Birmingham-Southern College Denied State Loan

Faced with the prospect of closure, Birmingham-Southern College last year made an appeal to the state of Alabama for a lifeline. Legislation written by a Birmingham-Southern graduate and passed in June offered just that: a state loan program for struggling private colleges.

Now Birmingham-Southern is suing the Alabama state treasurer for allegedly denying the institution access to the funds it was qualified to receive, according to details from the lawsuit the college filed Wednesday afternoon.

A press release from Birmingham-Southern says that the college had engaged in “good faith discussions” with state treasurer Young Boozer III for several months. “Unfortunately our faith has been betrayed,” Birmingham-Southern president Daniel Coleman said in the statement.

BSC’s Loan Denial

The private Christian college found itself on the brink of closure last year due to a mix of factors. For starters, BSC’s enrollment and endowment have both declined in recent years.

BSC’s enrollment slipped from more than 1,500 in fall 2010 to 1,058 in fall 2021, according to data from the Department of Education’s Integrated Postsecondary Education Data System. And its endowment, once valued at more than $110 million, shriveled to about $53 million as the college launched several major building projects and felt the squeeze of the Great Recession beginning in late 2007.

Financial mismanagement also played a role in the college’s woes. In 2010, officials discovered they had incorrectly calculated Pell Grant awards, causing the college to overpay by millions. That prompted deep budget cuts and significant layoffs; multiple officials subsequently resigned, and the institution has since cycled through four full-time presidents.

On the brink of closure, BSC appealed to local lawmakers in late 2022. While state politicians initially balked at a public bailout for a private college, they eventually crafted a bill creating a loan program for distressed institutions. The qualification for the loan bill, written by State Senator Jabo Waggoner, a 1960 BSC graduate, seemed almost tailor-made for Birmingham-Southern: eligible colleges must have operated in the state for 50-plus years, be in financial distress that could force a closure and have assets available to use as collateral.

“This is the law we need to save Birmingham-Southern College,” Waggoner told fellow senators in establishing the $30 million loan program, which was exactly the amount BSC initially sought from the state to stay open. (According to the lawsuit, the college is now requesting $27 million through the loan program.)

The State Treasurer’s Office established the loan program in late August. Birmingham-Southern filed its application on the day the program opened, the college noted in materials shared with Inside Higher Ed.

But on Wednesday, Birmingham-Southern officials received a surprise letter from Boozer denying the college’s loan application, meaning it would not get the funds.

“This followed months of discussions in which the treasurer gave no indication whatsoever that any aspect of BSC’s application was wanting, or that he would not act as the Legislature intended when they wrote and passed the Loan Fund bill,” Coleman said in the news release.

When Inside Higher Ed asked Boozer for a comment, deputy treasurer Gloria Allred replied by email, “Because this matter is in litigation, the Treasurer will not be commenting at this time and looks forward to aggressively defending this lawsuit.”

The Lawsuit

Birmingham-Southern College filed a lawsuit Wednesday afternoon in Montgomery County Circuit Court, asking the court to compel Boozer’s office to disburse the loan by Oct. 30. It has also sought an emergency order to expedite discovery and a hearing.

The lawsuit argues that Boozer “lobbied the Legislature to try and kill” the loan program before it became law and that he has essentially exercised an unlawful veto of established legislation.

“Rather than fulfill his duty, the Treasurer has undermined the Legislature,” the lawsuit states.

The lawsuit also points to the dire financial needs of the institution. It accuses the treasurer of unnecessarily delaying the loan application and making “inconsistent and contradictory demands” of the college “regarding what he considers adequate collateral throughout the process.” It alleges that Boozer “has acted in bad faith, beyond his authority, and/or under a mistaken interpretation of law” and has “abused his discretion and acted arbitrarily and capriciously.” The lawsuit accuses Boozer of delaying a decision on the loan application “until the College could no longer afford to operate, and to cause as much harm as possible to the College and its constituents.”

The motion for an emergency hearing states that without court intervention in reversing the loan denial, the college faces the prospect of closing “by the end of the fall semester, costing 292 jobs for its employees and sending the lives of its 731 full-time students and their families into chaos.”

In apparent anticipation of state relief, BSC trustees voted earlier this year to keep the college open.

If Birmingham-Southern does shut down, it will join other institutions that have announced closures this year, including Lincoln Christian University, Alderson Broaddus University, Alliance University, Cabrini University, Cardinal Stritch University, Finlandia University, Hodges University, Holy Names University, Iowa Wesleyan University, Medaille University and Presentation College.