WATERVILLE — Not a penny of the $100 million Colby College plans to spend on programs and capital improvements, including a new sports complex and performing arts venue, will have to come out of its endowment.
Interest rates are so low the school plans to issue bonds to supplement private donations for its biggest strategic initiative in more than a decade, following the lead of other schools across the country taking advantage of low interest rates to borrow for projects and to refinance debt.
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Colby President David A. Greene said attractive interest rates and Colby’s low debt make this “an ideal moment to utilize debt financing as one element of a larger plan for Colby’s future.”
That will allow the school to leave its $750 million endowment alone. The school will borrow at 4.25 percent while the projected return on its endowment is 8 percent.
Even big companies on the Standard & Poor’s 500 index – with more than $1 trillion in cash on hand – are rushing to the bond market instead of tapping their cash reserves with the 10-year Treasury note yield plunging to 1.9 percent from 3 percent last year, said Marilyn Cohen, president and CEO of Envision Capital.
Mortgage rates often follow the yield on the 10-year Treasury note, and declining interest rates mean it makes sense to sit on a nest egg, she said.
There’s no indication that colleges and universities are embarking on a building spree, but they are taking advantage to refinance at more favorable rates or to take out loans for new projects, said Matt Hamill of the National Association of College and University Business Officers.
Last summer, University of Missouri trustees agreed to refinance up to $350 million in bonds to save money and George Washington University took a similar action by selling $300 million in bonds, using nearly half to pay down existing debt and the remainder for capital projects, he said.
Nationwide, dozens of construction projects are underway.
One of the biggest is at the University of Notre Dame with $400 million for projects around its famed football stadium that will add a student center, a building to house the anthropology and psychology departments, a digital media center and music and sacred music departments.
At Colby, projects being contemplated include a new venue for musical and dance performances as well as an improved athletics complex, in addition to financial aid and career programs, said spokeswoman Ruth Jackson. The college is still deciding whether to start fresh or expand existing facilities, she said.
Bates and Bowdoin have no immediate plans for major capital improvements. Like Colby, they have generous endowments: $1.2 billion for Bowdoin and more than $264 million for Bates. The University of Maine System is preparing to sell some bonds next month.
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