Here's how UNC System universities may cut down on bank loans

The UNC Board of Governors Committee on Budget and Finance met Thursday to discuss a new loan system for UNC System schools, as well as tuition guidelines for the next academic year.

Internal Bank Proposal

Clinton Carter, the senior vice president for finance and administration and chief financial officer of the UNC System spoke about the internal bank proposal at the meeting. Under the internal bank concept, the UNC System would act as a bank that could loan money to system schools rather than the institutions borrowing money from private lenders. 

This system is used by institutions across the country such as the University of Virginia, the Ohio State University and Carnegie Mellon University.

According to Carter’s presentation, multiple banks have expressed interest based on preliminary discussions. If approved, the UNC System would start at a borrowing level of $100 million with a fixed interest rate for five-, seven- and 10-year terms.

“We’ve had a lot of conversations with a number of banks that you all will be very familiar with and the five to seven-year tenure range term is in the 2.1 to 2.7 percent range, so a really low cost of borrowing,” Carter said. 

If the internal bank system is implemented, the money lent to institutions can only be used for capital projects.

“Really short-term, call it low-risk projects, so energy savings deals, equipment and technology leases, construction to bridge loans, that’s a big one,” Carter said.

Carter also discussed the efficiency of institutions borrowing from the UNC System rather than private lenders.

“What this does for the universities though, in addition to potentially lowering borrowing costs, is it streamlines the process substantially,” Carter said.

Committee member W. Marty Kotis, III acknowledged that with institutions relying on the system for loans, there is no risk mitigation, but supported the proposal.

“So, this is purely cost-saving for something that, if we’re not mitigating our risk we might as well get the cost savings,” Kotis said. “I think this makes perfect sense and we should do it on an even larger basis.”

Tuition and Fees

The Budget and Finance Committee also discussed tuition fees and proposals for the 2020-21 academic year, particularly with respect to tuition guidelines that were implemented by the Board in September 2019. The guidelines include a cap on tuition at 12 credit hours for every student and a three percent cap on mandatory student fee increases.

The BOG took these actions on tuition and fees with the goal of strategically increasing affordability, the presentation said. 

Carter and Sloan presented data on UNC System tuition and discussed how it has the fourth-lowest tuition and fee requirement in the U.S. Additionally, institutions could increase their tuition by an average of $1,623, or 23.1 percent, and still remain in the bottom quartile for tuition at U.S. universities. 

The committee discussed how revenue from fees such as athletics fees and health services fees could benefit students and positively impact universities in the system, particularly faculty and staff.

The Budget and Finance committee will continue to deliberate the implementation of these programs. The BOG meets next Feb. 20 and 21.

“All of us are trying to do, is get to the right decision, that’s all we’re trying to do,” Budget and Finance Chairperson Temple Sloan said.

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