LR college gets $30M U.S. loan

Arkansas Baptist refinances building debt with agency

Arkansas Baptist College has received a $30 million federal loan guaranteed through the U.S. Department of Education, but it is unclear what the move will do to shore up the college’s accreditation status.

The college secured the money through a Dec. 5 bond issue by the Historically Black Colleges & Universities Capital Loan Financing Program, allowing the school to pay back nine lenders and creditors, the Arkansas Times first reported Saturday.

The college refinanced some $27.8 million of debts from construction loans and in turn received the longer-term, low-interest loan, according to a news release given to the Arkansas Democrat-Gazette on Tuesday.

President Fitz Hill was unavailable for an interview, chief of staff LaCresha Newton said in an email Monday. Calls to his office, his cellphone and the college were not returned Monday.

“Last year, Arkansas Baptist College faced a severe cash-flow crisis that threatened our survival as an institution,” Hill said in the Tuesday release. “Due to the relentless efforts of our staff and the support of friends, we have worked very hard to resolve our cash-flow challenges and are now in the process of taking definitive steps to secure the college’s long-term financial stability.”

That crisis led to student and staff complaints, prompting an investigation by the Higher Learning Commission, which accredits the college.

The commission questioned whether the college could meet its financial obligations and if the college’s leaders could fulfill the institution’s mission. The commission then placed the college on “notice status,” meaning that it is at risk of noncompliance with one or more accreditation standards.

The college submitted a report to the commission in August to allay the accrediting agency’s concerns, and the commission planned to send a review team to the college to validate the contents of the report in October. College officials said the review team canceled the site visit and has not rescheduled.

The commission is to decide if the college will be removed from “notice status” or if further action — which could include a loss of accreditation — is necessary. John Hausaman, a spokesman for the Higher Learning Commission, said the agency could not comment on ongoing evaluations until the board takes action on the matter.

Hill has maintained that the college did not have financial problems but instead had a “cash-flow” problem when the U.S. Department of Education placed the college on Heightened Cash Monitoring Status last year.

The U.S. Department of Education typically doles out federal student aid funds on an “advance pay” or “direct reimbursement” basis to colleges. If a college is placed on “Heightened Cash Monitoring 2,” the department releases funds to the school once the school makes disbursements to student or parent borrowers. The status also requires the school to submit manual reports.

The process significantly slows the affected college’s cash flow, officials said.

In 2013, the college tried to switch its student financial aid system to an automatic one, but officials ran into “computer related challenges” that led to “the dismissal of staff,” according to the college’s news release. Officials shut down the computer systems to protect the security of student information, but that move wouldn’t allow the school to receive funds from the federal government, the release states.

The college had planned to disburse advance-pay funds when the U.S. Department of Education made the status placement.

“This significant change in student financial aid payments caused an immediate cash-flow shortage of more than $5 million for Arkansas Baptist College,” the release states. “Consequently, the college was faced with the challenge of finding a way to sustain daily operations without any federal funds from July 1, 2013 through December 16, 2013.”

Because the college had no endowment or cash reserves, it began delaying payments to employees and vendors, reduced or eliminated all nonessential expenses and took out loans from local banks to meet immediate needs, the release states.

The college’s financial obligations have led to a number of civil lawsuits, in which companies have demanded money for unpaid bills.

In a lawsuit filed last summer, Little Rock-based RRE Reserves — which owns several apartment complexes that Arkansas Baptist College leased for student housing — contended that the college owed $72,108.82 in back rent and utility payments.

In July, the Arkansas Department of Workforce Services filed a lien on all of the college’s real and personal property for $131,437.15 in unpaid unemployment insurance contributions, interest and penalties.

A May 13 lawsuit says the college didn’t repay a $132,325.67 loan from GreatAmerica Financial Services Corp., a national commercial-equipment finance company based in Iowa. Attorneys for the company filed a writ of garnishment in Pulaski County Circuit Court for the college’s account with First Security Bank.

The bank responded to the court Aug. 13, saying it was “unable to locate funds in a deposit account in the name of Arkansas Baptist College.”

The lien was “fully satisfied” Nov. 24, according to court documents. In each of the suits, a satisfaction of judgment was filed Nov. 25.

The 910-student college received the $30 million loan, which carries a 2.635 percent interest rate, on Dec. 5 through wire transfers. Revenue from student tuition and future capital campaigns will repay the federal loan.

The federal loan was granted in spite of the Heightened Cash Monitoring Status because the college has not had any cash issues since receiving that placement and has hired a financial aid director, according to the U.S. Department of Education.

The college hired Phillip Rodgers, who led the financial aid office at Portland State University, to be the executive director of financial aid and scholarships in September.

Part of the loan was used to pay off the college’s two biggest debts: $15.5 million to First Security Bank and $10.1 million to Iberia Bank.

Iberia Bank had issued the college a loan to finance a new dormitory and a new student union center, said Pete Yuan, president of the Arkansas region of the bank.

“They have performed satisfactorily with us, in terms of the debt,” he said. “During the period dealing with financial problems, they had some delays, but Fitz was very, very good about honoring his duties to the best of his ability.”

Yuan added that the loan marked a positive outcome for the college.

“They will save quite a bit of interest having this loan versus previous loans,” Yuan said. “It’s a confirmation that the issues that were reported over the last 18 months … the Department of Education obviously feels that they are addressing the issues adequately. They wouldn’t have made [the loan] if that weren’t the case.”

College officials have vowed to work to restore the advance-pay system and to grow enrollment.

“It is our intention to begin aggressively funding an endowment as well as to create a six-month operating reserve so that Arkansas Baptist is better able to weather any future unexpected financial difficulties,” Hill said in the news release.

“The last year has been more difficult than I can precisely explain, but Arkansas Baptist College will emerge from this crisis stronger than ever and even more committed to fulfilling our mission of serving our students, our local community, our state and our nation.”

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