Ed Department Faulted for Low HBCU Loan Participation

By Pekow, Charles | Diverse Issues in Higher Education, December 14, 2006 | Go to article overview

Ed Department Faulted for Low HBCU Loan Participation


Pekow, Charles, Diverse Issues in Higher Education


Approximately $200 million remained unused as of August.

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

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

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

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

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

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

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

By failing to accurately report costs, the Education Department is not complying with the Federal Credit Reform Act of 1990, GAO charged. The department has not reported surcharges paid by borrowers, thereby overstating costs. …

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