ExpectMore.gov


Detailed Information on the
Historically Black College and University Capital Financing Assessment

Program Code 10009009
Program Title Historically Black College and University Capital Financing
Department Name Department of Education
Agency/Bureau Name Department of Education
Program Type(s) Credit Program
Assessment Year 2007
Assessment Rating Results Not Demonstrated
Assessment Section Scores
Section Score
Program Purpose & Design 80%
Strategic Planning 50%
Program Management 89%
Program Results/Accountability 40%
Program Funding Level
(in millions)
FY2007 $305
FY2008 $0
FY2009 $10

Ongoing Program Improvement Plans

Year Began Improvement Plan Status Comments
2007

Reviewing performance measures with program's Board of Advisors and key stakeholders and establishing appropriate targets for performance measures.

Action taken, but not completed ED has worked with the program's Board of Advisors and key stakeholders to develop a new performance measure for the program (persistence). This will take the place of the credit worthiness measure, which was ultimately overly costly to implement. ED is curently developing appropriate targets for all of the program's performance measures.
2007

Developing legislative proposals to address key programmatic flaws.

Action taken, but not completed ED is working to develop legislative proposals to address key programmatic flaws. The FY 2009 Congressional Justification includes ED's proposals to increase the program's statutory loan cap to allow the program to insure additional loans and eliminate the restrictions on the amount of the program??s loan authority that can be devoted to private or public HBCUs.
2007

Developing oversight systems to strengthen accountability of the Designating Bonding Authority and promote a high level of performance throughout the entire life of the program.

Action taken, but not completed ED has completed an audit of the DBAs files and is currently analyzing the audit findings in light of the need to increase performance accountability and oversight.

Completed Program Improvement Plans

Year Began Improvement Plan Status Comments

Program Performance Measures

Term Type  
Long-term Outcome

Measure: The rate of long-term change in the total revenues and investment return of loan recipients.


Explanation:The rate of long-term change in institutions' total revenues and investment return is one measure of improved institutional financial stability and capability to fulfill their educational mission. Capital and infrastructure improvements funded loans are key assets for providing quality postsecondary education. Some HBCUs have significant cash flow problems, which this program is expected to help ameliorate. Revenue is a strong indicator of maintaining or increasing enrollment, fundraising abilities and financial stability. Revenue from tuition and fees averages about one-quarter of total revenues at HBCUs. The ability to maintain or increase revenue suggests that an institution will be able to service its debts and maintain its operations. Many of the loans are used to build student housing, which generates revenue. The measure helps to assess the financial solvency of borrowers (a gauge of default potential). This measure will be calculated as the difference between the current year's total revenues and investment return and the previous year's revenues and investment return divided by the previous year's revenues and investment return for those institution's repaying a loan in both years. Total revenues and investment return is the sum of the following amounts: tuition and fees; government appropriations, grants and contracts; private gifts, grants, and contracts; contributions from affiliated entities; investment return (income, gains, and losses); sales and services of educational activities and auxiliary enterprises; hospital revenue; independent operations revenue; and other revenue. The data source for total revenues and investment return is IPEDS.

Long-term/Annual Outcome

Measure: The rate of cumulative change in credit worthiness of loan recipients since the institution received its first loan disbursement.


Explanation:The rate of cumulative change in credit worthiness indicates how successful the program loan recipients are in improving their credit rating over the life of the loan. Credit ratings assess the credit worthiness of a corporation. To calculate this measure, an annual comparative analysis of the credit worthiness of each loan recipient would be conducted. These data would then be aggregated to produce the overal program measure.

Annual Outcome

Measure: The delinquency rate of loan recipients.


Explanation:The delinquency rate??the percentage of loan payments received within 60 days of the due date--indicates the financial stability of borrowers. The ability to make timely payments reduces the likelihood of default. It also indicates successful monitoring, technical assistance and enforcement by ED and DBA in administering the program. This annual measure will be calculated by counting the total number of payments received by the DBA no later than 60 days following the due dates during a fiscal year and dividing by the total number of payments due during the fiscal year. Those institutions with multiple loan disbursals will be counted multiple times each month.

Year Target Actual
2007 999 13
Annual Efficiency

Measure: The estimated federal cost per dollar made in loan guarantees (the subsidy rate).


Explanation:Program efficiency is measured by the subsidy rate performance measure, which describes the federal cost of the program. This measure tracks the cost of each dollar loaned through the program and, as such, the efficiency of the program.

Year Target Actual
2007 999 6.29

Questions/Answers (Detailed Assessment)

Section 1 - Program Purpose & Design
Number Question Answer Score
1.1

Is the program purpose clear?

Explanation: The Historically Black Colleges and Universities Capital Financing Program is designed to provide low-cost capital for repairs, renovations, construction, acquisition and refinancing to the nation's historically Black colleges and universities (HBCU). The capital projects improve the HBCU's overall financial stability and enhance their ability to attract, retain and educate students. In 2006, Congress added a sub-program designed to provide capital financing to HBCUs affected by Hurricanes Katrina and Rita that provided these schools with additional fiscal benefits. This PART is designed to focus primarily on the original program.

Evidence: In Title III, Part D of the Higher Education Act of 1965, as amended. In fiscal year 2006, Congress passed the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery (P.L. 109-234). Section 2601 of this Act created a new subprogram to provide loans to HBCUs affected by Hurricanes Katrina and Rita.

YES 20%
1.2

Does the program address a specific and existing problem, interest, or need?

Explanation: HBCUs have played a prominent role in our nation's history, and they have significant needs for capital improvements. This program supports the the Department of Education's (ED) goal to strengthen HBCUs, by ensuring they have access to low-cost financing to fund infrastructure improvements. Data indicate that African-Americans graduate from postsecondary education at lower rates than white, non-Hispanic and Asian students. HBCUs play an important role in reducing the graduation gap. Additionally, small enrollments, low endowments and other fiscal and facility (physical plant) deficiencies, as well as the needs of their students, contribute to the greater financial need of HBCUs. According to a recent U.S. Government Accountability Office (GAO) report on the program (Capital Financing: Department Management Improvements Could Enhance Education's Loan Program for HBCUs, GAO-07-64), many HBCUs cannot access low-cost capital from traditional funding sources at reasonable interest rates for the necessary maintenance and capital improvements that would allow them to continue and expand their educational mission. The Hurricane Recovery subprogram specifically targets HBCUs whose infrastructure was affected by Hurricanes Rita and Katrina.

Evidence: In a recent report, GAO noted that HBCUs have extensive and diverse capital project needs and that the HBCU Capital Financing Program provides them with access to low-cost capital financing and flexibilities not available elsewhere. Compared to 31 percent of the white, non-Hispanic population over 25, only 18 percent of the African-American population over 25 has a bachelor's degree or higher. [National Center of Education Statistics (NCES) 2006-030, June 2006]. Although HBCUs enroll less than two percent of the total postsecondary enrollment (http://nces.ed.gov/pubs2003/2003034.pdf) and account for only 1.5 percent of postsecondary institutions (GAO Report), they granted 13.5 percent of degrees by African-Americans in 2003-04 (GAO Report). According to data contained in NCES' Integrated Postsecondary Education Data System, HBCUs have much lower assets and endowments than other Title IV institutions. Title IV institutions have students who receive federal grant aid (which does not have to be repaid), loans, and work-study assistance. The 2004 ratio of assets to endowments is 15.1:1 for public HBCUs and 4.5:1 for all public HEA Title IV institutions. The higher assets:endowments ratio suggests that public HBCUs have less reserves to maintain or modernize their existing facilities. The 2004 ratio of assets to endowments is 3.2:1 for private HBCUs and 2:1 for all public HEA Title IV institutions.

YES 20%
1.3

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: While there are other ED programs that are designed to support HBCUs, the HBCU Capital Financing Program is unique and provides loans to those HBCUs that no longer qualify for traditional funding sources or would be charged prohibitive interest rates. ED has grant programs that provide access to smaller sums of money and cannot be used for refinancing capital projects. There are no other federal, state, local or private efforts that have the same scope. United Negro College Fund makes funds available to only 39 of the 105 ED recognized HBCUs for financing operations and technology enhancements. The Department of Agriculture's 1890 Facilities Grant Program is limited to 18 HBCUs. The Department of Health and Human Services' facilities improvement program only assists HBCUs with biomedical and behavioral research programs. In addition to ED programs, FEMA assistance is available, but it is only provided after natural disasters.

Evidence: In their recent report, GAO noted that the HBCU Capital Financing Program provides HBCUs with access to low-cost capital financing and flexibilities not available elsewhere. ED's Strengthening Institutions Program (SIP) and Strengthening HBCUs program (both authorized by Title III of the Higher Education Act, or HEA) support construction, maintenance, renovation and endowments (SIP only), but cannot be used to refinance capital projects. Further, these grants are limited to about $350,000 and $5 million per year, respectively. The HBCU Capital Financing Program provides financial insurance to guarantee up to $375 million in loans and interest to qualifying HBCUs??$250 million for private HBCUs and $125 million for public HBCUs. To limit the Federal Government's exposure to incurring losses due to defaults and delinquencies, 5 percent of all loans are deposited in a mandatory, pooled escrow account from which loan payments can be made in the event of defaults or delinquencies. The HBCU Capital Financing Advisory Board, appointed by the Secretary, advises the Secretary and the Designated Bonding Authority (DBA) as to the most effective and efficient means of implementing the program. The DBA, also selected by the Secretary, provides for the operation of the HBCU Capital Financing Program, which includes raising bond capital, making loans to eligible institutions, charging interest, and providing for a schedule of repayments. Direct loans are financed through the Federal Financing Bank (FFB) and guaranteed loans are financed through the private market, with all loan payments fully insured by the Federal Government. To date, all loans made through the program have been made through the FFB.

YES 20%
1.4

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: There are serious program flaws in the program's design that limit the program's effectiveness. These include issues around the program's escrow account, the DBA's fee structure, and the lack of flexibility.

Evidence: Of the program flaws, the most significant relates to the program's escrow account. In light of the program's first default, the program's 5 percent escrow deduction and other program incomes, including FFB fees, are estimated to be insufficient to cover current or future defaults and, as such, the program can no longer be considered a zero subsidy program under the Federal Credit Reform Act of 1990. Since one borrower defaulted in 2004, the credit subsidy for the program, previously estimated at zero, has been re-estimated to $14.1 million for loans already made, which is a subsidy rate of 9 percent or a net budgetary cost to the government of $0.09 for every $1 loaned. The increased subsidy rate is evidence that the funds set aside in the escrow account and the other program incomes are no longer sufficient to cover defaults as previously projected. In order for the program to make additional loan guarantees in the future, specific budget authority is required through appropriations language. Although the five percent escrow deduction and other program incomes are insufficient to cover the default, the previous ten percent escrow deduction (which was reduced to five percent by the Higher Education Ammendments of 1998) in concert with the program's other financial terms (such as monthly payments, collateral requirements, and repayment penalties) made the program unattractive to borrowers. Another critical flaw in the program relates to the way in which fees are paid to the DBA. The DBA receives the majority of its payment for its services through origination fees that are levied at the time disbursements are made. The DBA receives a smaller servicing fee throughout the life of the loan based on the borrowers' repayments. This means that once all of the loans are disbursed, the DBA receives a minimal fee for processing the loans over the next 30 years. However, this fee, may be insufficient to manage future defaults or maintain a high level of performance and technical assistance. This payment system limits the ability of ED to ensure that the DBA maintains a high level of performance throughout the entire life of the program. Finally, the program statute limits the flexibility allowable in the structure of loan packages available through the program, which in turn limits the attractiveness of the program to HBCUs.

NO 0%
1.5

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The program only lends funds to HBCUs and targets HBCUs with the least financial stability. For those HBCUs that do not qualify for loans through the HBCU Capital Financing Program, technical assistance is offered so they can become eligible.

Evidence: Title III Part D of HEA restricts the eligible institutions to HBCUs. The statute also requires that loans be "fairly allocated among as many eligible institutions as possible, consistent with making loans of amounts that will permit capital projects of sufficient size and scope to significantly contribute to the educational program of the eligible institutions." Some schools are in a better position to borrow than others. In an effort to allocate funds to as many institutions as possible, ED actively promotes the program to a wide variety of HBCUs with varying characteristics to ensure equal access to and knowledge of the program. The program uses direct mail, phone calls, campus visits and outreach to professional organizations such as the National Association for Equal Opportunity in Higher Education, Southern Association of Colleges and Schools, Southern Association of College and University Business Officers, United Negro College Fund, as well as ED's Title III recipients. As authorized by statute, ED has contracted with a DBA to "provide technical assistance to eligible institutions to prepare the institutions to qualify, apply for, and maintain a capital improvement loan, including a loan under this part." At least two schools that did not initially qualify for loans from the HBCU Capital Financing Program have benefited from the DBA's technical assistance, and they are now in a position to borrow from the program. There is no evidence that the program is providing unintended subsidies.

YES 20%
Section 1 - Program Purpose & Design Score 80%
Section 2 - Strategic Planning
Number Question Answer Score
2.1

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The primary goal of the program is to provide HBCUs with access to low-interest financing to conduct capital improvements in order to improve the their overall financial stability and enhance their ability to attract, retain and educate students. Therefore, ED has established two long-term measures: the long-term change in institutions' total revenues and investment return and the cumulative change in credit worthiness. These measures are key outcome indicators for assessing the impact of the program's capital financing and technical assistance on the institutions' financial well-being.

Evidence: The long-term change in institutions' total revenues and investment return is one measure of improved institutional financial stability and capability to fulfill their educational mission. Loans that fund capital and infrastructure improvements are key assets for providing quality postsecondary education. Some HBCUs have significant cash flow problems, which this program is expected to help ameliorate. Revenue is a strong indicator of maintaining or increasing enrollment, fundraising abilities, and financial stability. Revenue from tuition and fees averages about one-quarter of total revenues at HBCUs. The ability to maintain or increase revenue suggests that an institution will be able to service its debts and maintain its operations. Many of the loans are used to build student housing, which generates revenue. The measure helps to assess the financial solvency of borrowers (a gauge of default potential). This measure will be calculated as the difference between the current year's total revenues and investment return and the previous year's revenues and investment return divided by the previous year's revenues and investment return for those institution's repaying a loan in both years. Total revenues and investment return is the sum of the following amounts: tuition and fees; government appropriations, grants and contracts; private gifts, grants, and contracts; contributions from affiliated entities; investment return (income, gains, and losses); sales and services of educational activities and auxiliary enterprises; hospital revenue; independent operations revenue; and other revenue. The data source for total revenues and investment return is the NCES' Integrated Postsecondary Education Data System (IPEDS). The second measure, the average cumulative change in credit worthiness indicates how successful the program loan recipients are in improving their credit rating over the life of the loan. Credit ratings assess the credit worthiness of a corporation. To calculate this measure, an annual comparative analysis of the credit worthiness of each loan recipient would be conducted. These data would then be aggregated to produce the overal program measure.

YES 12%
2.2

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: It is expected that baselines and targets should be available by 2008.

Evidence: NA

NO 0%
2.3

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The primary goal of the program is to provide HBCUs with access to low-interest financing to conduct capital improvements in order to improve the their overall financial stability and enhance their ability to attract, retain and educate students. Therefore, ED has established two annual performance measures for the program: the delinquency rate--the percentage of loan payments received within 60 days of the due date--and the cumulative change in credit worthiness. These measures are key outcome indicators for assessing the impact of the program's capital and technical assistance on the institutions' financial well-being. In addition, the program has established an efficiency measure for the program, the estimated federal cost per dollar made in loan guarantees (the subsidy rate).

Evidence: The delinquency rate??the percentage of loan payments received between 11-59 days after the due date--indicates the financial stability of borrowers. The ability to make timely payments reduces the likelihood of default. It also indicates successful monitoring, technical assistance, and enforcement by ED and DBA in administering the program. The program allows borrowers a 10-day grace period within which their payments are considered on-time. After that they are considered delinquent. The measure is designed to track the proportion of payments that are considered delinquent -- a designation that is achieved once the payment is between 11 and 59 days late. This annual measure will be calculated by counting the total number of payments received by the DBA between 11-59 days after the due date during a fiscal year and dividing by the total number of payments due during the fiscal year. Those institutions with multiple loan disbursals will be counted multiple times each month. The second measure, the average cumulative change in credit worthiness indicates how successful the program loan recipients are in improving their credit rating over the life of the loan. Credit ratings assess the credit worthiness of a corporation. To calculate this measure, an annual comparative analysis of the credit worthiness of each loan recipient would be conducted. These data would then be aggregated to produce the overal program measure.

YES 12%
2.4

Does the program have baselines and ambitious targets for its annual measures?

Explanation: It is expected that baselines and targets should be available by 2008.

Evidence: NA

NO 0%
2.5

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: ED has established new performance and efficiency measures for the program. With the recent development of these measures, partners have not yet been able to commit to these new goals. ED will work through the program's Advisory Board, as well as with borrowers directly, to ensure that all partners commit to and work toward the annual and/or long-term goals of the program.

Evidence: NA

NO 0%
2.6

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: ED has awarded a contract to ORC Macro International for a comprehensive study of the programs in the Office of Postsecondary Education designed to support minority-serving institutions. This study is designed to provide specific performance data on the HBCU Capital Financing Program and determine whether the HBCU Capital Financing Program has provided participating institutions with more affordable loans than they would not have otherwise been able to obtain. ED will utilize the study's findings to assess future evaluation needs and establish a time-table for implementing such studies. In addition, GAO has recently completed a study of the program that focused primarily on management issues. To evaluate the program, ED is also conducting an independent program audit.

Evidence: ED's study of programs designed to support minority-serving institutions determined that institutions participating in the HBCU Capital Financing Program were able to obtain more affordable loans through the program than they would otherwise obtain. ED's study compared interest rates and interest expenses for HBCUs in the program and those not in the program. The 2006 GAO study of the program (GAO-07-64- Capital Financing: Department Management Improvements Could Enhance Education's Loan Program for Historically Black Colleges and Universities) took an in-depth look at the management of the program. GAO's findings have led to a number of improvements to program management. The independent audit of the DBA will be completed by October 2007. This audit is for the FFB fee and to review the completeness of current borrowers' files.

YES 12%
2.7

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Prior to the fiscal year 2008 Budget, the program had operated as a zero subsidy program, where the default and financing costs were offset by a five percent escrow requirement. Recent defaults and subsequent re-evaluation of the risk of lending to HBCUs showed that the five percent escrow and other program incomes, including FFB fees, are inadequate to protect against default and other risk. As a result, ED determined the subsidy rate is now 9%. The budget materials for the program show the full cost of administering the program. However, budget requests are not explicitly tied to accomplishment of annual and long-term performance goals. While the Department reports performance data, the Department is not able to determine the impact of particular levels of funding on the performance of the HBCU Capital Financing in relation to annual and long-term performance measures. The Department does not have an effective mechanism for analysing the DBA costs for managing the program and tying these costs to program performance.

Evidence: Fiscal year 2008 Budget Request at http://www.ed.gov/about/overview/budget/budget08/justifications/index.html

NO 0%
2.8

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The program has taken meaningful steps to correct strategic planning deficiencies.

Evidence: As part of a comprehensive strategic program review, ED has created performance measures and an efficiency measure for the program. The program has also initiated a process to revise program materials to reflect its new long-term and annual performance measures.

YES 12%
Section 2 - Strategic Planning Score 50%
Section 3 - Program Management
Number Question Answer Score
3.1

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: ED collects timely and credible performance information from a number of sources including loan recipients, the FFB, and the DBA. The information collected is used to improve program management and performance and to provide technical assistance to borrowers to assist them in becoming more financially stable.

Evidence: The DBA is required to submit quarterly reports on the status of program participation and financing, as well as regular marketing reports that include activities tabulated by institution's student enrollments, types, and locations. Program staff use the data from these reports to improve program management. For example, the program report did not show marketing/visits to HBCUs with enrollment under 400 and in the state of Arkansas; therefore, program staff met with officials at Arkansas Baptist College, University of Arkansas at Pine Bluff, and Philander Smith College to discuss opportunities for these schools to work with the HBCU Capital Financing Program for any project financing that they may need. To help in improving the program's performance, the program has intensified its follow-up with applicants that have showed interest in the program by either contacting the program informally or by submitting a pre-application using data from these reports to direct these efforts. For example, the program visited Tougaloo College in Mississippi to ensure that they have everything that they need to closed on the college's loan by mid-June. The program has met with both Allen University and Clark Atlanta University to ensure that these schools stay on track to close their loans in a timely manner.

YES 11%
3.2

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: The Federal program manager and program partners are held accountable for program performance results. The program manager is subject to the Education Department Performance Appraisal System (EDPAS) which links employee performance to relevant Strategic Plan goals and actions, and is designed to measure the degree to which a manager contributes to improving program performance. The program manager is identified and his EDPAS agreement is linked with the performance of the program. Borrowers are held accountable for default through the program's pooled escrow account, delinquency fees, and additional interest and the program design ensures that borrowers have incentives to repay on time. The performance-based contract with the DBA allows ED to hold the DBA accountable for performance results.

Evidence: The EDPAS standards for the program manager sets forth requirements that he set forth strategies for implementing GPRA and Strategic Plan initiatives related to the HBCU Capital Financing Program. The program manager is held accountable for assessing program performance and monitoring the progress of loan applications and related issues. Borrowers are charged late fees to encourage accountability and timely payment. Borrowers deposit 5 percent of the proceeds of any loan into a cross-collateralized escrow account. The escrow account is used to pay principal and interest on bonds in the event of default in loan repayment. Borrowers are eligible to receive their escrow account proceeds upon repayment of their loan.

YES 11%
3.3

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: Funds are obligated in a timely manner, spent for the intended purpose, and accurately reported. To ensure that funds are properly managed, ED monitors the financial records of borrowers and potential borrowers through monthly meetings with the DBA and quarterly reports from the DBA.

Evidence: Title III, Part D of HEA establishes the roles of the Secretary, Advisory Board, and DBA in verifying that funds are obligated in a timely manner, spent for the intended purpose, and accurately reported, and that the program remains focused and consistent with its goals. The DBA ensures that loan proceeds are used in accordance with statute by tracking the progress of projects. The Secretary administers the program, designates the DBA, and appoints Advisory Board members. ED conducts oversight of the DBA to ensure that the DBA is sompleting its duties and requirements regarding the program.

YES 11%
3.4

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The program has created an efficiency measure for the program, but hasn't established baselines or targets yet. The measure tracks the estimated Federal cost per dollar made in loan guarentee (or subsidy rate). Program efficiency is measured by the subsidy rate performance measure, which describes the federal cost of the program. This measure will track the cost to the Federal government of each dollar loaned through the program and, as such, measures the efficency of the program.

Evidence: NA

NO 0%
3.5

Does the program collaborate and coordinate effectively with related programs?

Explanation: The program reguarly coordinates its activities with related programs. The program manager participates in meetings of the White House Initiative on Historically Black Colleges and Universities. In addition, the DBA, the HBCU Capital Financing Program Advisory Board, and the program manager all work closely and coordinate activities with HBCUs around the country as well as appropriate public and private organizations.

Evidence: The program is working closely with the White House Initiative on HBCUs on a range of issues. The program manager has worked to ensure that the program is integrated into the annual "HBCU Week" activities that are held each year in September. In addition, in light of the pending reauthorization of the Higher Education Act the program and the White House Initiative on HBCUs have agreed to form a joint committee to look at possible legislative changes for the program and other relating issues. Program staff have worked with a number of private and public organizations to improve the financial stability of HBCUs in the program, or interested in obtaining funds through the program. For example, ED and JPMorgan Fleming co-sponsored a financial seminar for HBCUs in 2003 to increase their financial stability and knowledge. The DBA has reviewed programs such as those promoted by Honeywell, Johnson Controls, and other organizations. These programs are promoted to potential applicants by the DBA as valuable tools for helping some schools qualify for a loan. Honeywell and Johnson Controls are examples of other entities working with HBCUs to improve the HBCU campuses. For example, Honeywell will improve the efficiency of a university by installing energy efficient lighting or upgrading the HVAC system. Other private sources have financial programs that supplement the projects financed through the HBCU Capital Financing Program. For example, Allen University and Miles College have used other programs to finance additional projects. Public institutions receive State support for academic facilities, but many State laws prohibit financing auxiliary facilities. Monies from the HBCU Capital Financing Program and the State are both needed to support capital needs for public institutions. The program recently met with the Board of Trustees for Hampton University and representatives for the Virginia College Building Board to discuss dual financing for Hampton University. In addition, the program has met with the President's Advisory Board on HBCUs to keep that board informed of the HBCU Capital Financing Program activities.

YES 11%
3.6

Does the program use strong financial management practices?

Explanation: There was no evidence of internal material control weaknesses in the recent GAO audit. The program has reconciled its account balances and is conducting an independent evaluation of its portfolio management and performance.

Evidence: In collaboration with the DBA, ED has developed a plan to ensure that all debt owed by Barber-Scotia will be collected per the Debt Collection Improvement Act of 1996 (DCIA). ED and the DBA will work to prevent future delinquencies by following appropriate screening standards and procedures for determining creditworthiness per the OMB Circular No. A-129 requirements, including conducting financial audits of institutions. Timely and accurate financial management and performance data are submitted to ED by the DBA (per A-129) in quarterly reports. The reports provide the status of program participation and financing, as well as a marketing report describing the types of institutions that were targeted to through various means. These new reporting requirements were fully implemented in 2006. The independent audit of the DBA will be completed by September 30, 2007. This audit is for the FFB fee and to assess the DBA's record-keeping function and determine the documents the DBA needs to obtain to complete its files.

YES 11%
3.7

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The program has taken meaningful steps to address management defeciencies, especially those identified in the recent GAO study of the program's management practices. ED has issued a formal response and action plan to address the management deficiencies noted in the recent GAO audit. Thus far, ED is progressing on schedule with the improvements. ED has also developing a set of performance measures that will help manage the program better.

Evidence: ED is committed to meeting with the Advisory Board biennially. Two meetings were held in October 2006 and April 2007. Representatives attended the meetings from ED, HBCUs, Commerce Capital Access Program (DBA), Federal Financing Bank (FFB) in the Treasury Department, and White House Initiative on Historically Black Colleges and Universities. At the April meeting, the Board of Advisors discussed, among other topics, the newly created performance measures and agreed to review them and assess whether these measures addressed the program's central goals. To improve efficiency and communication, ED has developed a customer satisfaction survey that is sent to borrowers after they have closed on a loan. However, since the survey was developed, the program has not closed any new loans. The first survey will be sent by September 30, 2007. The survey results will identify lessons learned and inform program improvement initiatives. The DBA has already posted FAQs and other loan process information on its Web site to inform potential borrowers http://invest.commerceonline.com/ccapa/index.cfm. To improve estimates of budgetary costs, the DBA is in the processing of reconciling and transferring the FFB fees to ED. ED has already incorporated the FFB fee into ED's cash flow model. An independent audit of the DBA will be completed by September 30, 2007. This audit will cover the FFB fee and review borrower loan files. Timely and accurate financial management and performance data are submitted to ED by the DBA (per A-129) in quarterly reports. The reports provide the status of program participation and financing, as well as a marketing report describing institutions targeted. These new reporting requirements were implemented in December 2006.

YES 11%
3.CR1

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: By statute, the DBA is required to screen the risk of new borrowers and monitor borrowers. The DBA and ED handle default prevention and resolution collectively. The DBA and ED jointly review borrower repayments and credit risk quarterly.

Evidence: The DBA ensures that borrowers can repay the loans and that repayment will not be an undue burden on the institution. The DBA conducts financial audits of prospective borrowers and provides technical assistance on how the institution can improve its financial performance. Before lending money, the DBA ensures that the institution can repay the loan and ensures that repayment will not be an undue burden. Timely and accurate financial management and performance data are submitted to ED by the DBA (per A-129) in quarterly reports. The reports provide the status of program participation/financing, as well as a marketing report describing the institutions targeted. These new reporting requirements were fully implemented in December 2006. In the first ten years of the program, there were no delinquencies or defaults as a result of the rigorous application and credit review process imposed by ED and DBA. Collection proceedings on the recent default by Barber-Scotia will be processed according to the terms of the Debt Collection Improvement Act. ED and the DBA will work to prevent future delinquencies by following appropriate screening standards and procedures for determining creditworthiness per the A-129 requirements, including conducting financial audits of institutions.

YES 11%
3.CR2

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: ED has recently strengthened the credit model to ensure that it provides reliable, consistent, accurate, and transparent estimates of the cost of the program and the risk to the government.

Evidence: ED has worked with OMB to reexamine the appropriateness of the cash-flow assumptions for the program, especially the default assumptions, in light of the program's first default. Previously, the default estimate was calculated based on prevailing market-based rates. ED has now re-calculated the default assumptions based on individual assessments of risk and potential recovery for each loan. In light of these new assumptions, the credit subsidy for the program, previously estimated at zero, was reestimated to $14.1 million for loans already made, which is a subsidy rate of 10 percent or a net budgetary cost to the government of $0.09 for every $1 loaned.

YES 11%
Section 3 - Program Management Score 89%
Section 4 - Program Results/Accountability
Number Question Answer Score
4.1

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: Once a baseline is established, ED will develop targets for these measures.

Evidence: NA

NO 0%
4.2

Does the program (including program partners) achieve its annual performance goals?

Explanation: Once a baseline is established, ED will develop targets for these measures.

Evidence: NA

NO 0%
4.3

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The program has established an efficiency measure for the program and once a baseline is established, ED will develop targets for this measure.

Evidence: NA

NO 0%
4.4

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The lifetime loan default rate for the program is only 6.7 percent, which compares favorably to other high risk lending programs when the size of the loan portfolio is considered: there are only 14 borrowers.

Evidence: ED's national student loan cohort default rate was 5.1 percent in FY 2004 and 22.4 percent fourteen years ago (http://www.ed.gov/news/pressreleases/2006/09/09132006.html). The default rate on subprime loans, mortgages to people with poor credit histories or large debt burdens, was 5.37 percent in May 2005 and 10.05 percent in November 2001 (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFGf71vlQkWM). The HBCU Capital Financing Program's lifetime default rate is almost as good as the most recent year for student loans and subprime mortgages.

YES 20%
4.5

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: Both the current study of the program and the recent GAO report highlight the fact that the program is effective at achieving its stated goals. To evaluate the program, ED is conducting a study and an independent audit. ED's study contracted with ORC Macro International, Inc. is not yet complete and final publication is expected in Devcember 2007. However, preliminary data suggest that the HBCU Capital Financing Program has provided participating institutions with more affordable loans than they would otherwise have obtained. ED also is completing an independent audit of the program.

Evidence: The goal of the HBCU Capital Financing Program is to make low-interest loans available to HBCUs for capital improvements and ED has contracted for a study to examine whether the program has provided participating institutions with more affordable loans than they would otherwise have obtained. While the study is not yet complete and the final report is not expected until December 2007, preliminary data suggests that HBCUs participating in the program clearly were able to receive interest rates that were consistently lower that they would otherwise have been able to receive. The study compares interest rates and interest expenses for HBCUs in the program and those not in the program, utilizing data from both groups to arrive at its conclusions. ED will use the study's findings to assess the program's evaluation needs and develop a time-table for implementing such studies. Additionally, the recent GAO study of the program noted that the HBCU Capital Financing Program provides HBCUs with access to low-cost capital financing and flexibilities not available elsewhere. The independent audit of the DBA will be completed on September 30, 2007. This audit is for the FFB fee and to discover any documents that are missing from current borrowers' files.

YES 20%
Section 4 - Program Results/Accountability Score 40%


Last updated: 09062008.2007SPR