.  Officials from one credit rating agency said that because public HBCUs  rely more on state funding than their public non-HBCU counterparts, they  are potentially more vulnerable than other colleges.

Over half of public HBCUs in our survey (22 of 38) reported that they  used state-issued bonds to address their capital project funding for the  last 5 years. Officials from most public HBCUs we interviewed (4 of 6)  said the state or university system often issues general obligation bonds  on behalf of the state and disperses funding to colleges to finance large  scale capital projects. For example, one state issued a $2 billion bond for  the 16 colleges in its university system and provided one of its public  HBCUs with $30 million for a new college of business. Similar to state  appropriations, officials from some public HBCUs noted that state-issued  bonds are also typically restricted to academic or administrative buildings  rather than residence halls or student centers. Officials from 12 public  HBCUs also reported in our survey issuing bonds themselves to finance  capital projects. Officials from most public HBCUs we interviewed (4 of 6)  said colleges issue bonds, with their state system’s permission, to finance  capital projects when state funding is limited or if the projects are for non- academic buildings. For example, one public HBCU issued a $90 million  bond to fund a new student center.

More than half of private HBCUs reported using alumni and private giving  or revenue from tuition and fees to address their capital needs (see fig  7). However, private HBCUs may face challenges using these sources  to address their capital needs due to competing priorities for these  revenue streams and difficulty raising additional funds from these  sources, according to HBCUs and stakeholders we interviewed.

Officials from most private HBCUs we interviewed (7 of 9) said they use  some funding from alumni and private gifts for small capital projects, but  that donors do not usually contribute to larger projects or help address  deferred maintenance or repairs. While a majority of private HBCUs  responding to our survey (21 of 37) reported using alumni and private  giving to address their capital project needs, this funding source only  accounted for 10 percent of their overall capital project funding. Several  stakeholders we interviewed (4 of 10) said that some private HBCUs do  not have robust fundraising offices and may face challenges raising  additional funding from alumni or other private sources.

A majority of surveyed private HBCUs (20 of 37) reported using tuition  and fees to address their capital project needs over the last 5 years.  Education officials and officials from 5 of 9 private HBCUs said relying on  tuition and fees to address capital project needs—in addition to other  expenses such as operations and academics—can strain a college’s  finances. Many officials from private HBCUs we interviewed (6 of 9) told  us that because they are so tuition-dependent, drops in enrollment make  it difficult to maintain their facilities or repay capital debt. Officials from  one higher education association noted that some HBCUs face  constraints raising additional tuition revenue needed to cover capital  projects and other expenses because they are generally smaller colleges:  more than half of private HBCUs have less than 1,000 students. Private  HBCUs also have lower tuition compared to similar private non-HBCUs,  according to our analysis of IPEDS data. Additionally, two stakeholders  told us HBCUs may face challenges raising tuition and fee revenue, in  part, because the student population at HBCUs tends to be more low  income and relies more heavily on federal student aid. Based on our  analysis of IPEDS data, for example, a higher proportion of students at  private HBCUs received Pell Grants in the 2015-16 school year compared  to similar private non-HBCUs—77 percent and 43 percent, respectively.

A majority of HBCUs responding to our survey (49 of 77) reported using  federal grants to finance capital projects, and most indicated using  Education’s Strengthening HBCU Program. We analyzed the program’s  2016 annual reports, the most recent data available at the time of our  review, and found that more than three-quarters of HBCUs that received  grants in 2016 (79 of 98) used the funds to address capital project  needs. Our analysis found that HBCUs in the Strengthening HBCU  Program used an average of 22 percent of their funding from this source  for capital projects in 2016. According to our analysis of the annual  reports, 15 of the 98 HBCUs in the program reported that the grant  helped decrease the number of instructional facilities with deferred  maintenance backlogs. Officials we interviewed from one HBCU said they  used grants from the Strengthening HBCU Program to address some of  their deferred maintenance backlog and to renovate classrooms to better  meet students’ academic needs. For example, they said the grant funded  capital projects that support its physics and chemistry programs (see fig.  8). In another instance, a private HBCU reported using the program’s  funds to support technological updates and modernize classrooms. Such  updates could help with student recruitment and, ultimately, help increase  student enrollment.

Fewer than Half of Eligible HBCUs Used Loans from Education’s Capital Financing Program

Fewer than half of HBCUs, or 46 of the 99 HBCUs that are eligible, have  used the HBCU Capital Financing Program to fund capital projects,  according to Education data. HBCUs have borrowed over $2 billion, with  private HBCUs representing about two-thirds of the loan volume (see fig.  9). After 2007, Education saw an increase in the number of loans made  and the amount borrowed by HBCUs due in part to the program’s  expansion to help colleges affected by Hurricanes Katrina and Rita in  2005 and Education’s efforts to improve outreach.

Education tracks how Capital Financing Program funds are used, which  can fall into three broad categories: refinancing, deferred maintenance  and repair, and building replacement. According to our analysis of  Education data, since 1996, rather than use these loans for new capital  projects, participants have used the program most frequently to refinance  outstanding debt (see fig. 10). For instance, one public HBCU used a  portion of a $36.6 million Capital Financing Program loan to refinance  outstanding debt, which saved the college about $9 million. In addition  to refinancing, program participants used the remaining funds to address  deferred maintenance and repair or to replace buildings. For example, the  most frequent type of project funded through the program was building or  renovating residence halls, according to Education data. A private HBCU  responded in our survey that it used the program to refinance outstanding  debt for student housing and to help construct a new student center.

HBCUs responding to our survey and HBCU officials we interviewed  reported using the Capital Financing Program because of its low interest  rate. Survey respondents most frequently cited the program’s low  interest rate as a reason for participating (33 of 37), as did officials from  HBCUs we interviewed that use the program (10 of 11). According to  Education and designated bonding authority officials, the program  provides HBCUs with rates they might not receive in the private market.  For example, program loans used for refinancing from 2012 through 2016  had a median true interest cost—the interest rate plus fees charged to the  college—of 3.15 percent. While officials from three state university  systems noted their HBCUs can issue bonds with other colleges in their  system to receive a more competitive interest rate, this option is not  available to all HBCUs. According to officials at the designated bonding  authority, HBCUs may lack high credit ratings, and the Capital Financing  Program allows these colleges to access lending at rates comparable to  highly rated colleges.

Survey respondents also frequently cited the opportunity to refinance  existing, more expensive capital debt and lack of access to other funding  options as reasons for participating in the Capital Financing Program.  Specifically, over two-thirds of survey respondents (24 of 35) cited the  opportunity to refinance existing debt. According to officials from  Education and the designated bonding authority, HBCUs can see  substantial savings using the program. Data provided by the designated  bonding authority showed that HBCUs that refinanced debt in the  program from 2012 through 2016 saved a median of 14 percent of the  overall loan cost. One survey respondent, for example, reported that as  a result of the savings generated by refinancing existing bonds the  college was able to purchase a residence hall. Almost half of the  participating HBCUs that responded to the survey question on why they  used the program (15 of 32) reported that they did not have access to  other funding. Officials from one organization representing almost three- quarters of the private HBCUs told us this program is particularly  important for small private HBCUs that have limited resources and for  private HBCUs that do not have access to state funding and may not  have the capacity to issue bonds. Officials from most public HBCUs we  interviewed (4 of 6) also noted that because states do not typically fund  buildings such as residence halls or student centers, the Capital  Financing Program can help address that funding gap.

Education Has Taken Some Steps to Help HBCUs Participate in the Capital Financing Program, but Further Action Is Needed

Education Conducts Outreach, but Some HBCUs Reported Being Unaware of the Capital Financing Program

Education and its designated bonding authority have taken some steps to  increase awareness of the Capital Financing Program, but some HBCUs  and university system officials reported in our survey and interviews that  they were unaware of the 26-year-old program. Officials from Education  and its designated bonding authority said they attend a range of  conferences and events in the HBCU and higher education communities  to increase awareness of the program, such as conferences with higher  education business officers and an annual national HBCU conference. A  senior Education official said, when possible, Education visits individual  public and private non-participating HBCUs that may be good candidates  for the program based on their credit. In addition, a senior designated  bonding authority official said designated bonding authority staff visits  every HBCU that applies or expresses interest in the program. However,  about a quarter of non-participating HBCUs that responded to our survey  said they were unaware of the program. Officials we interviewed at one  state university system also reported they had not heard of the program.

HBCUs and state university systems may be unaware of the Capital  Financing Program because Education does not target its outreach in two  key ways.

Lack of outreach and communication with state university systems:  Stakeholders we interviewed and a senior Education official said  Education does not reach out to nor communicate program  information directly with state university systems, which oversee  groups of public universities—both HBCUs and non-HBCUs— supported by an individual state, even though public colleges  accounted for half of all HBCUs in 2016. A senior Education official  told us Education staff does not reach out to state university systems  because program loans are made directly to individual HBCUs.  Nonetheless, according to officials at three state university systems,  these systems generally play a role in coordinating colleges’ capital  budget requests, and their awareness of the Capital Financing  Program could help Education in its efforts to increase participation  among public HBCUs. For example, officials at one state university  system told us they are always interested in learning about low-cost  ways to help their colleges with capital projects, and they would be  interested to learn more about how the Capital Financing Program  could help their public HBCUs. In addition, one surveyed public HBCU  that was unaware of the program suggested Education work with  state university system offices, as they are the ones responsible for  facilitating and approving colleges’ capital funds. Officials at the state  university system for this HBCU also said they were unaware of the  program.

Lack of formal outreach plan to address HBCU leadership changes:  When possible, Education officials said they reach out to HBCUs as  new presidents or chief financial officers come on board. However,  Education officials said they do not track this particular type of  outreach. In 2016, about three-quarters of HBCUs experienced a  change in at least one key leadership position, according to our  analysis of Education reports, and several stakeholders we talked to  cited the frequency of leadership change as a challenge. Given the  frequency of changes in key leadership positions at HBCUs,  consistent outreach to this group is particularly important.

This lack of program awareness among individual HBCUs and state  university systems can hinder participation. Since our 2006 report on the  Capital Financing Program, participation has increased from 14 to 46  HBCUs, but the total remains at fewer than half of all HBCUs. While the  program is only available for capital financing of projects that meet  specific criteria, it serves as a potentially important resource for HBCUs  that continue to face challenges diversifying their funding sources to meet  capital project needs. The Consolidated Appropriations Act, enacted in  March 2018, requires Education to create and execute an outreach plan  to work with states and the Capital Financing Advisory Board to improve  outreach to states and help additional public HBCUs participate in the  program. Taking steps, such as reaching out directly to officials in  facilities departments at state university systems, could help to address  several of the issues we have identified in this report related to  communication with state university systems.

Federal internal control standards state that management should  communicate information needed to achieve an agency’s objectives to  key external stakeholders. As Education develops its outreach plan it is  important that the agency also ensure that officials at individual HBCUs,  who engage in capital planning—presidents, chief financial officers, and  facilities managers, are aware of the program. Indeed, over half of non-participating HBCUs (23 of 34) responded in our survey that improved  communication from Education was “moderately” or “extremely” important  to increase program participation. In addition to working with the Capital  Financing Advisory Board—which includes representatives of public and  private HBCU organizations—to reach out to state university systems,  Education could also further leverage the resources of its designated  bonding authority. While the designated bonding authority reaches out to  some prospective program participants, it could help Education further  ensure that program information reaches all HBCUs. Without these efforts  as part of the agency’s outreach plan, HBCUs eligible for the Capital  Financing Program—the institutions that the program is designed to  serve—may remain unaware of the program and miss opportunities to  access low-cost capital financing.

Some Program Features Contribute to Low Participation by Public HBCUs

Some public HBCUs report being prohibited from participating in the  Capital Financing Program by state law or policy because of certain  program features, and Education has taken limited steps to coordinate  with states to address those issues. According to our analysis of survey  responses and interviews, about one-third of non-participating public  HBCUs across four states (13 of 37) report being unable to use the  program due to at least one federal requirement placed on the college,  which conflicts with state law, policy, or practice. These features include  requirements for pooling escrow funds, collateral, and lending directly to  HBCUs (see table 4).

Education has taken steps to address public HBCUs’ concerns with the  escrow requirement, but not the other state-level provisions that create  challenges. In 2006, GAO recommended that Education consider  alternatives to the escrow pool requirement, and Education submitted a  legislative proposal to Congress, most recently in 2017, to require fees  instead. However, Education has not systematically coordinated with  states to address other laws or policies that create challenges or to  identify potential solutions to help more public HBCUs participate in the  program. For example, based on one college’s interpretation of state law,  officials from Education and the designated bonding authority told us  HBCUs in that state could not participate because of the state’s  requirement that such loans be issued to a third-party. However, state  university system officials in this state told us this requirement may not  prohibit participation. They said a clearer explanation of the benefits and  obligations of the program from Education would be helpful to determine  whether the state’s HBCUs could participate. Officials at an HBCU in  another state with restrictions suggested that Education work with the  states to help states develop regulations that do not hinder access to the  program. Officials from the university system in that state said they would  be open to working with Education to find a way to allow their HBCUs to  participate.

Some state university systems and colleges have successfully developed  solutions that could also be helpful for states whose laws or policies  create similar challenges. For example, officials we spoke with from one  state university system said a state statute was recently changed after an  HBCU’s application to the program had to be withdrawn because of a  state law prohibiting using tuition revenue as collateral. Those changes  were enacted in early 2018, and state university system officials said they  are moving forward on HBCU participation in the program.

Our prior work highlights the importance of coordinating among key  stakeholders to achieve results. Education’s strategic plan prioritizes  supporting educational institutions and increasing college access, and  coordinating with external stakeholders such as state university systems  to achieve those goals. While Education is aware that many public  HBCUs face state-level restrictions on participating in the Capital  Financing Program, a senior Education official said the Capital Financing  Program does not provide support to states whose laws or policies create  such challenges. Education officials said they work with colleges on a  case-by-case basis, and only work directly with state university systems  when invited to by the interested HBCU. However, officials from one  university system noted that it would be helpful for Education to keep both  the college and the system informed of the program given the system  office’s level of involvement in capital financing decisions. Officials we  interviewed from three of the four public HBCUs in states with laws or  policies that create these challenges said they are interested in  participating in the Capital Financing Program. One HBCU official said  given the low interest rate, his HBCU would refinance all its existing  capital debt into the program if given the opportunity. As Education  develops an outreach plan, it will be important for the plan to include  coordination with key stakeholders such as state university systems to  address state-level challenges to participation and share potential solutions and leverage the designated bonding authority and Advisory  Board in that effort.

Education Has Taken Steps to Help Some HBCUs Experiencing Financial Hardship, but Additional Analysis Could Better Inform Policymakers

The number of loan defaults in the Capital Financing Program and the  number of HBCUs having difficulty making timely loan payments have  increased recently, but Education has not fully assessed the potential use  of loan modifications to assist such HBCUs. For example, two HBCUs  defaulted on their Capital Financing Program loans in the last 2 years,  and 29 percent of loan payments were delinquent in 2017. HBCU  officials we interviewed reported that financial challenges stemming from  two events—the 2008 economic recession and a recent change to federal  student financial aid—have decreased enrollment at some HBCUs and  affected HBCUs’ ability to repay their loans on time. For example, officials  from two private HBCUs told us that they experienced declining  enrollment as a result of the 2008 recession. In addition, changes made  in 2011 to the Parent PLUS loan program—a program used by parents to  help pay for their student’s tuition—resulted in increased denials of these  loan applications, according to Education and officials from several  HBCUs. As a result, some students could no longer afford to attend  college, and the loss of tuition revenue created additional financial  hardship for the colleges, according to officials from several HBCUs and  an HBCU organization official. Education issued new regulations in 2014  that revised the Parent PLUS loan criteria, enabling more families to  qualify for these loans. However, HBCUs had already lost significant  amounts of tuition revenue as a result of the 2011 changes, according to  Education officials.

HBCUs and stakeholders have called for loan modifications to potentially  assist colleges in financial distress and help them avoid defaulting on  their Capital Financing Program loans. According to key stakeholders and  officials from eight HBCUs, there is a need for the program to have ways  to assist HBCUs facing financial difficulties. For example, officials from  four HBCUs we interviewed and four additional HBCUs we surveyed  suggested additional program flexibility, such as forgiving, reducing, or  temporarily suspending loan payments, could be helpful for some  colleges. Stakeholders also suggested that loan deferment—allowing  colleges to postpone payments without penalty—or other flexible payment  options could help some colleges facing financial hardship. The  Consolidated Appropriations Act, enacted in March 2018, appropriated  $10 million for Education to defer participating HBCUs’ Capital Financing  Program loans to assist colleges experiencing financial difficulties.  Under this provision, loans can be deferred for up to 6 years for  participating HBCUs demonstrating financial need and meeting certain  conditions. These funds are available for Education to authorize loan  deferments until the end of fiscal year 2018. Little is known, however,  about how loan modifications would affect participating HBCUs or the  program.

According to a senior Education official, the agency assessed the  potential for loan deferment in 2010 and estimated that it would cost the  federal government about $150 million annually. However, neither the  program office nor Education’s budget office, which is responsible for  estimating the costs of policy changes, were able to provide any  information on how Education arrived at this estimate. Furthermore,  Education has not assessed whether several other types of loan  modifications identified by stakeholders, or those used for HBCUs  impacted by Hurricanes Katrina and Rita, could be beneficial to other  participating HBCUs that are having trouble making timely loan  payments.

Federal internal control standards state that agency management should  plan for significant external events, analyze its effects on achieving  program goals, and appropriately respond to those events. While  Education and its designated bonding authority review each applicant’s  credit and ability to take on a Capital Financing Program loan, this review  reflects an HBCU’s current financial health at the time of its application.  Given that Capital Financing Program loans can be up to 30 years, major  external changes such as an economic recession are possible over the  life of the loan. Such events may affect an HBCU’s ability to make timely  loan payments and may increase the potential of an HBCU to default on  its Capital Financing Program loan. According to Education’s fiscal year  2019 budget request, the HBCU portfolio is experiencing greater financial  stress as evidenced by an increase in loan delinquencies, and the federal  government is at risk of incurring additional costs to manage the  program. Analyzing the effects of deferring loans and other types of loan  modifications on program participation and on program costs could help  Education determine how best to assist participating HBCUs experiencing  financial difficulties while minimizing the federal government’s costs.  However, a senior Education official said the agency does not plan to  analyze (1) whether loan modifications could be helpful to program  participants; or (2) the effect offering these modifications could have on  the cost of the program. According to Education officials, modifications to  the terms of Capital Financing Program loans cannot occur without  statutory change. Nonetheless, Education is responsible for providing  advice to Congress about what additional steps might be taken to  improve the operation and implementation of the program. Conducting  analyses on the effect of loan modifications, including recently authorized  deferments, to help colleges avoid default and successfully participate in  the program, and on the potential costs absorbed by Education of  delayed or reduced payments, would enable Education to fulfill this  responsibility.

HBCUs play a vital role in providing higher education opportunities for  African-Americans. However, HBCUs continue to face challenges in  securing financing to undertake needed capital projects. As a result,  these colleges may be unable to make the campus improvements  necessary to attract and retain students, potentially jeopardizing their  long-term sustainability. Education’s Capital Financing Program is  intended to be a key funding source for HBCUs’ capital needs, yet fewer  than half of these colleges participate in the program.

As Education develops its statutorily mandated outreach plan, it will be  important for the plan to address the outreach issues we have identified.  Increasing outreach to individual HBCUs will encourage more college  participation in the Capital Financing Program. Similarly, coordination with  state university systems to address state-level provisions that create  challenges and share potential solutions can increase public HBCU  participation in the program. Education can leverage the resources not  only of the Advisory Board, but also of the designated bonding authority,  in these outreach efforts. If Education does not include these activities in  its outreach plan, many of the HBCUs the program is intended to serve  may continue to be unaware of the program or unable to participate in it.

Some HBCUs have faced declining enrollment as a result of changing  economic conditions and recent changes in federal student aid policy. At  the same time, the number of defaults and delinquencies has increased in  the Capital Financing Program, potentially increasing the federal  government’s responsibility for these losses. In addition, stakeholders  have called for additional loan modifications for colleges in financial  distress. The Consolidated Appropriations Act, enacted in March 2018,  authorized Education to offer loan deferments to financially struggling  HBCUs. As Education begins offering these loan deferments, it is  important that Education analyze the effects of these deferments and  other prior loan modifications, such as those given to certain HBCUs  affected by Hurricanes Katrina and Rita, to ensure that they are having  the intended effect. Analyzing the potential benefits of loan modifications  to all participating HBCUs against the potential risks to the program, such  as increased program costs, could further help policymakers enhance the  overall effectiveness of the Capital Financing Program. This will be  especially important as Education implements its required outreach plan,  which may increase program participation.

We are making the following two recommendations to Education:

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)

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)

We provided a draft of this report to Education for review and comment.  Education’s comments are reproduced in appendix V.

In response to our recommendation on actions that Education should  include in its required outreach plan, Education identified steps it plans to  take to address each of the three components we recommended. First, to  increase outreach to individual HBCUs, Education stated it will send  letters to presidents and chancellors of eligible HBCUs that are not yet  participating, in addition to existing activities. Second, Education stated  that it plans to use methods similar to those currently used to reach out to  public HBCUs, depending on resources, to coordinate directly with state  university systems. Third, Education noted it plans to explore ways to  leverage the designated bonding authority to do so. Education also stated  that an HBCU’s ability to use the program depends on its financial  strength, and government resources alone will not ensure financial  strength among struggling institutions. We agree; however, it is important  to make HBCUs aware of the resources available to them, particularly a  federal program that was created to help address HBCUs’ capital  financing challenges.

With regard to our second recommendation on analyzing the potential  benefits and costs of offering loan modifications, Education partially  agreed with the recommendation. Education commented that it disagreed  with the recommendation to the extent that it suggests a modification of  loan terms. Our recommendation does not endorse providing loan  modifications to colleges. Rather, our recommendation 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. As we note in the  report, however, 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.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of  Education, appropriate congressional committees, and other interested  parties. In addition, the report will be made available at no charge on the  GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix VI.

We examined (1) Historically Black Colleges and Universities’ (HBCUs)  capital project needs; (2) funding sources HBCUs use to address their  capital project needs; and (3) the extent to which the Department of  Education (Education) helps HBCUs access and successfully participate  in the HBCU Capital Financing Program (Capital Financing Program). In  addition to the methodologies discussed below, we reviewed relevant  federal laws, regulations, and guidance on the Capital Financing Program  and Strengthening HBCU Program. To determine the extent to which  Education helps HBCUs access and successfully participate in the  Capital Financing Program, we reviewed documentation on program  performance and administration and Education documentation from  selected HBCUs affected by Hurricanes Katrina and Rita that received  loan modifications in 2013. We assessed Education’s communication to  states and HBCUs against federal internal control standards on  communicating quality information to key stakeholders. We reviewed  Education’s coordination efforts against best practices for coordinating  with relevant stakeholders and reviewed Education’s strategic plan which  prioritizes coordinating with external stakeholders to achieve its goals of  supporting educational institutions and increasing college access. We  also assessed Education’s actions to help HBCUs experiencing financial  challenges successfully participate in the program against federal internal  control standards, which state that agency management should  communicate key information needed to achieve its objectives and plan  for significant changes, including economic changes, analyze the effects  of such plans, and respond appropriately.

Survey of Historically Black Colleges and Universities and Review of Capital Plans

To address all three objectives, we conducted a web-based survey of  accredited HBCUs in the United States (including the U.S. Virgin Islands)  in June through August 2017. To identify the list of HBCUs, we ran a  query using Education’s Integrated Postsecondary Education Data  System (IPEDS) for colleges that were designated as an HBCU in IPEDS  and participated in Title IV, and were therefore accredited. IPEDS uses  Section 322(a) of the Higher Education Act of 1965, as amended to  define an HBCU as “any historically Black college or university that was  established prior to 1964, whose principal mission was, and is, the  education of Black Americans, and that is accredited by a nationally  recognized accrediting agency or association determined by the  Secretary of Education to be a reliable authority as to the quality of  training offered or is, according to such an agency or association, making  reasonable progress toward accreditation.” Additionally, any branch  campus of a southern institution of higher education that prior to  September 30, 1986, received a Strengthening HBCUs Grant and was  formally recognized by the National Center for Education Statistics as a  Historically Black College or University is also considered an eligible  institution. All 101 colleges identified as HBCUs in IPEDS were also  identified as participating in Title IV.

We addressed our survey to senior leadership—presidents and chief  financial officers—at HBCUs because capital planning and financing  generally fall under their purview. We obtained a list of contact  information for presidents and chief financial officers from Education for  some participating HBCUs. In cases where contact information was not  available, current, or correct, we identified appropriate contact information  by reviewing HBCUs’ websites or by following up with the president’s  office. Our survey included questions on capital project needs (i.e., repair  or replacement) and plans, funding sources HBCUs use to address those  needs, and HBCU experiences with Education’s Capital Financing  Program and Strengthening HBCU Program. We also asked HBCU  officials to provide a copy of their master plans to supplement their survey  responses, and we reviewed those plans.

To enhance data quality and to minimize nonsampling errors, we  employed recognized survey design practices in the development of the  survey and in the collection, process, and analysis of the survey data. To  develop our survey questions, we interviewed Education officials, HBCU  administrators, higher education facilities experts, and HBCU organization  officers. Additionally, we pretested the survey with five HBCUs, over the  phone, to standardize survey language and to reduce variability in  responses that should be qualitatively the same. In some cases, we used  the results of our pretests to change the wording of questions or added  clarifying examples based on feedback. We chose the five pretest HBCUs  to include representation across the major subgroups of responding  HBCUs: private non-profits (private) and public HBCUs, 2-years and 4- years, and participants and non-participants of the Capital Financing  Program. We also reviewed examples of master plans and facility  assessment guides from higher education associations to help frame our  survey questions. For example, we reviewed public and private HBCU  capital plans to understand the type of information they collect,  methodologies for assessing their capital project needs, and how they  prioritize their needs. Furthermore, we consulted higher education  facilities associations’ definitions on key terms and facility indicators.  Facilities experts from a higher education association indicated that  master plans can change over time depending on an HBCU’s emerging  capital project needs and funding availability.

To increase the survey response rate, we implemented an outreach plan  to engage key HBCU officials. When we completed the final survey  questions and format, we sent an email announcement of the survey in  June 2017 to key HBCU officials—presidents, chief financial officers,  Strengthening HBCU Program coordinators, and facilities managers.  They were notified that the survey was available online and were given  unique usernames and passwords. To reduce nonresponse, we followed  up by email and by phone with HBCUs that had not responded to the  survey to encourage them to complete it. We received responses from 79  of 101 HBCUs—38 of 51 private and 41 of 50 public HBCUs, achieving a  78 percent response rate. As this was not designed as a sample survey,  we make no claims about the generalizability of the results. However, 79  HBCUs captures a substantial portion of the HBCU population. We  received master plans from 20 HBCUs.

We reviewed the data for missing or ambiguous responses and followed  up with HBCUs when necessary to clarify their responses. In some cases,  we updated responses after following up with the survey respondent. For  example, as a part of our reliability check, we followed up with HBCUs  whose answers were extreme outliers on reporting dollar values for their  deferred maintenance. In three cases, separate from deferred  maintenance, HBCUs corrected their answers, and we updated the  survey results accordingly. To analyze the survey, we calculated  descriptive statistics and reviewed open-ended responses to identify  themes. We also reviewed select HBCUs’ master plans to supplement  survey responses.

HBCU Capital Financing Participation Data

We analyzed Capital Financing Program loan data from Education and  the designated bonding authority to better understand participation in the  program. Specifically, we reviewed data from 1996 to 2017, which  included participating HBCUs with sector information (public and private);  loans each HBCU received; original loan amount; and status of each loan  (paid off or in progress). We used the data to determine the total number  of participating HBCUs by sector and total value of loans provided.

Additionally, we gathered information from Education’s Capital Financing  Program website to understand how HBCUs used their loans from 1996  to 2016. The website includes information on the purpose of each loan.  Based on the wording of the purpose, we developed the following  categories: refinance, deferred maintenance, repair and renovation,  alteration, and new construction. For the purpose of reporting, we  combined deferred maintenance, repair, renovation, and alteration into a  deferred maintenance and repair category. For instances where HBCUs  listed a similar or related purpose, we used professional judgement to  categorize it. The categorization was conducted by one analyst then  independently confirmed by a second analyst. Based on our review of  Education’s data, review of loan contracts, and interviews with relevant  Education and designated bonding authority officials, we found the HBCU  Capital Financing participation data to be sufficiently reliable for the  purpose of describing participation and use of the program.

Integrated Postsecondary Education Data System (IPEDS)

To provide context on challenges HBCUs face financing capital projects  identified through interviews with officials from Education, HBCUs, HBCU  organizations, other stakeholders, and through our survey, we analyzed  data from IPEDS from the 2015-16 school year, the most recent data  available at the time of our review. We assessed the reliability of the data  by reviewing related documentation and interviewing officials responsible  for maintaining data in the system, and found the data to be reliable for  our purposes. We examined HBCUs’ institutional, student, and financial  characteristics and compared those characteristics with a matched set of  similar non-HBCUs. These characteristics include information on the  colleges’ charges for tuition and fees; the percentage of students who  receive financial aid overall, and Pell Grants specifically; information on  key revenue streams such as tuition and fees, private grants and  contracts, and government funding; and data on the college’s  endowment. Colleges report financial information to IPEDS, such as  revenue, using different accounting standards: public colleges generally  use standards issued by the Governmental Accounting Standards Board,  and private colleges use standards issued by the Financial Accounting  Standards Board. Due to variation in how colleges report some revenue  data under these two different accounting standards, we excluded one  public HBCU from our analysis that used standards issued by the  Financial Accounting Standards Board and analyzed 100 HBCUs.

Under 1,000; 1,000-4,999; 5,000-9,999; 10,000- 19,999; 20,000 and above  Public 4-year; public 2-year; private 4-year; private 2- year  Any degree prior to a 4-year Bachelor’s degree; a 4- year Bachelor’s degree; any degree following a 4-year  Bachelor’s degree  HBCU state or Census division  States with HBCUs or Census divisions (Pacific,  Mountain, West North Central, East North Central,  Middle Atlantic, New England, South Atlantic, East  South Central, and West South Central)

Using a multi-stage approach to create matched sets of HBCUs and non- HBCUs, we first identified non-HBCUs that matched the HBCU using the  institution’s size, sector, and highest degree offered. We then constrained  the set of non-HBCUs to those within the same state as respective  HBCUs. Each matched set may contain multiple HBCUs and/or multiple  non-HBCUs. If none of the non-HBCUs identified using institution size,  sector, and highest degree offered lied within the same state as the  HBCUs, we used Census-based divisions to create the matched set of  HBCUs and non-HBCUs.

Table 5 summarizes the number of institutions within each matched set.  Seventy-three of the 100 HBCUs were matched using state, while 27  were matched using Census-based divisions.

We conducted this matched analysis because an unmatched analysis of  the 100 HBCUs and all 3,529 non-HBCUs is potentially vulnerable to  spurious differences in outcomes between HBCUs and non-HBCUs that  arise from an imbalance of key factors underlying these two types of  institutions. For example, public 2-year institutions make up a smaller  proportion of HBCUs compared to non-HBCUs (10 and 28.6 percent,  respectively), while public 4-year institutions make up a larger proportion  of HBCUs compared to non-HBCUs (39 and 19.6 percent, respectively).  This imbalance could lead to differences in outcomes arising from  characteristics inherent in the type of institution, not a comparison of  HBCUs to non-HBCUs. Matching HBCUs to non-HBCUs would lead to a  similar underlying distribution of key factors, which improves the  comparability of HBCUs and non-HBCUs.

We used the matched sets to compare HBCUs to non-HBCUs on student  financial aid and financial outcomes. For each of these variables and  across the matched sets, we estimated descriptive statistics (mean,  median, range) for HBCUs and non-HBCUs. However, in order to  compare HBCUs to non-HBCUs, we accounted for similarities within each  matched set. The varying number of HBCUs and non-HBCUs within each  matched set required an analysis which is, in principle, an extension of a  paired t-test. In this analysis, differences and correlations within each  matched set are accounted for when estimating the overall difference  between HBCUs and non-HBCUs. More specifically, we performed a  linear mixed effects model with the basic form:  yij ~ βijHBCUij + bijClusterij + σij, for the jth institution in the ith cluster  bik ~ N(0, η), for the kth institution in the ith cluster  where y is the outcome variable of interest; β is the parameter of interest,  the fixed-effect coefficient that quantifies the overall difference between  HBCUs and non-HBCUs; σ is the residual error that is not accounted for  by HBCU status or clusters; b is the random-effect coefficient that  accounts for correlations within clusters and quantifies the different  effects of the k institutions within each cluster set (i.e., the k HBCU and  non-HBCU institutions are nested within each cluster set); and b  estimates the separate and distinct effects for each cluster set and is  assumed to have a multivariate normal distribution, with a variance of η.

The p-value estimated was used to assess whether there was a  statistically significant difference between HBCUs and non-HBCUs for the  outcome variables of interest.

We stratified the matched sample by public and private education sector  and used the model above to obtain estimates specific for public and  private colleges. This education sector specific analysis was not further  stratified by 2- and 4-year college types due to small sample sizes.

In order to further explore differences with public and private colleges, we  expanded the model above as such:  yij ~ βijHBCUij + γijSectorij + εijHBCUij*Sectorij + bijClusterij + σij, for  the jth institution in the ith cluster  Where the parameters described above remain the same and γ is the  difference between public and private colleges, after adjusting for being  an HBCU and ε is the difference within difference, assessing whether the  HBCU–non-HBCU difference within public colleges is different from the  HBCU–non-HBCU difference within private colleges.

Wilcoxon Test for Clustered Data  The linear mixed effects model above assumes that data are normally  distributed (i.e., follow a bell-shaped curve). In order to assess whether  these assumptions hold, we performed a Wilcoxon test that is extended  for clustered data. The Wilcoxon test ranks values and is free of  distributional assumptions, and assumes that all data are independent  (i.e., not correlated). Overall consistency between tests of significance  from the linear mixed effects model and Wilcoxon tests indicates that  model assumptions hold.

To describe the extent to which HBCUs used the Strengthening HBCU  Program to finance capital projects, we analyzed annual reports  submitted by participating HBCUs for the 2016 grant year. Participating  HBCUs submit annual performance reports which include information on  how the funds were used and the amount spent on each activity, among  other information. The reports also include information on whether the  HBCUs experienced leadership turnover in that reporting year. Because  colleges submit a report for each type of Strengthening HBCU funding  they receive or to carry over funding from the previous year, each college  could have submitted up to three reports in 2016. In total, we reviewed  236 reports for 98 grant recipients. We also used these reports to identify  leadership turnover at HBCUs.

To address all three objectives, we conducted over 40 interviews with  HBCU stakeholders and colleges to learn about HBCU capital project  needs (i.e., repair, renovation, and new construction of buildings);  challenges HBCUs face accessing and securing funding, particularly through Education’s Capital Financing Program; and steps Education has  taken, if any, to help HBCUs better access and successfully participate in  their programs. We conducted the following interviews:

Education: We interviewed senior officials at Education to learn more  about HBCUs’ access to and successful participation in the Capital  Financing Program and participation in the Strengthening HBCU  Program.

Designated Bonding Authority: We interviewed officials at the  designated bonding authority, with whom Education contracts to help  administer the Capital Financing Program, to learn more about  HBCUs’ access to and successful participation in the Capital  Financing Program.

HBCU officials: We interviewed senior officials such as presidents,  chief financial officers, and facilities managers from 15 HBCUs to  learn more about the state of their capital project needs and  challenges they face accessing and securing funding, particularly  though the Capital Financing Program and Strengthening HBCU  Program. We selected HBCUs that included different sectors (public  and private), varying enrollments and state locations, and a mix of  participation in the Capital Financing Program.

State university system officials: We interviewed officials from four  state university systems in states where public HBCUs did not  participate and that were identified by Education as having state-level  challenges accessing the program (North Carolina, Florida, Georgia,  and Mississippi).

HBCU organizations: We interviewed officials at the United Negro  College Fund, which represents private HBCUs; and the Thurgood  Marshall College Fund, which represents public and publically  supported HBCUs. Both organizations are members of Education’s  Capital Financing Program Advisory Board. We consulted with  officials from both organizations on different mechanisms that could  help borrowers successfully participate in the Capital Financing  Program.

Higher education facilities experts: We interviewed higher education  facilities experts at the National Association of College and University  Business Officers, APPA: Leadership in Educational Facilities, and  Sightlines—a higher education facilities consultant—to learn about  industry best practices in identifying and addressing capital project  needs and what differences, if any, exist for capital funding between  HBCUs and non-HBCUs.

Financial experts: We interviewed officials at Moody’s, Standard &  Poor’s (S&P), the Municipal Securities Rulemaking Board (MSRB),  and a financial consulting group to learn more about the municipal  bond market, how colleges are rated, and how access and successful  participation in the market differs between HBCUs and non-HBCUs.

Other stakeholders: We interviewed other stakeholders, such as the  Association of Public and Land Grant Universities (APLU), which  represent HBCU public land-grant universities; the Kresge  Foundation, which has provided HBCUs with funding for capital  projects; and researchers at the University of Pennsylvania’s Center  for Minority Serving Institutions and the authors of a study on HBCU  participation in the bond market, “What’s in a (school) name? Racial  discrimination in higher education bond markets.”

We visited nine HBCUs across three states—Alabama, Louisiana, and  North Carolina—to interview senior HBCU officials to learn about their  capital project needs, to tour their facilities, and to learn more about the  benefits and challenges the HBCUs faced in accessing funding and  participating in Education’s two key programs. We selected our nine site  visit HBCUs to obtain a mix of sector (public and private), enrollment size,  participation in Education’s programs, and the existence of state-level  laws or policies that have created challenges to participating in the  Capital Financing Program. We also chose to visit Louisiana to learn  more about the loans HBCUs received after Hurricanes Katrina and Rita  and the colleges’ recovery efforts. During our site visits, we met with  senior leadership—presidents, chief financial officers, facilities managers,  Strengthening HBCU grant coordinators—because they generally make  decisions on capital project planning. While we did not inspect or evaluate  the state of these colleges’ buildings, HBCU officials explained in detail  the capital project needs. In particular, we toured campuses to better  understand their capital project needs and the extent to which Education’s  two key programs have helped address those needs.

Appendix II: Additional Survey Results on Capital Project Needs and Funding for Historically Black Colleges and Universities

We received responses from 79 of 101 Historically Black Colleges and  Universities (HBCUs): 38 of 51 private non-profit (private) and 41 of 50  public HBCUs. By survey design, not all respondents reported information  for each question. As a result, the denominator (number of survey  respondents for a particular question) may change. This appendix  presents selected survey responses from HBCUs and calculations made  by GAO based on selected responses as a snapshot of capital project  needs for HBCUs.

Capital Project Needs: Condition of Building Space for Responding HBCUs

Survey respondents reported information on their institution’s real  property portfolio, historical building space, and the condition of their  building space.

Capital Project Needs: Deferred Maintenance Backlog for Responding HBCUs

Survey respondents provided information on their deferred maintenance  backlogs—repair put off to a later date.

The Federal Accounting Standards Advisory Board defines deferred maintenance as  maintenance that was not performed when it should have been or was scheduled to be  and which was put off or delayed for a future period. Activities include preventive  maintenance; replacement of parts, systems, or components; and other activities needed  to preserve or maintain the asset. Maintenance and repairs exclude activities directed  towards expanding the capacity of an asset or otherwise upgrading it to serve needs  different from, or significantly greater than, its current use.

Capital Projects: Top 5 Capital Projects for Next 5 to 10 Years for Responding HBCUs

Survey respondents provided information on their documented top 5  capital project needs over the next 10 years. Survey respondents  provided information on the type of capital project (e.g., repairs,  renovations and alterations, new buildings or facilities) and purpose of the  project (e.g., academic, administrative, athletics, etc.).

Capital Project Funding: Funding Sources to Address Capital Project Needs for Responding HBCUs

Survey respondents provided information on funding sources they use to  address their capital project needs and the percentage of funding from  that source.

HBCU Capital Financing Program: Perspectives on Participation by Responding HBCUs

Survey respondents provided information on their participation in the  HBCU Capital Financing Program. We asked these respondents  questions about the type of projects the program funds, reasons for  pursuing this funding, and challenges they face in participating in the  program.

Strengthening HBCU Program: Capital Projects for Responding HBCUs

Survey respondents provided information on their participation in the  Strengthening HBCU Program. We asked about why they participate and  how the program supports capital project needs.

Appendix III: Select Institutional, Student, and Financial Data on Historically Black Colleges and Universities (HBCUs)

Appendix III: Select Institutional, Student, and  Financial Data on Historically Black Colleges  and Universities (HBCUs)

Using a multi-stage matching technique, we created a matched set of  non-HBCUs for comparison purposes. Using data from the Department of  Education’s Integrated Postsecondary Education Data System (IPEDS)  for the 2015-16 school year, the most recent data available, we matched  accredited HBCUs and non-HBCUs on four key characteristics: sector  (i.e., public or private non-profit (private)), highest degree offered, size  (enrollment), and location. For each of the 100 HBCUs, we established  respective matched sets that included a total of 382 non-HBCUs. For  more information about our methodology, see appendix I.

Appendix IV: Location of Historically Black Colleges and Universities (HBCUs) and Their Sector (Public and Private Non-profit)

Appendix IV: Location of Historically Black  Colleges and Universities (HBCUs) and Their  Sector (Public and Private Non-profit)

Appendix V: Comments from the Department of Education

Appendix VI: GAO Contact and Staff Acknowledgments

In addition to the contact named above, individuals making key  contributions to this report were Nyree Ryder Tee, Assistant Director;  Rachel Beers, Analyst-in-Charge; Grace Cho; Kris Nguyen; and Manuel  Antonio Valverde. In addition, key support was provided by Michael  Armes, Susan Aschoff, Allison Bawden, Deborah Bland, Marcia Carlsen,  Gina Hoover, DuEwa Kamara, John Karikari, Risto Laboski, Eunice  LaLanne, Won Lee, Sheila McCoy, Jean McSween, Jeffrey G. Miller,  John Mingus, Mimi Nguyen, Anna Maria Ortiz, Christopher Ross,  Benjamin Sinoff, and Karen Tremba.