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. 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. 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) 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 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 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 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 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. 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. 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. 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. 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. 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. Survey respondents reported information on their institution’s real property portfolio, historical building space, and the condition of their building space. 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. 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.). Survey respondents provided information on funding sources they use to address their capital project needs and the percentage of funding from that source. 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. 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) 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) 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.

Summary: 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.