Paying It Forward: Interest-Free Loans To Advance Jewish Education
by Yossi Prager
AVI CHAI made available $150 million in interest-free loans for construction and renovation at day schools and summer camps by borrowing a great idea from another foundation. In total, we assisted in capital projects of nearly $1 billion. By sharing this story, I hope to “pay it forward,” and perhaps inspire others to consider adapting the model in their own philanthropic work.
In the late 1990s, day school enrollment was booming, reflecting a new interest in Jewish education across all segments of American Jewish life. The new interest in day school education meant that additional facilities would be required – not only to add capacity but to increase the attractiveness of the schools to families for whom a day school education was a choice. AVI CHAI wanted to be helpful in meeting this need, but to do so without violating the provision in our by-laws that prohibited capital gifts.
When Zalman Chaim Bernstein z”l established The AVI CHAI Foundation in 1984, he insisted that that the Foundation not make grants for capital needs. Zalman thought his Trustees would be most effective and creative by developing and supporting new programs that would bring Jews closer to their noble heritage. Was there a way for AVI CHAI to address the significant capital needs of the day school sector without making capital grants?
We looked to the work of other philanthropists for models we might build upon or bring to scale and, with the help of senior consultant Dr. Marvin Schick, AVI CHAI decided to adapt the loan program model of the Gruss Life Monument Fund, which had been operating an interest-free building loan program, primarily for day schools in New York, for many years. Gruss’ key insight was that schools – like other nonprofits – that conduct capital campaigns often experience a timing mismatch. Donors fulfill their capital pledges over a few years, but the contractor needs to be paid at the time of construction. To alleviate this timing challenge, Gruss provided five-year interest-free loans for construction and renovation.
In adapting the Gruss program, AVI CHAI’s Trustees decided to double the Gruss maximum loan size to $1 million, make it available to all schools in North America that meet AVI CHAI’s general eligibility criteria, and modify the method for securing the loan. Like the Gruss Foundation, AVI CHAI’s plan was for a revolving loan pool, which depended on loans being repaid over five years (after an initial six-month grace period). Toward this end, AVI CHAI required that the loans be guaranteed by a standby Letter of Credit issued by an acceptable commercial bank. AVI CHAI agreed to pay the annual Letter of Credit fee equal to 1-1.5% of the loan balance.
Initially, AVI CHAI dedicated relatively modest resources to the program, unsure of what the demand would be. The response, however, demonstrated the benefit of, and need for, the program. We heard repeatedly that an AVI CHAI building loan helps a day school move its project more quickly towards completion and prevents the high interest rates a school would otherwise incur when borrowing from commercial lending institutions. As an added benefit, many schools reported that their own fundraising efforts were considerably bolstered when they secured a building loan. As a result, AVI CHAI eventually increased the loan pool to a maximum of $50 million. Because of the revolving nature of the loans, less was actually required; in the course of lending $125 million to 150 schools, the greatest amount outstanding at any time was $36 million. The program was expertly managed by our consultant, Dr. Schick.
Brand new school buildings, new middle school wings, state of the art science labs, gyms students are proud of, new classrooms and therefore additional seats for new students, playgrounds and prayer space are tangible results of the program. In this we take great pride.
We are also proud of our stance and discipline with respect to repayment. When necessary, AVI CHAI has called payments on the letters of credit, making clear to borrowers that the foundation was serious about repayment. Fortunately, this happened in very few cases. After the downturn of 2008, when a few schools turned to the Foundation for relief, we renegotiated payment terms, with lower annual payments over more years. Rescheduling was conditioned on a parallel extension of the Letters of Credit.
As the program grew over time and it became clearer that our loans were successfully enabling the expansion, construction or renovation of many schools, the Trustees approved a parallel program for overnight summer camps. The summer camp program is operated by the Foundation for Jewish Camp. Since beginning to make camp loans in 2006, AVI CHAI has made loans to 27 camps, for a total of $27 million, and never needed to call a Letter of Credit. These loans have gone to purchasing campsites, and enlarging or upgrading bunks, dining halls, sports centers and other facilities that need to be first-rate in order to attract contemporary campers.
As AVI CHAI prepares for its sunset at the end of 2019, we have ceased making loans, to ensure that all loans are repaid before the sunset. In the course of their existence, the combined day school and camping programs have lent over $150 million, which has assisted in the completion of construction projects whose aggregate cost approaches $1 billion (approximately $750 million in the day school program alone).
We believe that this interest-free loan model has been an extraordinary catalyst for necessary construction projects. We are delighted that some other funders have expressed interest in continuing the camping loan program. We hope that these conversations with other funders will be blessed with success and believe that the day school program deserves continuity as well.
We are especially grateful to the Gruss Life Monument Fund whose program we used as a model. We hope that by sharing their successful philanthropic model, which we have now implemented over almost 15 years, we will spark ideas among other philanthropists about how to creatively use interest-free loans to meet the financial challenges of nonprofits in Jewish life. We would be glad to discuss our experience and “pay forward” the wisdom we borrowed from the Gruss Foundation. I can be reached at email@example.com.
Yossi Prager is the Executive Director – North America of The AVI CHAI Foundation.