Loan Funds

1. Loan Funds Higher Education Session #8 Presented by Jud Hurd

2. Definition The loan fund group consists of loans to students, faculty, or staff, and of resources available for such purposes

3. Student Loans • Operate on a revolving basis • Part of need-based financial aid • Other elements involved • Sharing administration tasks

4. Sources • Operating: • Government Grants (Perkins) • Loan Interest • Payment of loan principle (balance sheet only) • External Borrowings (liability) • Non-operating: • Gifts

5. Sources • Investment Earnings • Endowment Earnings • Other Internal Additions: • Mandatory Transfers In • Non-mandatory Transfers In

6. Decreases • Operating Expenses: • Losses (write offs) • Admin. & Collection Expenses • Refunds to Donors • Other Internal Dedcutions: • Transfers Out

7. Problem A

8. Problem A The Smith family gave $20,000 to the college for the purpose of granting loans from either the principal or any interest earned on the funds. The agreement called for interest on the loans not to exceed 6 percent. Identify what accounts are involved and prepare the necessary journal entries.

9. Problem A - Answer Loan Accounts Cash $20,000 Restricted Gift $20,000 To record the Smith Family loan gift (Max. interest rate has no bearing on accounting entries at this point)

10. Several Factors In Loan Accounts • Donor restrictions • Court action to change restrictions • Forgiveness features • Interest policy • Accrual vs. Cash Basis

11. Donor Restrictions • Recipients of loans • Rates of interest • Amount of individual loans • Repayment terms • Standardization of terms

12. Loan Forgiveness • Perkins and Nursing Student Loan • Programs incorporate forgiveness • Features in loan agreements • Private donors may require same features

13. Interest Factors • Factors governing interest rates • Institutional policy • Government regulations • Donor requirements • Interest recorded in • Specific account • Pooled

14. Uncollectible Loans • Similar to for-profit • Bad debt expense • Allowance

15. Bad Debt Expense/Allowance • Reduces net asset balance • Both past and present delinquency experience are factored in estimation • Measured against all loans, not just delinquent • Uncollectibles written off by debiting the “allowance” account and crediting the loans receivable account

16. Recording Losses • Individual Loan Account • Special Central Account

17. Recording Losses • Control Accounts • Supported by subsidiary ledger • Loan servicing companies • Other Assets involved • Cash • Investments • Contra-asset

18. Problem B

19. Journalize the transactions described on the next slide, using account titles from the following list: • Cash • Private Gifts – Blake Loan Account • Blake Loan Account – Notes Receivable • Due to Current Funds • Due from Loan Funds • Allowance for Un-collectible Loans • Bad Debt Expense – Blake Loan Account • Interest Earned – Blake Loan Account • Student Accounts Receivable

20. 1. The college received an additional gift of $75,000 for the Blake Revolving Loan account for Needy Accounting Majors. Loan Funds Cash $75,000 Private Donations-- Blake Fund $75,000 To record new Blake Loan resources

21. 2. The college made loans totaling $35,000 from the Blake Loan Account to students. No cash was involved; the student received transfers to their accounts. Current Operations Cash $35,000 Student Accts. Receivable $35,000 To post student loan receipts to the students’ accounts Loan Accounts Blake Fund--Notes Receivable $35,000 Cash $35,000 To record new loans

22. 3. Payments received on the Blake Loan Accounts totaled $17,000. Loan Accounts Cash $17,000 Blake Loan--Notes Receivable $17,000 To record loan payments

23. 4. Blake Loan Account loans outstanding accrued $4,000 interest during this accounting period. Loan Accounts Blake Fund--Notes Receivable $4,000 Interest Earned-- Blake Fund $4,000 To record accrued interest

24. 5. Based on an aging analysis of the loans receivable, estimate that $9,000 of Blake Loan Account loans outstanding are un-collectible. Loan Accounts Bad Debt Expense-- Blake Fund $9,000 Allowance for Un-collectible Loans $9,000 To record anticipated losses

25. 6. From the $9,000 – write off note balances totaling $2,000. Loan Accounts Allowance For Un-collectible Loans $2,000 Blake Loan--Notes Receivable $2,000 To write off bad loans

26. Significant Federal Loan Programs • Perkins Loans (formerly NDSL) • Fed. Family Education Loans (formerly GSL) • Stafford Loans (formerly GSL) • Parent Loans for Undergraduate Students (PLUS)

27. Significant Federal Loan Programs • Exceptions” • Fed. Direct Loans (Wm.D. Ford Federal Direct Loan Program) • Agency fund and not loan fund • NACUBO Advisory Report 2000-05 • HE Accounting Standard #8

28. Other Business Office Responsibilities • Obtain signed notes • Provide truth-in-lending disclosures • Collect loans

29. Agency Funds

30. Definition • The agency fund group consists of funds held by an institution as custodian or fiscal agent for others such as student organizations, individual students, or faculty members

31. Accounting • Transactions of agency funds represent charges or credits to the asset and liability accounts and are not transactions of unrestricted or restricted current funds

32. Operating Considerations • Private funds, not university funds • University is the bank – deposits held in custody • Revenue and expense for agency use, not university business – but do use for cash flow statement

33. Operating Considerations • When dealing with an agency fund FOPP, you are dealing with a private entity – true revenue and not interdepartmental revenue • Can’t transfer cash to agency funds • Process to approve new clients • Student organizations always a struggle