A Decade of Results: Charter School Loan & Operating Performance

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LIIF is pleased to share A Decade of Results: Charter School Loan & Operating Performance, an industry-wide survey that examines ten years of charter school loan performance. The report reflects data from 15 lenders representing $1.2 billion in charter school loans. Printed copies of the report will be available in June.

This study identifies and analyzes charter school characteristics that have a direct and material relationship with loan performance. It tracks loan performance over the past decade using metrics such as debt service coverage, delinquency and history of refinance. Ultimately, the report’s sponsors hope to encourage increased investment in high-performing schools and increased educational opportunities for students.

Key Findings

  • Overall, charter school loans in the data set performed well. Only 1.0% of the total loan amount in the study ended in foreclosure. Among outstanding loans, just over 3% were reported as delinquent for 60 days or more at any point in their history.
  • Stronger academic performance is associated with better loan performance. Other factors that affected performance included size of the organization and occupancy costs.
  • For loans maturing during last three years of the study period, 15% were extended and are still outstanding and 85% were paid off. Of those that were paid off, two-thirds were refinanced by a term loan, 17% were refinanced through the bond market, 12% were refinanced through New Markets Tax Credits and 2% were refinanced through other sources.

Why Is It Important to Examine Charter Schools’ Access to Financing?
Charter schools, unlike other public schools, have limited access to public buildings and public financing mechanisms. This means charter schools often use general operating funds to find, improve and manage their facilities, leaving fewer resources for educating students.

Charter schools seeking external financing have found traditional banking institutions reluctant to lend to a sector or organizations with limited borrowing track records. Community development financial institutions (CDFIs) stepped in to fill this gap and provided financing to support the expansion of high-performing charter schools. For the first time, this data has been compiled and analyzed to provide a picture of lending in the charter school sector.

A Decade of Results: Charter School Loan & Operating Performance was sponsored by LIIF, Raza Development Fund and The Reinvestment Fund, funded by the Bank of America Charitable Foundation and prepared by the Quantitative Economics and Statistics Practice of Ernst & Young.

Download the report