HERNDON — The University of Virginia is considering taking out a loan of up to $100 million to jumpstart funding for its financial aid program, AccessUVa.
Patrick D. Hogan — the university’s executive vice president and chief operating officer — told members of the Board of Visitors’ finance subcommittee Friday that the administration is in talks with a bank on a loan that could help kick-start the AccessUVa endowment.
The university established the endowment last year to help cover the growing cost of AccessUVa.
“As we begin to build a new endowment, the challenge is what do we do in the near term as the funding is coming in?” Hogan said. “We still want to meet 100 percent of need … it’s about coming up with a vehicle to continue to fund financial aid.”
Hogan later declined to name the bank because the university is still hammering out the potential deal. But he said the bank would offer up to $100 million, distributed over five to seven years, at “very attractive” interest rates.
AccessUVa, which pledges to cover 100 percent of unmet student need, has been under scrutiny over the last couple years. The Board of Visitors voted to cut grant aid last year, replacing a portion of it with loans, after it had deemed the program “unsustainable.”
AccessUVa was established in 2004, and in the program's first 10 years, its cost to the university quadrupled from $10 million to $40 million. The recession created greater student need, pushing costs far beyond expectations.
Last year's cuts prompted protests from students and criticism from advocates of college affordability.
Since then, the administration, under President Teresa A. Sullivan, has been pushing to get more philanthropic support for UVa's financial aid program.
Board member Kevin J. Fay has been working with administrators to create an endowment fund that could sustain AccessUVa. But Fay said establishing an endowment takes time.
Taking out a large loan could help cover costs until the endowment is sufficiently large.
"The thing about endowments, as we all know, is they take about 10 years or so before they become useful," Fay said.
"This appears to be a way to kick-start a funding source for a very critical need we have and a very critical budget challenge for us over the next few years," Fay added.
The university - including the Medical Center - currently has about $1.34 billion in outstanding debt, according to Melody S. Bianchetto, UVa's associate vice president of finance.
Bianchetto estimates UVa has capacity to borrow an additional $600 million to $700 million and keep its current bond rating. The university holds AAA ratings from all three major agencies — Standard & Poor's Financial Services, Moody's Investors Service and Fitch Ratings.
But several board members said AccessUVa might need a new marketing angle, as well as an infusion of cash. Paying for a financial aid program doesn't thrill most donors, said John A. Griffin, chairman of the finance subcommittee.
"If you're trying to sell plain vanilla endowment for financial aid, you're going to get a big yawn from most people," Griffin said.
The philanthropic outreach needs to be more personalized, Griffin said, focusing on the stories of students who could not afford to go to UVa without grant aid.
Griffin also suggested linking individual donors directly to students, allowing a donor to personally sponsor someone in need of financial aid. The model works well at private elementary and secondary schools, he said.
"The annual giving program where the money goes to kids who would otherwise not be there is $2 [million] or $3 million a year," he said. "We're talking about schools with 300, 400 students."
John G. Macfarlane III, who was appointed to the board by Gov. Terry McAuliffe last month, suggested rebranding AccessUVa as a scholarship program. Donors likely would be more excited about supporting scholarships than about need-based aid, Macfarlane said.
AccessUVa is need-rather than merit-based, but Macfarlane argued that it's like a scholarship because UVa is an elite school with high admission standards.
"That's essentially what we're giving them," he said. "By virtue of being accepted here, they're meritorious."
The board formed the subcommittee to come up with a long-term tuition and financial aid model. The goal is to set a tuition plan over several years, allowing students and families some predictability in their costs.
The subcommittee also has talked about implementing a policy that would apply tuition increases only to incoming first-year students. In other words, a student would pay the same tuition rate through four years.
Friday's meeting fo cused on a host of related areas - the university's endowment, debt capacity and finding savings.
Hogan said those things all provide other avenues for the university to fund operations while it implements its five-year strategic plan. Early estimates of the plan priced it around $564 million.
The subcommittee will talk more about tuition at later meetings, Hogan said.
"That's the one lever we haven't pulled yet," he said.