TITLE 34\--EDUCATION

CHAPTER VI\--OFFICE OF POSTSECONDARY EDUCATION,

DEPARTMENT OF EDUCATION

PART 628\--ENDOWMENT CHALLENGE GRANT PROGRAM\--Table of Contents

Subpart A\--General

Sec. 628.**1** What are the purposes of the Endowment Challenge Grant
Program?

The Endowment Challenge Grant Program provides endowment challenge

grants, which must be matched, to eligible institutions to\--

\(a\) Establish or increase endowment challenge funds;

\(b\) Provide additional incentives to promote fund-raising

activities; and

\(c\) Foster increased independence and self-sufficiency at those

institutions.

(Authority: 20 U.S.C. 1065)

Sec. 628.**2** Which institutions are eligible to apply for an endowment
challenge grant?

An institution is eligible to apply for an endowment challenge grant

if\--

\(a\) It qualifies as an eligible institution for the Strengthening

Institutions Program under 34 CFR 607.**2**;

\(b\) It qualifies as an eligible institution for the Strengthening

Historically Black Colleges and Universities Program under 34 CFR
608.**2**;

\(c\) It would have qualified as an eligible institution for the

Strengthening Institutions Program if 34 CFR

607.**2**(a)(3) referred to a postgraduate degree rather than a
bachelor\'s

degree;

\(d\) It would have qualified as an eligible institution for the

Strengthening Historically Black Colleges and Universities Program if 34

CFR 608.**2**(a)(4)(i) referred to a postgraduate degree rather than a

bachelor\'s degree; or

\(e\) It qualifies as an institution that makes a substantial

contribution to graduate or postgraduate medical educational

opportunities for minorities and the economically disadvantaged.

Sec. 628.**3** Under what conditions may an eligible institution
designate a foundation as the recipient of an endowment challenge grant?

An eligible institution may designate a foundation, which was

established for the purpose of raising money for that institution, as

the recipient of an endowment challenge grant if\--

\(a\) The institution assures the Secretary in its application that

the foundation is legally authorized to receive the endowment fund

corpus and to administer the endowment fund in accordance with the

regulations in this part;

\(b\) The foundation agrees to administer the endowment fund in

accordance with the regulations in this part; and

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

foundation of any applicable regulation, including any violation

resulting in monetary liability.

Sec. 628.**4** What time limitations are placed on grantees applying for
another grant?

\(a\) Except as provided in paragraphs (b) and (c) of this section, an

institution that has received a grant under this part may apply for

another grant under this part only after 10 fiscal years have elapsed

following the fiscal year appropriation from which the institution\'s

grant was awarded (base fiscal year).

\(b\) An institution that has received a grant under this part may

apply for another grant under this part after five fiscal years have

elapsed following the base fiscal year if the appropriation for this

part exceeds \$20 million in any of those five fiscal years.

\(c\) If an institution has received a grant under this part and the

appropriation for this part exceeds \$20 million in any of the sixth

through tenth fiscal years following the base fiscal year, the

institution may apply for another grant under this part in the fiscal

year in which the appropriation exceeds \$20 million, or any subsequent

fiscal year.

Sec. 628.**5** What regulations apply to the Endowment Challenge Grant
Program?

\(a\) The following regulations apply to the Endowment Challenge Grant

Program:

\(1\) The regulations in this part 628.

(2)-(3) \[Reserved\]

(b)(1) The Education Department General Administrative Regulations

(EDGAR) as follows:

\(i\) The regulations in 34 CFR 74.61(h), or 34 CFR 80.26 and the

appendix to 34 CFR part 80, as applicable.

\(ii\) The regulations in 34 CFR 74.80, 74.84, and 74.85.

\(iii\) The regulations in 34 CFR 75.100 through 75.102, and 75.217.

\(iv\) 34 CFR part 79 (Intergovernmental Review of Department of

Education Programs and Activities).

\(2\) Except as specifically indicated in paragraph (b)(1) of this

section, the Education Department General Administrative Regulations do

not apply.

Sec. 628.**6** What definitions apply to the Endowment Challenge Grant
Program?

The following definitions apply to the regulations in this part:

Endowment fund means a fund which excludes real estate and which is

established by State law, by an institution,

or by a foundation that is exempt from taxation and is maintained for

the purpose of generating income for the support of the institution. The

principal or corpus of the fund may not be spent. \`\`Endowment fund\'\'

includes \`\`quasi-endowment fund\'\'.

Endowment fund corpus means an amount equal to the endowment

challenge grant or grants awarded under this part plus matching funds

provided by the institution.

Endowment fund income means an amount equal to the total value of

the endowment fund established under the grant minus the endowment fund

corpus.

Quasi-endowment fund means a fund which the governing board of an

institution or foundation establishes to function as an endowment in

that the principal is to be retained and invested. However, the entire

principal and income may be spent at any time at the discretion of the

governing board.

Subpart B\--What Type of Grant Does the Secretary Award Under the

Endowment Challenge Grant Program?

Sec. 628.**10** What are the characteristics of an endowment challenge
grant?

Each endowment challenge grant awarded by the Secretary under this

part\--

\(a\) Must be matched by the institution receiving the grant with one

dollar of non-Federal funds for every two dollars of Federal grant

funds;

\(b\) Must be invested by the institution; and

\(c\) Must have a duration of 20 years.

Sec. 628.**20** What shall an applicant include in an application for an
endowment challenge grant?

An applicant shall include in its application the amount of the

endowment challenge grant it is requesting, a description of its short-

term plan and long-term plan for raising and using endowment challenge

grant funds, and information sufficient for the Secretary to\--

\(a\) Evaluate the application under the selection criteria set forth

in Sec. 628.31 and the priorities set forth in Sec. 628.32; and

\(b\) Determine whether the applicant will administer the endowment

challenge grant in accordance with the regulations in this part.

(Approved by the Office of Management and Budget under control number

1840-0531)

Subpart D\--How Does the Secretary Award an Endowment Challenge Grant?

Sec. 628.**30** How does the Secretary evaluate an application for an
endowment challenge grant?

\(a\) In evaluating an application for an endowment challenge grant,

the Secretary\--

\(1\) Judges the application using the selection criteria in

Sec. 628.31 and the priorities in Sec. 628.32;

\(2\) Gives, for each criterion and priority, a score up to the

maximum possible points in parentheses following the description of that

criterion or priority; and

\(3\) Gives up to 130 total points, 90 points maximum for the criteria

in Sec. 628.31, and 40 points maximum for the priorities in Sec. 628.32.

\(b\) In selecting recipients for grants, the Secretary follows the

procedures in 34 CFR 75.217(d) and (e) o the Education Department
General Administrative Regulations.

Sec. 628.**31** What selection criteria does the Secretary use in
evaluating an application for an endowment challenge grant?

In evaluating an application for an endowment challenge grant, the

Secretary uses the following three criteria:

\(a\) The Secretary measures the applicant\'s past efforts to build or

maintain its existing endowment and quasi-endowment funds by the dollar

and relative increase in market value to the applicant\'s existing

endowment and quasi-endowment funds over the applicant\'s four fiscal

years preceding the year of application using the formulas set forth in

paragraphs (a)(1) through (a)(5) of this section.

\(1\) In measuring an applicant\'s dollar increase in its endowment and

quasi-endowment funds, the Secretary\--

\(i\) Subtracts from an amount equal to the market value of the

applicant\'s endowment and quasi-endowment funds at the end of the four-

year period described in paragraph (a) of this section an amount equal

to the market value of the applicant\'s endowment and quasi-endowment

funds at the beginning of that four-year period; and

\(ii\) Divides the result obtained in paragraph (a)(1)(i) of this

section by the applicant\'s full-time equivalent enrollment at the end
of

the four-year period.

\(2\) The Secretary awards points on a sliding scale giving 10 points

to applicants with the highest dollar increase as calculated in

paragraph (a)(1) of this section and no points to applicants with the

lowest dollar increase.

\(3\) In measuring an applicant\'s relative increase in market value of

its endowment and quasi-endowment funds, the Secretary\--

\(i\) Divides an amount equal to the market value of the applicant\'s

endowment and quasi-endowment funds at the beginning of the four-year

period described in paragraph (a) of this section by the applicant\'s

full-time equivalent enrollment at the end of the four-year period.

\(ii\) Adds \$50 to the amount obtained in paragraph (a)(3)(i) of this

section.

\(iii\) Divides the result obtained in paragraph (a)(1)(ii) of this

section by the amount obtained in paragraph (a)(3)(ii) of this section.

(4)(i) If the amount of endowment per full-time equivalent student

under paragraph (a)(3)(i) of this section is \$50 or more, the Secretary

awards points on a sliding scale giving 15 points to applicants with a

relative increase of 100 percent or more and no points to applicants

that have had a relative decrease of more than 20 percent.

\(ii\) If the amount of endowment per full-time equivalent student

under paragraph (a)(3)(i) of this section is less than \$50, the

Secretary awards points on a sliding scale giving 15 points to

applicants with a relative increase of 100 percent or more and no points

to applicants that have had no relative increase.

\(5\) In measuring the applicant\'s past effort, the Secretary\--

\(i\) Excludes real estate from being considered as part of the

applicant\'s existing endowment or quasi-endowment fund; and

\(ii\) Includes an endowment or quasi-endowment fund operated by a

foundation if the foundation is tax-exempt and was established for the

purpose of raising money for the institution.

\(b\) The Secretary considers the degree of proposed nongovernmental

matching funds. (Total: 15 points maximum for the highest proposed

percentage)

\(1\) The Secretary measures the degree to which an applicant proposes

to match the grant with funds from sources other than a State or local

government\--giving up to 15 points to applicants proposing to obtain
the

largest percentage of matching funds from those nongovermental sources.

\(2\) If an applicant is applying for an endowment challenge grant for

the first time, the Secretary multiplies the maximum number of points

(i.e., 15 points) on this criterion times the following fraction:

\(3\) If an applicant has previously received an endowment challenge

grant, the Secretary uses the following formula in awarding points under

this criterion:

\(c\) The Secretary considers the need for an endowment challenge

grant as measured by the applicant\'s lack of resources.

\(1\) The Secretary gives up to 50 points to applicants with the least

resources as measured, at the end of the applicant\'s fiscal year

preceding the year it applies for an endowment challenge grant, by

revenue per full-time equivalent student it receives from the sum of the

following\--

\(i\) Federal, State and local government appropriations;

\(ii\) Unrestricted Federal, State and local government grants and

contracts;

\(iii\) Eighty percent of tuition and fees; and

\(iv\) Unrestricted and restricted \`\`endowment income\'\'.

\(2\) In measuring the applicant\'s resources, the Secretary\--

\(i\) Defines the factors in paragraphs (c)(1)(i) through (iv) as they

are defined in the Education Department Higher Education General

Information Survey of Financial Statistics.

\(ii\) Excludes real estate from being considered as part of the

applicant\'s existing endowment or quasi-endowment fund.

(Approved by the Office of Management and Budget under control number

1840-0531)

Sec. 628.**32** What funding priorities does the Secretary use in
evaluating an application for an endowment challenge grant?

In evaluating an endowment challenge grant application, the

Secretary uses the following two priorities:

\(a\) Recipient or former recipient of a grant under the Strengthening

Institutions, Special Needs, Hispanic-Serving Institutions,

Strengthening Historically Black Colleges and Universities, or

Strengthening Historically Black Graduate Institutions Program. (Total:

20 points) The Secretary gives 20 points to each applicant who on

October 1 of the fiscal year in which the applicant is applying for an

endowment challenge grant is a current recipient of a planning or

development grant, or was a recipient of a planning or development grant

within the five preceding fiscal years, under the Strengthening

Institutions, Special Needs, Hispanic-Serving Institutions,

Strengthening Historically Black Colleges and Universities, or

Strengthening Historically Black Graduate Institutions Program.

\(b\) Need for an endowment challenge grant as measured by the lack of

endowment funds. (Total: 20 points)

\(1\) The Secretary gives up to 20 total points to an applicant with

the greatest need for an endowment challenge grant under this part, as

measured by the applicant\'s lack of endowment funds.

\(2\) The Secretary gives up to 20 points to the applicant with the

lowest market value, at the end of the applicant\'s fiscal year
preceding

the year it applies for an endowment challenge grant, of its existing

endowment and quasi-endowment fund in relation to the number of full-

time equivalent students enrolled at the institution in the fall of the

year preceding the year it applies for an endowment challenge grant.

\(3\) In measuring the applicant\'s need for an endowment challenge

grant, the Secretary excludes real estate from being considered as part

of the applicant\'s existing endowment or quasi-endowment fund.

(Approved by the Office of Management and Budget under control number

1840-0531)

Subpart E\--What Conditions Must a Grantee Meet Under the Endowment

Challenge Grant Program?

Sec. 628.**40** What are the restrictions on the amount of an endowment
challenge grant?

\(a\) To receive an endowment challenge grant, an institution must

raise at least \$25,000 in matching funds and qualify for at least a

\$50,000 grant under paragraph (c) of this section.

\(b\) If an institution obtains at least \$25,000 in matching funds and

raises all the nongovernmental funds it proposed to raise in its

application, the institution may receive a grant equal to twice the

amount of matching funds it raises up to\--

\(1\) \$500,000 in any fiscal year in which the amount appropriated for

the Endowment Challenge Grant Program is less than \$15,000,000;

\(2\) \$1,000,000 in any fiscal year in which the amount appropriated

for the Endowment Challenge Grant Program equals or exceeds \$15,000,000

but is less than \$25,000,000; or

\(3\) \$1,500,000 in any fiscal year in which the amount appropriated

for the Endowment Challenge Grant Program equals or exceeds
\$25,000,000.

\(c\) If an institution does not raise all the nongovernmental funds

it proposes to raise in its application, the Secretary reduces the

institution\'s grant by multiplying the grant amount requested by the

following fraction:

Sec. 628.**41** What are the obligations of an institution that the
Secretary selects to receive an endowment challenge grant?

\(a\) An institution that the Secretary selects to receive an

endowment challenge grant shall\--

\(1\) Enter into an agreement with the Secretary to administer the

endowment challenge grant;

\(2\) Establish an endowment fund independent of any other endowment

fund established by or for that institution;

\(3\) Deposit its matching funds in the endowment fund established

under this part;

\(4\) Upon receipt, immediately deposit the grant funds into the

endowment fund established under this part; and

\(5\) Within fifteen working days after receiving the grant funds,

invest the endowment fund corpus.

\(b\) Before the Secretary disburses grant funds and not later than a

date established by the Secretary through a notice in the Federal

Register (which date may not be later than the earlier of the last day

of availability of appropriations or eighteen months after an

institution has been notified that it has been selected to receive a

grant), an institution shall\--

\(1\) Match, with cash or low-risk securities, the endowment challenge

grant funds to be received under this part;

\(2\) Certify to the Secretary\--

\(i\) The source, kind and amount of the eligible matching funds;

\(ii\) That the matching funds are eligible under paragraph (b)(1) of

this section and Sec. 628.42; and

\(3\) Have a certified public accountant or other licensed public

accountant, who is not an employee of the institution, certify that the
data

contained in the application is accurate.

(c)(1) For the purpose of paragraph (b)(1) of this section, \`\`cash\'\'

may include cash on hand, certificates of deposit and money market

funds; and

\(2\) A negotiable security, to be considered as part of the

institution\'s match\--

\(i\) Must be low-risk as required in Sec. 628.43; and

\(ii\) Must be assessed at its market value as of the end of the

trading day on the date the institution deposits the security into the

endowment fund established under this part.

(Approved by the Office of Management and Budget under control number

1840-0564)

Sec. 628.**42** What may a grantee not use to match an endowment
challenge grant?

To match an endowment challenge grant, a grantee may not use\--

\(a\) A pledge of funds or securities;

\(b\) Deferred gifts such as a charitable remainder annuity trust or

unitrust;

\(c\) Any Federal funds;

\(d\) Any borrowed funds; or

\(e\) The corpus or income of an endowment fund or quasi-endowment

fund existing at the closing date established by the Secretary for

submission of eligibility requests under the Endowment Challenge Grant

Program. This includes the corpus or income of an endowment or quasi-

endowment fund established by a foundation if the foundation is tax-

exempt and was established for the purpose of raising money for the

institution.

Sec. 628.**43** What investment standards shall a grantee follow?

\(a\) A grantee shall invest, for the duration of the grant period,

the endowment fund established under this part in savings accounts or in

low-risk securities in which a regulated insurance company may invest

under the law of the State in which the institution is located.

\(b\) When investing the endowment fund, the grantee shall exercise

the judgment and care, under the circumstances, that a person of

prudence, discretion and intelligence would exercise in the management

of his or her own financial affairs.

\(c\) An institution may invest its endowment fund in savings accounts

permitted under paragraph (a) of this section such as\--

\(1\) A federally insured bank savings account;

\(2\) A comparable interest bearing account offered by a bank; or

\(3\) A money market fund.

\(d\) An institution may invest its endowment fund in low-risk

securities permitted under paragraph (a) of this section such as\--

\(1\) Certificates of deposit;

\(2\) Mutual funds;

\(3\) Stocks; or

\(4\) Bonds.

\(e\) An institution may not invest its endowment fund in real estate.

Sec. 628.**44** When and for what purposes may a grantee use the
endowment fund corpus?

(a)(1) During the grant period, a grantee may not withdraw or spend

any part of the endowment fund corpus.

\(2\) If, during the grant period, a grantee withdraws or spends all

or part of the endowment fund corpus, it must repay to the Secretary an

amount equal of 50 percent of the amount withdrawn or spent plus the

income earned on that amount.

\(b\) At the end of the grant period, the institution may use the

endowment fund corpus for any educational purpose.

Sec. 628.**45** How much endowment fund income may a grantee use and for
what purposes?

\(a\) During the endowment challenge grant period, a grantee\--

\(1\) May withdraw and spend up to 50 percent of the total aggregate

endowment fund income earned prior to the date of expenditure;

\(2\) May spend the endowment fund income for\--

\(i\) Costs necessary to operate the institution, including general

operating and maintenance costs;

\(ii\) Costs to administer and manage the endowment fund; and

\(iii\) Costs associated with buying and selling securities, such as

stockbroker commissions and fees to \`\`load\'\' mutual funds;

\(3\) May not use endowment fund income for\--

\(i\) A school or department of divinity or any religious worship or

sectarian activity;

\(ii\) An activity that is inconsistent with a State plan for

desegregation applicable to the grantee; or

\(iii\) An activity that is inconsistent with a State plan applicable

to the grantee; and

\(4\) May not withdraw or spend the remaining 50 percent of the

endowment fund income.

\(b\) Notwithstanding paragraph (a)(1) of this section, the Secretary

may permit a grantee that requests to spend more than 50 percent of the

total aggregate endowment fund income to do so if the grantee

demonstrates that the expenditure is necessary because of\--

\(1\) A financial emergency such as a pending insolvency or temporary

liquidity problem;

\(2\) A situation threatening the existence of the institution such as

destruction due to a natural disaster or arson; or

\(3\) Another unusual occurrence or demanding circumstance, such as a

judgment against the institution for which the institution would be

liable.

\(c\) If, during the grant period, a grantee spends more endowment

fund income or uses it for purposes other than permitted under

paragraphs (a) or (b) of this section, it shall repay to the Secretary

an amount equal to 50 percent of the amount improperly spent.

\(d\) At the end of the grant period, the institution may use all of

the endowment fund income for any educational purpose.

Sec. 628.**46** How shall a grantee calculate the amount of endowment
fund income that it may withdraw and spend?

A grantee shall calculate the amount of endowment fund income that

it may withdraw and spend at a particular time as follows:

\(a\) On each date that the grantee plans a withdrawal of income, it

must\--

\(1\) Determine the value of endowment fund income by subtracting the

endowment fund corpus from the current total value of the endowment fund

on that date; and

\(2\) Calculate the amount of endowment fund income previously

withdrawn from the endowment fund.

\(b\) If the value of endowment fund income in the endowment fund

exceeds the aggregate amount of previously withdrawn endowment fund

income, the grantee may withdraw and spend up to 50 percent of that

excess fund income.

Sec. 628.**47** What shall a grantee record and report?

A grantee shall\--

\(a\) Keep records of\--

\(1\) The source, kind and amount of matching funds;

\(2\) The type and amount of investments of the endowment fund;

\(3\) The amount of endowment fund income; and

\(4\) The amount and purpose of expenditures of endowment fund income;

\(b\) Retain each year\'s records for a minimum of five years after the

grant period ends;

\(c\) Allow the Secretary access to information that the Secretary

judges necessary to audit or examine the records required in paragraph

\(a\) of this section;

\(d\) Carry out the audit required in 34 CFR 74.61(h) or 80.26 and the

appendix to 34 CFR part 80, as applicable;

\(e\) Provide to the Secretary a copy of the external or internal

audit to be performed under 34 CFR 74.61(h) or 80.26 and the appendix to

34 CFR part 80, as applicable; and

\(f\) Submit reports on a timely basis that are requested by the

Secretary.

Sec. 628.**48** What happens if a grantee fails to administer the
endowment challenge grant in accordance with applicable regulations?

\(a\) The Secretary may, after giving the grantee notice and an

opportunity for a hearing, terminate an endowment challenge grant if the

grantee\--

\(1\) Withdraws or spends any part of the endowment fund corpus in

violation of Sec. 628.44(a)(1);

\(2\) Spends any portion of the endowment fund income not permitted to

be spent in Sec. 628.45;

\(3\) Fails to invest the endowment fund in accordance with the

investment standards set forth in Sec. 628.43; or

\(4\) Fails to meet the requirements in Sec. 628.41.

\(b\) If the Secretary terminates a grant under paragraph (a) of this

section, the grantee must return to the Secretary an amount equal to the

sum of the original endowment challenge grant or grants plus the income

earned on that sum.