PART C---ENDOWMENT CHALLENGE GRANTS FOR INSTITUTIONS

ELIGIBLE FOR ASSISTANCE UNDER PART A OR PART B

**SEC. 331.** ø**20 U.S.C. 1065**¿ **ENDOWMENT CHALLENGE GRANTS.**

\(a\) PURPOSE; DEFINITIONS.---(1) The purpose of this section is

to establish a program to provide matching grants to eligible
institutions

in order to establish or increase endowment funds at such

institutions, to provide additional incentives to promote fund raising

activities by such institutions, and to foster increased independence

and self-sufficiency at such institutions.

\(2\) For the purpose of this section:

\(A\) The term ''endowment fund'' means a fund established

by State law, by an institution of higher education, or by a

foundation which is exempt from taxation and is maintained

for the purpose of generating income for the support of the

institution, but which shall not include real estate.

\(B\) The term ''endowment fund corpus'' means an amount

equal to the grant or grants awarded under this section plus

an amount equal to such grant or grants provided by the institution.

\(C\) The term ''endowment fund income'' means an amount

equal to the total value of the endowment fund established

under this section minus the endowment fund corpus.

(D)(i) The term ''eligible institution'' means an institution

that is an---

\(I\) eligible institution under part A or would be considered

to be such an institution if section 312(b)(1)(C) referred

to a postgraduate degree rather than a bachelor's

degree;

\(II\) institution eligible for assistance under part B or

would be considered to be such an institution if section 324

referred to a postgraduate degree rather than a baccalaureate

degree; or

\(III\) institution of higher education that makes a substantial

contribution to postgraduate medical educational

opportunities for minorities and the economically disadvantaged.

\(ii\) The Secretary may waive the requirements of subclauses

\(I\) and (II) of clause (i) with respect to a postgraduate

degree in the case of any institution otherwise eligible under

clause (i) for an endowment challenge grant upon determining

that the institution makes a substantial contribution to medical

education opportunities for minorities and the economically

disadvantaged.

\(b\) GRANTS AUTHORIZED.---(1) From sums available for this section

under section 399, the Secretary is authorized to award

endowment challenge grants to eligible institutions to establish or

increase an endowment fund at such institution. Such grants shall

be made only to eligible institutions described in paragraph (4)

whose applications have been approved pursuant to subsection (g).

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**69 Sec. 331 HIGHER EDUCATION ACT OF 1965**

(2)(A) Except as provided in subparagraph (B), no institution

shall receive a grant under this section, unless such institution has

deposited in its endowment fund established under this section an

amount equal to the amount of such grant. The source of funds for

this institutional match shall not include Federal funds or funds

from an existing endowment fund.

\(B\) The Secretary may make a grant under this part to an eligible

institution in any fiscal year if the institution---

\(i\) applies for a grant in an amount not exceeding

\$500,000; and

\(ii\) has deposited in the eligible institution's endowment

fund established under this section an amount which is equal

to 1.2 of the amount of such grant.

\(C\) An eligible institution of higher education that is awarded

a grant under subparagraph (B) shall not be eligible to receive an

additional grant under subparagraph (B) until 10 years after the

date on which the grant period terminates.

\(3\) The period of a grant under this section shall be not more

than 10 years. During the grant period, an institution may not

withdraw or expend any of the endowment fund corpus. After the

termination of the grant period, an institution may use the endowment

fund corpus plus any endowment fund income for any educational

purpose.

(4)(A) An institution of higher education is eligible to receive

a grant under this section if it is an eligible institution as described

in subsection (a)(2)(D) of this section.

\(B\) No institution shall be ineligible for an endowment challenge

grant under this section for a fiscal year by reason of the previous

receipt of such a grant but no institution shall be eligible to

receive such a grant for more than 2 fiscal years out of any period

of 5 consecutive fiscal years.

\(5\) An endowment challenge grant awarded under this section

to an eligible institution shall be in an amount which is not less

than \$50,000 in any fiscal year.

(6)(A) An eligible institution may designate a foundation,

which was established for the purpose of raising money for the

institution, as the recipient of the grant awarded under this section.

\(B\) The Secretary shall not award a grant to a foundation on

behalf of an institution unless---

\(i\) the institution assures the Secretary that the foundation

is legally authorized to receive the endowment fund corpus

and is legally authorized to administer the fund in accordance

with this section and any implementing regulation;

\(ii\) the foundation agrees to administer the fund in accordance

with the requirements of this section and any implementing

regulation; and

\(iii\) the institution agrees to be liable for any violation by

the foundation of the provisions of this section and any implementing

regulation, including any monetary liability that may

arise as a result of such violation.

\(c\) GRANT AGREEMENT; ENDOWMENT FUND PROVISIONS.---(1)

An institution awarded a grant under this section shall enter into

an agreement with the Secretary containing satisfactory assur-

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**70 Sec. 331 HIGHER EDUCATION ACT OF 1965**

ances that it will (A) immediately comply with the matching

requirements of subsection (b)(2), (B) establish an endowment fund

independent of any other such fund of the institution, (C) invest

the endowment fund corpus, and (D) meet the other requirements

of this section.

(2)(A) An institution shall invest the endowment fund corpus

and endowment fund income in low-risk securities in which a regulated

insurance company may invest under the law of the State in

which the institution is located such as a federally insured bank

savings account or comparable interest-bearing account, certificate

of deposit, money market fund, mutual fund, or obligations of the

United States.

\(B\) The institution, in investing the endowment fund established

under this section, shall exercise the judgment and care,

under the circumstances then prevailing, which a person of prudence,

discretion, and intelligence would exercise in the management

of such person's own affairs.

(3)(A) An institution may withdraw and expend the endowment

fund income to defray any expenses necessary to the operation

of such college, including expenses of operations and maintenance,

administration, academic and support personnel, construction

and renovation, community and student services programs,

and technical assistance.

(B)(i) Except as provided in clause (ii), an institution may not

spend more than 50 percent of the total aggregate endowment fund

income earned prior to the time of expenditure.

\(ii\) The Secretary may permit an institution to spend more

than 50 percent of the endowment fund income notwithstanding

clause (i) if the institution demonstrates such an expenditure is

necessary because of (I) a financial emergency, such as a pending

insolvency or temporary liquidity problem; (II) a life-threatening

situation occasioned by a natural disaster or arson; or (III) any

other unusual occurrence or exigent circumstance.

\(d\) REPAYMENT PROVISIONS.---(1) If at any time an institution

withdraws part of the endowment fund corpus, the institution shall

repay to the Secretary an amount equal to 50 percent of the withdrawn

amount, which represents the Federal share, plus income

earned thereon. The Secretary may use such repaid funds to make

additional challenge grants, or to increase existing endowment

grants, to other eligible institutions.

\(2\) If an institution expends more of the endowment fund income

than is permitted under subsection (c), the institution shall

repay the Secretary an amount equal to 50 percent of the amount

improperly expended (representing the Federal share thereof). The

Secretary may use such repaid fund to make additional challenge

grants, or to increase existing challenge grants, to other eligible

institutions.

\(e\) AUDIT INFORMATION.---An institution receiving a grant

under this section shall provide to the Secretary (or a designee

thereof) such information (or access thereto) as may be necessary

to audit or examine expenditures made from the endowment fund

corpus or income in order to determine compliance with this section.

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**71 Sec. 341 HIGHER EDUCATION ACT OF 1965**

\(f\) SELECTION CRITERIA.---In selecting eligible institutions for

grants under this section for any fiscal year, the Secretary shall---

\(1\) give priority to an applicant that is receiving assistance

under part A or part B or has received a grant under part A

or part B of this title within the 5 fiscal years preceding the

fiscal year in which the applicant is applying for a grant under

this section;

\(2\) give priority to an applicant with a greater need for

such a grant, based on the current market value of the applicant's

existing endowment in relation to the number of fulltime

equivalent students enrolled at such institution; and

\(3\) consider---

\(A\) the effort made by the applicant to build or maintain

its existing endowment fund; and

\(B\) the degree to which an applicant proposes to

match the grant with nongovernmental funds.

\(g\) APPLICATION.---Any institution which is eligible for assistance

under this section may submit to the Secretary a grant application

at such time, in such form, and containing such information

as the Secretary may prescribe, including a description of the longand

short-term plans for raising and using the funds under this

part. Subject to the availability of appropriations to carry out this

section and consistent with the requirement of subsection (f), the

Secretary may approve an application for a grant if an institution,

in its application, provides adequate assurances that it will comply

with the requirements of this section.

\(h\) TERMINATION AND RECOVERY PROVISIONS.---(1) After notice

and an opportunity for a hearing, the Secretary may terminate and

recover a grant awarded under this section if the grantee

institution---

\(A\) expends portions of the endowment fund corpus or expends

more than the permissible amount of the endowment

funds income as prescribed in subsection (c)(3);

\(B\) fails to invest the endowment fund in accordance with

the investment standards set forth in subsection (c)(2); or

\(C\) fails to properly account to the Secretary concerning

the investment and expenditures of the endowment funds.

\(2\) If the Secretary terminates a grant under paragraph (1),

the grantee shall return to the Secretary an amount equal to the

sum of each original grant under this section plus income earned

thereon. The Secretary may use such repaid funds to make additional

endowment grants, or to increase existing challenge grants,

to other eligible institutions under this part.