 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER III--INSTITUTIONAL AID
 
    Part C--Endowment Challenge Grants for Institutions Eligible for 
                    Assistance Under Part A or Part B
 
Sec. 1065. Endowment challenge grants


(a) Purpose; definitions

    (1) The purpose of this section is to establish a program to provide 
matching grants to eligible institutions in order to establish or 
increase endowment funds at such institutions, to provide additional 
incentives to promote fund raising activities by such institutions, and 
to foster increased independence and self-sufficiency at such 
institutions.
    (2) For the purpose of this section:
        (A) The term ``endowment fund'' means a fund established by 
    State law, by an institution of higher education, or by a foundation 
    which is exempt from taxation and is maintained for the purpose of 
    generating income for the support of the institution, but which 
    shall not include real estate.
        (B) The term ``endowment fund corpus'' means an amount equal to 
    the grant or grants awarded under this section plus an amount equal 
    to such grant or grants provided by the institution.
        (C) The term ``endowment fund income'' means an amount equal to 
    the total value of the endowment fund established under this section 
    minus the endowment fund corpus.
        (D)(i) The term ``eligible institution'' means an institution 
    that is an--
            (I) eligible institution under part A of this subchapter or 
        would be considered to be such an institution if section 
        1058(b)(1)(C) of this title referred to a postgraduate degree 
        rather than a bachelor's degree;
            (II) institution eligible for assistance under part B of 
        this subchapter or would be considered to be such an institution 
        if section 1063 of this title referred to a postgraduate degree 
        rather than a baccalaureate degree; or
            (III) institution of higher education that makes a 
        substantial contribution to postgraduate medical educational 
        opportunities for minorities and the economically disadvantaged.

        (ii) The Secretary may waive the requirements of subclauses (I) 
    and (II) of clause (i) with respect to a postgraduate degree in the 
    case of any institution otherwise eligible under clause (i) for an 
    endowment challenge grant upon determining that the institution 
    makes a substantial contribution to medical education opportunities 
    for minorities and the economically disadvantaged.

(b) Grants authorized

    (1) From sums available for this section under section 1068h of this 
title, the Secretary is authorized to award endowment challenge grants 
to eligible institutions to establish or increase an endowment fund at 
such institution. Such grants shall be made only to eligible 
institutions described in paragraph (4) whose applications have been 
approved pursuant to subsection (g) of this section.
    (2)(A) Except as provided in subparagraph (B), no institution shall 
receive a grant under this section, unless such institution has 
deposited in its endowment fund established under this section an amount 
equal to the amount of such grant. The source of funds for this 
institutional match shall not include Federal funds or funds from an 
existing endowment fund.
    (B) The Secretary may make a grant under this part to an eligible 
institution in any fiscal year if the institution--
        (i) applies for a grant in an amount not exceeding $500,000; and
        (ii) has deposited in the eligible institution's endowment fund 
    established under this section an amount which is equal to \1/2\ of 
    the amount of such grant.

    (C) An eligible institution of higher education that is awarded a 
grant under subparagraph (B) shall not be eligible to receive an 
additional grant under subparagraph (B) until 10 years after the date on 
which the grant period terminates.
    (3) The period of a grant under this section shall be not more than 
20 years. During the grant period, an institution may not withdraw or 
expend any of the endowment fund corpus. After the termination of the 
grant period, an institution may use the endowment fund corpus plus any 
endowment fund income for any educational purpose.
    (4)(A) An institution of higher education is eligible to receive a 
grant under this section if it is an eligible institution as described 
in subsection (a)(2)(D) of this section.
    (B) No institution shall be ineligible for an endowment challenge 
grant under this section for a fiscal year by reason of the previous 
receipt of such a grant but no institution shall be eligible to receive 
such a grant for more than 2 fiscal years out of any period of 5 
consecutive fiscal years.
    (5) An endowment challenge grant awarded under this section to an 
eligible institution shall be in an amount which is not less than 
$50,000 in any fiscal year.
    (6)(A) An eligible institution may designate a foundation, which was 
established for the purpose of raising money for the institution, as the 
recipient of the grant awarded under this section.
    (B) The Secretary shall not award a grant to a foundation on behalf 
of an institution unless--
        (i) the institution assures the Secretary that the foundation is 
    legally authorized to receive the endowment fund corpus and is 
    legally authorized to administer the fund in accordance with this 
    section and any implementing regulation;
        (ii) the foundation agrees to administer the fund in accordance 
    with the requirements of this section and any implementing 
    regulation; and
        (iii) the institution agrees to be liable for any violation by 
    the foundation of the provisions of this section and any 
    implementing regulation, including any monetary liability that may 
    arise as a result of such violation.

(c) Grant agreement; endowment fund provisions

    (1) An institution awarded a grant under this section shall enter 
into an agreement with the Secretary containing satisfactory assurances 
that it will (A) immediately comply with the matching requirements of 
subsection (b)(2) of this section, (B) establish an endowment fund 
independent of any other such fund of the institution, (C) invest the 
endowment fund corpus, and (D) meet the other requirements of this 
section.
    (2)(A) An institution shall invest the endowment fund corpus and 
endowment fund income in low-risk securities in which a regulated 
insurance company may invest under the law of the State in which the 
institution is located such as a federally insured bank savings account 
or comparable interest-bearing account, certificate of deposit, money 
market fund, mutual fund, or obligations of the United States.
    (B) The institution, in investing the endowment fund established 
under this section, shall exercise the judgment and care, under the 
circumstances then prevailing, which a person of prudence, discretion, 
and intelligence would exercise in the management of such person's own 
affairs.
    (3)(A) An institution may withdraw and expend the endowment fund 
income to defray any expenses necessary to the operation of such 
college, including expenses of operations and maintenance, 
administration, academic and support personnel, construction and 
renovation, community and student services programs, and technical 
assistance.
    (B)(i) Except as provided in clause (ii), an institution may not 
spend more than 50 percent of the total aggregate endowment fund income 
earned prior to the time of expenditure.
    (ii) The Secretary may permit an institution to spend more than 50 
percent of the endowment fund income notwithstanding clause (i) if the 
institution demonstrates such an expenditure is necessary because of (I) 
a financial emergency, such as a pending insolvency or temporary 
liquidity problem; (II) a life-threatening situation occasioned by a 
natural disaster or arson; or (III) any other unusual occurrence or 
exigent circumstance.

(d) Repayment provisions

    (1) If at any time an institution withdraws part of the endowment 
fund corpus, the institution shall repay to the Secretary an amount 
equal to 50 percent of the withdrawn amount, which represents the 
Federal share, plus income earned thereon. The Secretary may use such 
repaid funds to make additional challenge grants, or to increase 
existing endowment grants, to other eligible institutions.
    (2) If an institution expends more of the endowment fund income than 
is permitted under subsection (c) of this section, the institution shall 
repay the Secretary an amount equal to 50 percent of the amount 
improperly expended (representing the Federal share thereof). The 
Secretary may use such repaid fund to make additional challenge grants, 
or to increase existing challenge grants, to other eligible 
institutions.

(e) Audit information

    An institution receiving a grant under this section shall provide to 
the Secretary (or a designee thereof) such information (or access 
thereto) as may be necessary to audit or examine expenditures made from 
the endowment fund corpus or income in order to determine compliance 
with this section.

(f) Selection criteria

    In selecting eligible institutions for grants under this section for 
any fiscal year, the Secretary shall--
        (1) give priority to an applicant that is receiving assistance 
    under part A of this subchapter or part B of this subchapter or has 
    received a grant under part A of this subchapter or part B of this 
    subchapter within the 5 fiscal years preceding the fiscal year in 
    which the applicant is applying for a grant under this section;
        (2) give priority to an applicant with a greater need for such a 
    grant, based on the current market value of the applicant's existing 
    endowment in relation to the number of full-time equivalent students 
    enrolled at such institution; and
        (3) consider--
            (A) the effort made by the applicant to build or maintain 
        its existing endowment fund; and
            (B) the degree to which an applicant proposes to match the 
        grant with nongovernmental funds.

(g) Application

    Any institution which is eligible for assistance under this section 
may submit to the Secretary a grant application at such time, in such 
form, and containing such information as the Secretary may prescribe, 
including a description of the long- and short-term plans for raising 
and using the funds under this part. Subject to the availability of 
appropriations to carry out this section and consistent with the 
requirement of subsection (f) of this section, the Secretary may approve 
an application for a grant if an institution, in its application, 
provides adequate assurances that it will comply with the requirements 
of this section.

(h) Termination and recovery provisions

    (1) After notice and an opportunity for a hearing, the Secretary may 
terminate and recover a grant awarded under this section if the grantee 
institution--
        (A) expends portions of the endowment fund corpus or expends 
    more than the permissible amount of the endowment funds income as 
    prescribed in subsection (c)(3) of this section;
        (B) fails to invest the endowment fund in accordance with the 
    investment standards set forth in subsection (c)(2) of this section; 
    or
        (C) fails to properly account to the Secretary concerning the 
    investment and expenditures of the endowment funds.

    (2) If the Secretary terminates a grant under paragraph (1), the 
grantee shall return to the Secretary an amount equal to the sum of each 
original grant under this section plus income earned thereon. The 
Secretary may use such repaid funds to make additional endowment grants, 
or to increase existing challenge grants, to other eligible institutions 
under this part.

(Pub. L. 89-329, title III, Sec. 331, formerly Sec. 332, as added Pub. 
L. 99-498, title III, Sec. 301(a), Oct. 17, 1986, 100 Stat. 1299; 
amended Pub. L. 100-50, Sec. 2(a)(12), June 3, 1987, 101 Stat. 336; 
renumbered Sec. 331 and amended Pub. L. 102-325, title III, 
Sec. 304(a)(3), (b), July 23, 1992, 106 Stat. 476; Pub. L. 103-208, 
Sec. 2(a)(8), (10), (11), Dec. 20, 1993, 107 Stat. 2457, 2458; Pub. L. 
105-244, title III, Sec. 305, Oct. 7, 1998, 112 Stat. 1646.)


                            Prior Provisions

    A prior section 331 of Pub. L. 89-329, title III, as added Pub. L. 
99-498, title III, Sec. 301(a), Oct. 17, 1986, 100 Stat. 1298, related 
to establishment of challenge grant program, was classified to section 
1064 of this title prior to repeal by Pub. L. 102-325, Sec. 304(a)(2).
    A prior section 1065, Pub. L. 89-329, title III, Sec. 332, as added 
Pub. L. 96-374, title III, Sec. 301, Oct. 3, 1980, 94 Stat. 1396, 
related to applications for challenge grants, prior to the general 
revision of this subchapter by Pub. L. 99-498.
    Another prior section 1065, Pub. L. 89-329, title IV, Sec. 405, Nov. 
8, 1965, 79 Stat. 1234; Pub. L. 90-575, title I, Sec. 101(b)(2), Oct. 
16, 1968, 82 Stat. 1017, related to allotment and reallotment of funds 
among the States, prior to the general revision of part A of subchapter 
IV of this chapter by Pub. L. 92-318, title I, Sec. 131(b)(1), June 23, 
1972, 86 Stat. 247.
    A prior section 1065a, Pub. L. 89-329, title III, Sec. 333, as added 
Pub. L. 98-95, Sec. 2, Sept. 26, 1983, 97 Stat. 708, established program 
of matching grants to increase endowments at eligible institutions of 
higher education, prior to the general revision of this subchapter by 
Pub. L. 99-498.


                               Amendments

    1998--Subsec. (b)(1). Pub. L. 105-244, Sec. 305(1), substituted 
``section 1068h'' for ``section 1069f''.
    Subsec. (b)(2)(B), (C). Pub. L. 105-244, Sec. 305(2), added subpars. 
(B) and (C) and struck out former subpars. (B) and (C) which authorized 
Secretary to make grants under this part to eligible institutions in 
amounts which varied depending on amount appropriated in each fiscal 
year to carry out this part and limited rights of institutions to 
reapply for grants when amount appropriated was below specified amounts.
    1993--Subsecs. (a)(2)(D), (b)(2)(B), (C), (5). Pub. L. 103-208 
realigned margins and in subsec. (b)(5) substituted ``An endowment'' for 
``an endowment''.
    1992--Subsec. (a)(1). Pub. L. 102-325, Sec. 304(b)(1)(A), struck out 
``of higher education'' after ``eligible institutions''.
    Subsec. (a)(2)(D). Pub. L. 102-325, Sec. 304(b)(1)(B), added subpar. 
(D).
    Subsec. (b)(1). Pub. L. 102-325, Sec. 304(b)(2), inserted 
``endowment'' before ``challenge grants'' and struck out ``of higher 
education'' after ``eligible institutions''.
    Subsec. (b)(2)(B), (C). Pub. L. 102-325, Sec. 304(b)(3), amended 
subpars. (B) and (C) generally. Prior to amendment, subpars. (B) and (C) 
read as follows:
    ``(B) In any fiscal year in which the appropriations for this part 
exceeds $10,000,000, the Secretary may make a grant under this part to 
an eligible institution of higher education if such institution--
        ``(i) has deposited in its endowment fund established under this 
    section an amount which is equal to one-half of the amount of such 
    grant; and
        ``(ii) applies for a grant in an amount exceeding $1,000,000.
    ``(C) An eligible institution of higher education that is awarded a 
grant under this section shall not be eligible to reapply for a grant 
under this section during the 10 years immediately following the period 
that it received such grant.''
    Subsec. (b)(4)(A). Pub. L. 102-325, Sec. 304(b)(4), substituted 
``subsection (a)(2)(D) of this section'' for ``section 1064(a)(1) of 
this title''.
    Subsec. (b)(4)(B). Pub. L. 102-325, Sec. 304(b)(5), substituted ``an 
endowment challenge grant'' for ``a challenge grant''.
    Subsec. (b)(5). Pub. L. 102-325, Sec. 304(b)(6), amended par. (5) 
generally. Prior to amendment, par. (5) read as follows: ``Except as 
provided in paragraph (2)(B), a challenge grant under this section to an 
eligible institution year shall--
        ``(A) not be less than $50,000 for any fiscal year; and
        ``(B) not be more than (i) $250,000 for fiscal year 1987; or 
    (ii) $500,000 for fiscal year 1988 or any succeeding fiscal year.''
    Subsec. (f)(1). Pub. L. 102-325, Sec. 304(b)(7), amended par. (1) 
generally. Prior to amendment, par. (1) read as follows: ``give priority 
to an applicant which is a recipient of a grant made under part A or B 
of this subchapter (or section 1069a of this title) during the academic 
year in which the applicant is applying for a grant under this 
section;''.
    Subsec. (g). Pub. L. 102-325, Sec. 304(b)(8), inserted ``, including 
a description of the long- and short-term plans for raising and using 
the funds under this part'' before period at end of first sentence.
    1987--Subsec. (f)(1). Pub. L. 100-50 inserted ``(or section 1069a of 
this title)''.


                    Effective Date of 1998 Amendment

    Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as 
otherwise provided in Pub. L. 105-244, see section 3 of Pub. L. 105-244, 
set out as a note under section 1001 of this title.


                    Effective Date of 1993 Amendment

    Amendment by Pub. L. 103-208 effective as if included in the Higher 
Education Amendments of 1992, Pub. L. 102-325, except as otherwise 
provided, see section 5(a) of Pub. L. 103-208, set out as a note under 
section 1051 of this title.


                    Effective Date of 1992 Amendment

    Amendment by Pub. L. 102-325 effective Oct. 1, 1992, see section 2 
of Pub. L. 102-325, set out as a note under section 1001 of this title.


                    Effective Date of 1987 Amendment

    Amendment by Pub. L. 100-50 effective as if enacted as part of the 
Higher Education Amendments of 1986, Pub. L. 99-498, see section 27 of 
Pub. L. 100-50, set out as a note under section 1001 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 1057, 1063b, 4425 of this 
title; title 25 section 1832.
