oughly experienced in the financing of construction projects by the issuance of bonds, and whose approving opinions have previously been accepted by purchasers of bonds offered at public sales. In addition, where the borrower is a public institution or agency, the proposed bond counsel shall be a recognized bond counsel in the municipal field. The legal memorandum or opinion to be provided by such an acceptable bond counsel in each case generally shall be as follows:

(a) A memorandum by bond counsel, submitted with the loan application, stating that there is or will be authority to finance, construct, maintain the project, and to issue the proposed obligations and to pledge or mortgage the assets and/or revenues offered to secure the loan, citing the basis for such authority. (b) A preliminary approving opinion of bond counsel, submitted at the time the applicant proposes to advertise for construction bids for the project, to the effect that when the bonds or notes described in the loan agreement are sold and delivered they will comply with the applicable provisions of the loan agreement and will be valid and binding obligations of the issuer and will be payable in accordance with their terms.

(c) The final approving opinion of bond counsel, delivered at the same time as the delivery of the bonds or notes, stating that the bonds or notes (1) are those described in the loan agreement and the authorizing proceedings, (2) have been duly authorized, sold, and delivered to the Commissioner, and (3) constitute the valid and binding obligations of the issuer payable in accordance with their terms.

§ 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. § 170.61 Loan closing.

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

§ 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. § 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.

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 and interest on which are guaranteed by the U.S. Government, which shall mature not later than eighteen (18) months from the date of such investment. § 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.

Subpart E—Annual Interest Grants for Construction of Academic Facilities

AUTHORITY: The provisions of this Subpart E issued under sec. 306, 82 Stat. 1060; 20 U.S.C. 746.

SOURCE: The provisions of this Subpart E appear at 35 F.R. 5614, April 7, 1970, unless otherwise noted.

(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.

(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.

(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.

§ 170.72 Amount of annual interest grants.

Except where a 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 service 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. § 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. Requests for application forms may be made to the Director of Higher Education for the appropriate regional office of the Department of Health, Education, and Welfare.

§ 170.74 Conditions 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 academic facilities in order to prevent a decrease in student enrollment capacity; (b) Funds will be available as required to pay the total development cost of 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 practical and feasible. § 170.75

Limits governing extent of Federal assistance.

The principal amount of a loan (or portion thereof) on which an annual interest grant is approved may not exceed (a) 85 percent of the estimated development cost of the project or 90 percent of the actual development cost less the amount of any other Federal financial assistance (including loans from nonFederal sources, the repayment of the principal or interest on which is subsidized or insured by an agency of the Federal Government) the applicant has obtained or is assured of obtaining under any law other than that covered by this subpart, with respect to the construction of the project or (b) $5 million: Provided, however, That the aggregate principal amount of loans (or portions thereof) with respect to which annual interest grants are approved during any Federal fiscal year may not exceed $5 million for projects at any one institution or branch campus thereof.

§ 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) provide that such loan is to be repaid in substantially annual level 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 exceptions: Provided, however, That in no event shall the term of the loan exceed 40 years.

§ 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 for bids for the securities in an advertising medium acceptable to the Commissioner will be deemed to meet this requirement. 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.

Upon approval of an application for annual interest grants, the Commissioner shall prepare and send to the applicant a proposed agreement, which shall contain the terms and conditions relating to the receipt of annual interest grants 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 term 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 appli

cant 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.

§ 170.79 Payment of annual interest grants.

The first payment will normally be made fifteen (15) days prior to the first anniversary date following initial use of the project. Annual interest grants shall be paid annually approximately fifteen (15) days prior to the anniversary date of the loan. The first payment shall accrue from the date of such initial use to the first anniversary date thereafter. Grant assistance shall not accrue during any period prior to initial use of the project. Payment of annual interest grants will usually be made directly to the applicant. However, payment will be made directly to a trustee, paying agent or lender pursuant to an assignment of such payments by the applicant. § 170.80 Reduction of grant where refinancing produces lower cost.

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. § 170.81 Conversion of direct loans to annual interest grants.

Applicants who have already secured approval of a direct loan under this part or who have applications on file with the Office of Education which have not yet been approved will be given an opportunity to convert such loans or applications for such loans to annual interest grants or applications for annual interest grants under the provisions of this subpart.

§ 170.82 Priority considerations; closing dates.

Applications shall be processed in such manner as is necessary and appropriate

to encourage distribution of the available funds in accordance with urgency of need for academic facilities and special consideration will be given to institutions committed to the enrollment of a substantial number of students from low income families. The Commissioner may, from time to time, set closing dates by which applications must be filed in order to be assured of consideration during a given period of time.

§ 170.83 Preceding provisions not exhaustive of authority of Government.

The provisions of this subpart are not exhaustive of the authority of the Government to impose, at such time as it may deem appropriate, further limitations respecting the amount of the annual interest grant or the amount on which such grant is based.

in section 801 of the Act shall have the same meaning as given them in the Act. All references to sections are to sections of this part, unless otherwise indicated.

(b) "Assignable area" means square feet of area in facilities designed and available for assignment to specific functional purposes, as distinguished from area in a building used either for janitorial and building maintenance services or for nonassigned use (e.g., public washrooms and general service areas).

(c) "Audiovisual center" means a facility controlled and operated by one or more institutions of higher education, for: (1) The collection, production, custody, cataloguing, maintenance, or distribution of audiovisual materials for use in providing instruction in such institutions of higher education; or (2) the use by students of special audiovisual or other programed instructional equipment on an individual basis for selfinstruction purposes; or (3) a combination of such purposes.

(d) "Basic educational and general expenditures" means the total of all expenditures (including the estimated value of nonsalaried or contributed personal services) no matter by whom made, for a particular institution or branch campus of such institution, for: General administration and general expense; instruction and departmental research; librarles; and operation and maintenance of the physical plant. For purposes of this definition:

(1) "Expenditures for general administration and general expense" includes all expenditures of the general executive and administrative offices serving the institution (or branch campus) as a whole, expenditures for deans of students and their staffs, and for the counseling and guidance program, the placement bureau, the student loan service, the student health service (where not an auxiliary enterprise intended to be selfsupporting), and other expenditures which are of a general character not related to any specific division of the institution (other than libraries, and operation and maintenance of the physical plant, as separately defined in subparagraphs (3) and (4) of this paragraph);

(2) "Expenditures for instruction and departmental research" includes all expenditures of instructional departments (e.g., salaries, office expense and equipment, laboratory expense and equipment, and other expenses), including expendi

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tures for departmental research but excluding separately organized or separately budgeted research;

(3) "Library expenditures" includes all expenditures for separately organized libraries, both general and departmental, including those for salaries, wages, other operating expenses, books, and binding costs;

(4) "Expenditures for operation and maintenance of the physical plant” includes salaries, wages, supplies, other expense, and equipment for operation and maintenance of the institutional plant, except those expenditures appropriately chargeable to "auxiliary enterprises," or to "organized activities relating to educational departments;"

(5) All other terms and account classifications used herein shall have the same meaning as given them in College and University Business Administration, Volume I, American Council on Education, Washington, D.C., 1952.

(e) "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. ratio"

(f) "Capacity/enrollment means the ratio of square feet of assignable area of instructional and library facilities (as defined in paragraph (m) of this section) to the total student clock-hour enrollment divided by 100. For purposes of this definition, "student clock-hour enrollment" means the aggregate clock hours (sometimes called contact hours) per week in classes or supervised laboratory or shop work for which all resident students (1.e., students taking residence credit, irrespective of the time of day or workload of the student) are enrolled as of a particular date. Where formally established independent study programs exist, systematically determined equivalents of class or laboratory hours may be included under "student clock-hour enrollment," subject to verification and adjustment by the State commission.

(g) "Classroom" means, for purposes of eligibility of projects under this part, a "general classroom,' "instructional laboratory or shop," "other teaching facility," or "service area for teaching facilities," as such terms are defined in