payable in accordance with their terms.

(20 U.S.C. 1132c-2(b)(6))

§ 170.59 Determination of priorities for loan approvals.

Loan applications shall be processed in such order and according to such standards and methods as the Commissioner may determine. Such standards and methods shall be developed as may be necessary and appropriate to encourage distribution of the available loan funds in accordance with actual needs and may include establishment of closing dates for consideration of applications and for determination of priorities.

(20 U.S.C. 1132c-2(b))

§ 170.60 Loan agreement.

For project applications which meet all requirements of the Act and of the regulations governing the administration of the Act, and upon approval by the Commissioner together with a reservation of Federal funds, a loan offer will be prepared by the Commissioner and sent to the applicant. The loan offer will set forth the pertinent terms and conditions for the loan, and will be conditioned upon the fulfillment of these terms and conditions. The accepted loan offer will constitute the loan agreement between the Commissioner and the applicant for the partial financing of the construction of the approved project.

(20 U.S.C. 1132c-2(b))

§ 170.61 Loan closing.

Loan closing shall be accomplished at such time as may be determined by the Commissioner.

(20 U.S.C. 1132c-2(b))

§ 170.62 Interim financing.

If necessary, the applicant shall arrange for interim financing, subject to the approval of the Commissioner, to cover the cost of construction pending the loan closing. Where the Commissioner finds that an applicant is unable to secure necessary interim financing on reasonable terms, he may

provide for advances against the approved loan.

(20 U.S.C. 1132c-2(b))

§ 170.63 Construction fund.

The proceeds of the sale of the bonds or notes, any interim advances against the approved loans, and all other moneys to be used in paying for the construction, of which the project is a part, shall be deposited into a separate bank account to be maintained in a bank of the applicant's choice and to be known as the Construction Fund. All expenditures for the construction shall be made from this fund. Accounting for this fund shall be in accordance with generally accepted accounting principles. When necessary and appropriate, the Commissioner may approve other arrangements for the deposit of construction funds and the construction fund accounting, provided such arrangements provide adequate accountability for the total construction receipts and expenditures.

(20 U.S.C. 1132c-2(b))

§ 170.64 Investment of idle construction funds.

Where the moneys on deposit in the construction fund exceed the estimated disbursements for the project for the next 90 days, the borrower shall, if permitted by State or local law, direct the depository bank to invest such excess funds in direct obligations of the U.S. Government or obligations the principal of or interest on which is guaranteed by the U.S. Government, which shall mature not later than eighteen (18) months from the date of such investment.

(20 U.S.C. 1132c-2(b))

§ 170.65 Disposal of balance remaining in the construction fund.

The balance of moneys remaining in the construction fund at the completion of construction shall be disposed of in accordance with the provisions of the loan agreement.

(20 U.S.C. 1132c-2(b))

Subpart E-Annual Interest Grants for Construction of Academic Facilities

§ 170.71 Eligibility for annual interest grants.

(a) Annual interest grants may be made to institutions of higher education, higher education building agencies, and cooperative graduate center boards, to reduce the cost to them of borrowing funds, other than those available under this part, for the construction of academic facilities.

(20 U.S.C. 1132c-4)

(b) No annual interest grant shall be made unless the Commissioner finds that the applicant is unable to secure a loan in the amount with respect to which the annual interest grant is to be made, from other sources upon terms and conditions equally as favorable as the terms and conditions applicable to direct Federal loans under Subpart D of this part. For the purpose of making such determination, the applicant shall comply with such procedures as the Commissioner may establish, including public advertising for bids from other sources.

(20 U.S.C. 1132c-4(e)(2))

(c) Annual interest grants may not be made with respect to loans consummated prior to the filing of an application under this subpart or Subpart D of this part.

(20 U.S.C. 1132c-4(3)(2))

(d) Annual interest grants may not be made with respect to loans (or portions thereof) which cover a construction activity that was begun more than 12 months before the closing date for which consideration is being requested, unless an exception is granted specifically pursuant to § 170.7(c).

(20 U.S.C. 1132c-3(b)(1))

§ 170.72 Amount of annual interest grants. Except where limitation of general applicability is promulgated, each grant shall be in an amount approximately equal to but not more than the difference between (a) the average

annual debt service which is required to be paid, during the life of the loan, on the amount borrowed from private sources for the construction of an academic facility covered by the application, and (b) the average annual debt services which the institution would have been required to pay, during the life of the loan, with respect to such amount if the applicable interest rate were 3 percent per annum. The amount of the annual interest grant stipulated in the agreement may be amended by the Commissioner to reflect changes in the amount or terms of the loan. An increase in the annual grant amount resulting from a request to increase the amount of loan to be subsidized must be made not later than 12 months after construction has started, through the submission of an amended application and is subject to priority considerations applicable at the time such a supplemental request is filed. A request for an increase in the annual grant amount resulting from a change in the rate of interest or the term at the time of actual consummation of the loan will be considered apart from the priority ranking system.

(20 U.S.C. 1132c-4(b))

§ 170.73 Submission of applications.

Each applicant desiring to receive annual interest grants shall submit an application for such grant assistance, in the manner and containing the information specified by the Commissioner. A copy of each application shall be furnished to the State Commission prior to filing with the Regional Office. The Commission will review and evaluate the application and provide comments regarding (a) space utilization, (b) enrollment projections, and (c) over-all need for the facility for which assistance is requested. Following its review, the State Commission will furnish its evaluation to the applicant. If the applicant does not agree with the evaluation, the applicant may include, with the application, a statement supporting counter position. Applications then shall be submitted to the appropriate Regional Office of the Department of Health, Education, and Welfare to

its

gether with all required State agency comments. Applications must be submitted in advance of inviting bids for construction.

(20 U.S.C. 1132c-4)

§ 170.74 Condition for approval of annual interest grants.

An application for annual interest grants will be approved only if the Commissioner is satisfied that:

(a) The facilities to be constructed are urgently needed to accommodate more students or to replace inadequate facilities in order to prevent a decrease in student enrollment capacity;

(b) Funds will be available as required to pay the total development cost to the facilities;

(c) The applicant has or will have a fee simple or such other estate or interest in the facilities and site, including access thereto, sufficient in the opinion of the Commissioner to assure undisturbed use and possession for the purpose of the construction and operation of the facilities for not less than 50 years from the date of application;

(d) The applicant has the necessary legal authority to finance, construct, and maintain the proposed facilities, to apply for and receive the proposed loan and annual interest grants, and to pledge or mortgage any assets or revenues to be given as security for the proposed loan; and

(e) The applicant's financing plan meets the conditions of § 170.76 and is otherwise practicable and feasible.

(20 U.S.C. 1132c-4)

§ 170.75 Limits governing extent of Federal assistance.

The principal amount of loan (or portion thereof) on which an annual interest grant is approved, together with the amount of any other Federal financial assistance the applicant has obtained or is assured of obtaining under any other Federal program, may not exceed 90 percent of the eligible development cost. Further, the aggregate principal amount of loans (or portions thereof) with respect to which annual interest grants are ap

proved during any Federal fiscal year may not exceed $5 million per campus.

(20 U.S.C. 1132c-4)

§ 170.76 Approval of financing plans.

(a) Except as provided in paragraph (b) of this section, in order to be acceptable a financing plan submitted pursuant to § 170.73 must:

(1) Provide that the term of the loan with respect to which an annual interest grant is to be paid does not exceed 30 years or the useful life of the facilities with respect to which such annual interest grant is to be made, whichever is the lesser;

(2) Provided that such loan is to be repaid in substantially level annual installments of interest and principal over the term of the loan, except that interest only may be paid for an initial period not exceeding 5 years; and

(3) Contain such other terms and conditions as will assure the Commissioner that the support provided by the Government over the term of the loan is no more than is necessary to effectuate the purposes of this subpart.

(b) Financing plans may also be acceptable where the term of the loan is longer than 30 years or the annual installments of interest and principal are not substantially level, if the Commissioner finds that unusual circumstances warrant such exception: Provided, however, That in no event shall the term of the loan exceed 40 years. (20 U.S.C. 1132c-4)

§ 170.77 Evidence of lowest possible cost of loan.

An applicant shall demonstrate to the satisfaction of the Commissioner that the loan it proposes to obtain is at the lowest possible net interest cost. In the case of an applicant proposing to issue tax-exempt bonds to finance the construction of academic facilities, a sale pursuant to public advertising or bids for the securities in an advertising medium acceptable to the Commissioner will be deemed to meet this requirement. Prior to advertising bonds for sale, the applicant shall submit to the Commissioner for approval a draft of the proposed notice of sale and a statement of essential

facts concerning the sale. An applicant not issuing tax-exempt securities will be expected to submit offers from at least three (3) lending institutions normally engaged in making long term construction loans. The applicant must have furnished each such institution with the information necessary to enable it to specify in its offer the amount, interest rate, maturity period, security and prepayment provisions of the loan. A loan offer must be approved by the Commissioner before the applicant enters into a firm and binding agreement with a lender.

(20 U.S.C. 1132c-4)

§ 170.78 Annual interest grant agreement.

Upon approval of an application for annual interest grant, the Commissioner shall prepare and send to the applicant a proposed agreement, which shall contain the terms and conditions relating to the receipt of an annual interest grant including a description of the project and the facilities, the maximum principal amount of the loan (or portion thereof) on account of which annual interest grants payments will be made, the maximum annual grant amount and the anticipated terms of the annual interest grant payments. The proposed agreement shall also provide that where a loan is not consummated prior to execution of such agreement by the Commissioner, no grant shall be made thereunder unless the Commissioner concurs in the rate of interest and other terms and conditions of the loan. The agreement once executed by the applicant and the Commissioner creates a contractual obligation on the part of the Commissioner to make annual interest grants in future years in accordance with the terms and conditions of the agreement for so long as the applicant carries out its obligations under the agreement. The agreement for annual interest grants is not entered into for the benefit of, nor to induce the making of loans by or the sale of bonds to, third parties, and the Commissioner shall not entertain grievances or claims of such third parties.

(20 U.S.C. 1132c-4)

§ 170.79 Payment of annual interest grants.

Payments under an annual interest grant agreement will be made by the Government once a year. The date of such payment will coincide as closely as possible with the anniversary date of the loan or, a date during the year when debt service requirement related to the loan is greatest. Once established, the payment date shall remain fixed for the duration of the loan. The first payment shall accrue from a date not earlier than the date of initial use of the project to the date established for the annual payment. The last payment will accrue from the effective date of the next-to-last payment to the date the loan is completely repaid. Payment of annual interest grants shall be made directly to the grantee or to a trustee, paying agent, or lender pursuant to an assignment of such payments by the grantee.

(20 U.S.C. 1132c-4)

§ 170.80 Reduction of grant where refinancing produces lower costs.

Where the Commissioner finds that the applicant could have accelerated repayment of the loan outstanding and obtained a new loan where to do so would have resulted in a net savings in the cost of the loan, the amount of annual interest grants shall be computed as if such refinancing had been undertaken.

(20 U.S.C. 1132c-4)

§ 170.81 Priority considerations; closing dates.

Priority shall be given first to applications from public community colleges and public technical institutes, developing institutions (as defined in § 170.1) and to institutions enrolling 20 percent or more students from lowincome families. All applications from other institutions of higher education will be considered next. Within the two priority categories, applications shall be processed in such manner as is appropriate to encourage distribution of the available funds to those institutions or branch campuses that are (a) in urgent need of additional academic facilities to meet increasing enroll

ments or to prevent a decrease in enrollment due to inadequate facilities and (b) committed to the enrollment of substantial numbers of veterans. Closing dates by which applications must be filed in order to be considered for funds allocated for such closing date shall be on September 1 and February 1 in each fiscal year in which funds are available unless otherwise announced by the Commissioner. Applications filed by September 1 will be considered as filed for the February 1 closing date. Available funds will be divided equally among closing dates.

SOURCE: 39 FR 12950, Apr. 9, 1974, unless otherwise noted.

§ 171.1 Definitions.

As used in this part:

"Act" means Public Law 89-329, the Higher Education Act of 1965, as amended. Unless otherwise indicated, title references are to titles of the Act. All terms defined herein shall have the same meaning as given them in section 1201(a) of the act.

"Branch campus" means a campus of an institution of higher education which is located in a community different from that in which its parent institution is located. A campus shall not be considered to be located in a community different from that of its parent institution unless it is located beyond a reasonable commuting distance from the main campus of the parent institution.

(20 U.S.C. 1125(a))

"Category" refers to Category I (laboratory and other special equipment) or Category II (television equipment for closed-circuit direct instruction).

"Combinations of institutions of higher education" means a group of institutions of higher education that have entered into a cooperative arrangement for the purpose of carrying out a common objective, or a public or private nonprofit agency, organization, or institution designated or created by a group of institutions of. higher education for the purpose of carrying out a common objective on their behalf.

(20 U.S.C. 1141(j))

"Developing institution" means an eligible institution of higher education which has the desire and potential to make a substantial contribution to the higher education resources of our Nation but which for financial and other reasons is struggling for survivial and is isolated from the main currents of academic life.

(20 U.S.C. 1051)

"Expenditures for instructional and library purposes" means the sum of "expenditures for instruction and departmental research" and "library expenditures".