Dartmouth Bonds
On June 29, Dartmouth sold $29 million of AA rated tax-exempt bonds through an underwriting syndicate headed by Goldman, Sachs & Cos. A total of $13 million of the bonds were issued by the College's new Dartmouth Educational Loan Corporation; which was formed in the spring of 1982 to provide loans at attractive rates to qualified Dartmouth students who are. unable to finance their education through other sources. Since interest on the bonds is exempt from federal income tax, the rate prevailing on tax exempts is normally about three to four percentage points lower than on comparable maturities of taxable issue.
The Dartmouth Educational Loan Corporation was made possible by a June 1981 amendment to the New Hampshire Higher Educational and Health Facilities Authority enabling legislation. The amendment permitted the sale of tax-exempt bonds through the authority to provide loan funds for students at New Hampshire colleges. Dartmouth's loan corporation is believed to represent the first in the United States to have access to tax-exempt funds while at the same time being operat-Ed Ed by a private college. The idea of issuing tax-exempt bonds to obtain funds for loan to students was originated by former trustee William H. Morton '32, retired president of American Express, and O. Lawton Johnson, an international management consultant, when both were serving as overseers of the Dartmouth Medical School.
An additional $16 million of Dartmouth bonds were issued to finance physical facilities, some of which will be built in the next three years, some of which are currently under construction or acquisition, and some of which were completed since August 1979.
According to Vice President Paul D. Paganucci '53, who with College Counsel Cary P. Clark '62 led the team that prepared the bond offering, the trustees were aware that the Dartmouth offering was being made at a time of historic high rates in the tax-exempt bond market. In recognition of the high interest-rate environment, the trustees approved an offering containing a mixture of three types of tax-exempt obligations, ranging from discount bonds to five-year bonds. "The package of taxexempt obligations has been structured to maximize to the extent possible the sale of long-term obligations at rates now prevailing on short-to-intermediate-term tax exempts," Paganucci said.
Financing the Dartmouth Educational Loan Corporation is an issue of "put" bonds, which are scheduled to mature in the year 2012, but investors have the option of selling, known as "putting," them back to Dartmouth at par in five years, and yearly after that date. The put bonds carry an average interest rate of 10.625 per cent. That rate, Paganucci pointed out., will enable the College to offer educational loans at an interest rate of under 12 per cent, well below commercial loan rates, even after the addition of a 1.25 per cent surcharge to cover administrative costs, group life insurance on the borrowers, and establishment of a bad-debt reserve. In the latter context, Paganucci noted that Dartmouth alumni have established an "excellent track record" in repaying prior loans, such as the guaranteed student loans, with a default rate dramatically lower than the national average.
The Dartmouth Educational Loan Corporation has been modeled in part on an earlier loan fund developed ten years ago by Tuck School. That fund, and a similar loan program recently set up to help students at Dartmouth Medical School obtain educational loans, are now to be encompassed by the Dartmouth Educational Loan Corporation, which will be the College's agency making loans to both undergraduates and graduate students.
The initial $13 million funding of the Dartmouth Educational Loan Corporation is estimated to be sufficient to satisfy the projected loan requirements of Dartmouth undergraduates and graduate students for at least three years. Portions of the monies received in repayments may be recycled to maintain a revolving loan fund. A measure of the magnitude of the need is indicated by the aggregate sum borrowed by undergraduates during the academic year ending June 30 to help meet college fees and other expenses. The figure for 1981-82 totalled $6,795,000; approximately $6 million carried federal guarantees for which allocations in the future are being sharply curtailed. In addition to the bond revenues, capitalization of the loan corporation includes $1,300,000 by the College from its funds, $500,000 by the Medical School, and some $800,000 by Tuck School.
Capitalization of the Medical School's Health Education Loan Program was provided by Mr. and Mrs. Foster McGaw of Evanston, Illinois. Their $500,000 gift was presented to Dartmouth in honor of James D. Vail III '50, the son of Mrs. McGaw and the late James D. Vail Jr. '20. Loans made to Dartmouth Medical School students will be known as Vail Loans.
The earlier Tuck School student-loan program similarly was funded by gifts, including more than $425,000 donated for that purpose by Albert Bradley '15, former chairman of General Motors and holder of an M.B.A. degree from Tuck.
The College has sold the tax exempts to fund the Dartmouth Educational Loan Corporation and to finance certain facilities projects, such as major renovations, for which it is difficult to find donor support. The bonds were not sold as a fundraising device. In fact, Goldman, Sachs & Cos. was asked not to market the bonds to alumni. Construction projects to be funded by part of the sale of the tax-exempt bonds include a new River Cluster dormitory nearing completion, a new remote storage library, additions to athletic facilities and renovation of such diverse structures as the main student dining hall, student residences, and laboratories.
