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Dive Brief:
- Alabama lawmakers advanced a bill Thursday that would create a loan program to provide aid to financially struggling colleges in the state, potentially throwing a lifeline to Birmingham-Southern College.
- The bill would establish the Distressed Institutions of Higher Education Revolving Loan Program, which could be used by either private or public colleges. The proposal is intended to help Birmingham-Southern, a private liberal arts college that has said it needs an infusion of $37.5 million from state and local government to keep its doors open.
- Although one of the bill’s sponsors told WBRC that it’s geared toward Birmingham-Southern, the legislation is written so it could also benefit other higher education institutions. To qualify for the program, colleges must have fundraising plans to grow their endowment and pledge their assets as collateral in case they can’t pay back their loan.
Dive Insight:
Birmingham-Southern College has deep roots in Alabama, with a history that spans more than 150 years. The Methodist-affiliated college was created from the merger of two higher education institutions in 1918 — Southern University and Birmingham College.
But the roughly 1,000-student college found itself in trouble last year, when it announced that it was seeking $30 million from the state and an additional $7.5 million from city and county leaders to stay afloat.
In a December message, Birmingham-Southern said its financial troubles began when a building program in the mid-2000s overextended its endowment and saddled the institution with debt. The Great Recession further drained the college’s resources.
Birmingham-Southern’s endowment totaled around $54 million in 2021, according to the college’s latest audit. Federal data shows the institution’s enrollment has hovered around 1,200 students for the past decade, though that figure fell to 1,058 students in fall 2021.
Lawmakers initially appeared hesitant to bail out the college. But then Birmingham-College officials announced in April that its board had voted to stay open after the institution worked out a deal with state and local lawmakers to secure bridge funding.
The new bill sheds light on the deal’s details. To qualify for a loan under the proposal, colleges must have operated for more than 50 years in the state, be at risk of closure due to financial challenges and have a significant impact on the surrounding community.
The requirements appear to be written “so a very small number of colleges could potentially benefit,” said Robert Kelchen, a higher education professor at the University of Tennessee, Knoxville. “But they also didn’t want to write a bill just to help one institution.”
The measure would not promise a specific loan amount. But a recent budget proposal sets aside $30 million for the fund, the exact amount Birmingham-Southern has requested from the state, according to AL.com. The state treasurer would determine other details, including interest rates and when disbursements were made.
Repayments would go back into the fund, according to the bill.
“In a solid budget year, this is an easier choice for the legislature to make,” Kelchen said. “And it kicks some hard decisions down the road.”
That includes whether the state will choose to seize Birmingham-Southern if it can’t pay back the loan, or if it will just keep deferring payments, Kelchen said.
“What happens if the college is just muddling through, it can’t make the payments, but it’s also staying open?” Kelchen said.
State Sens. Jabo Waggoner, a Republican, and Rodger Smitherman, a Democrat, introduced the bill. The Senate unanimously passed the proposal Thursday, and a companion bill has been introduced in the House.
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