US charter schools are growing faster than the financing needed to build their classrooms and other facilities.
With the help of federal and state guarantees, community and mission-driven lenders are designing new bond offerings, credit facilities and other financial instruments to draw commercial capital to help charter schools acquire land, construct facilities and become bankable for the long term.
The flurry of financing activity signals both the growing demand for facilities financing from fast-growing charter schools, and the leverage that federal guarantees and credit enhancements can provide.
This week, Equitable Facilities Fund will issue $300 million in tax-exempt social bonds to provide low-cost, long-term facilities financing to dozens of US charter schools. With government credit guarantees and philanthropic capital, the lower-interest loans could save Equitable’s borrowers about $60 million that they could invest in student success.
“Through our model, everybody wins,” says Equitable’s Anand Kesavan. “The federal government wins because they get the leverage. The state governments and philanthropists win because they get the social impact. And the schools win because they save a lot of money.”
“The investors win because they can put the money to work and we do all the work,” he told ImpactAlpha.
Another fund, the Washington, DC-based Level Field Facilities Fund, raised a $50 million National Fund to provide flexible early-stage capital to help charter schools acquire and develop their own facilities. The new fund scales up from a pilot vehicle that has deployed $19 million in school facilities loans since 2021.
That’s not all. Opportunity Finance Network and 22Beacon (formerly Charter Schools Development Corp.) announced they have closed a $100 million bond issuance aimed at easing the shortage of high-quality facilities for US charter schools. 22Beacon, a community development financial institution, or CDFI, headquartered in Maryland, will use the proceeds to provide low-cost financing for charters to acquire and renovate school facilities.
“This bond demonstrates how an innovative federal credit program can mobilize private capital to expand opportunity in communities across the country without a cost to American taxpayers,” said OFN’s Harold Pettigrew.
Efficient capital
Charter schools are public schools that operate independently of traditional district governance structures. Unlike district-run schools, charters receive little public facilities funding. Charter schools are often rejected by traditional real estate lenders because they lack loan collateral.
Opportunity Finance Network took advantage of the Bond Guarantee Program out of the Treasury Department’s CDFI Fund. Equitable Facilities Fund, Level Field and 22 Beacon have all been selected, at different times, for guarantees under a different program, the Department of Education’s Credit Enhancement for Charter School Facilities Program.
The federal credit enhancements have helped attract investors, lower interest rates and enable lenders to expand borrowers’ options with loan-to-value limits of up to 100%, leasehold or second position collateral, longer interest-only periods and predevelopment loans.
The Trump administration has taken a generally pro-charter school stance, and last September touted the release of $500 million across a half-dozen charter school programs, including the credit enhancement program. “Charter schools allow for innovative educational models that expand learning opportunities for students,” Education Secretary Linda McMahon said at the time.
Two awards of $20 million each from the DOE’s credit enhancement program, $30 million in state-level incentives, about $500 million philanthropic capital and $1 billion in investor capital supports about $2 billion in lending, says Kesavan of the Equitable Facilities Fund.
“If you pull them together the right way, you get a really efficient capital set,” he says. “We take schools around the countries and the highest quality ones, we pull them together, and we give them really low-cost loans,” at an interest rate of about 4.5%.
The federal guarantees function as first-loss protection for investors, he said. Equitable’s bonds have been upgraded to an A+ rating from S&P Global Ratings, Kesavan says.
“We save schools a lot of money,” he adds. “We’ve never lost a dollar.”
Emerging schools
Roughly two-thirds of charter schools in the US are independent, single-site nonprofits operating in economically disadvantaged communities, where rising enrollment is translating directly into growing demand for financing to improve and expand school buildings.
Level Field Facilities, a Black woman-led fund affiliated with charter school facilities investor Level Field Partners, says its pilot fund has helped leverage $110 million in long-term debt from other lenders to create more than 1,000 new seats for students in seven US states. Level Field Facilities’ Shelly Cleary said the new fund builds on the pilot program to bring “greater scale and consistency to a part of the market that shapes schools’ long-term financial outcomes.”
Level Field’s $50 million National Fund will focus on early-stage facilities expansion financing, a segment it believes is particularly underserved in the charter school financing landscape. Level Field Facilities is using the DOE’s credit enhancement to help its charter school borrowers attract long-term capital for their facilities. The fund will offer loans for leasehold improvements such as converting non-school space into code-compliant classrooms.
That early stage “is the most risky stage of the facilities financing lifecycle,” said Khaliff Davis of Philadelphia-headquartered Reinvestment Fund, a long-time backer of charter schools facilities financing. Reinvestment Fund capitalized Level Field’s national fund alongside JPMorgan Chase, Nonprofit Finance Fund, the Walton Family Foundation and Enterprise Community Loan Fund. Broadstreet Impact Services committed an additional $1 million operational grant to help cover the fund’s operating expenses.
Stable, well-structured facilities underpin the long-term financial sustainability for charter schools, as well as “high-quality academic outcomes for students, regardless of background [and] their families’ income status in high-demand areas,” Davis told ImpactAlpha.
The Walton Family Foundation, an early philanthropic supporter of charter school expansion, has committed more than $1 billion in grant and debt capital to support charter schools since the 1990s. The foundation committed $100 million last year to expand yet another initiative, the Facilities Investment Fund, a $300 million loan fund it launched with charter school developer Civic Builders in 2017 to finance school facilities in under-resourced communities (see, “Walton Family Foundation bankrolls two charter-school finance funds”).
Level Field’s pilot fund “demonstrated the value of early-stage facilities capital, particularly for small and emerging charter schools,” said Walton Family Foundation’s Nguyen Huynh.
Charter bonds
The $100 million bond issuance from Opportunity Finance Network and 22Beacon (a CDFI headquartered Maryland formerly known as Charter Schools Development Corp.) will provide low-cost financing for charters to acquire and renovate school facilities.
The bond, backed by the US Department of the Treasury’s CDFI Bond Guarantee Program, gives charter schools access to a form of credit that has become increasingly scarce in traditional capital markets. The government bond guarantee offers up to 30-year, fixed-rate debt as a way to lower borrower cost of capital long term and doesn’t require frequent refinancing unlike commercial loans.
22Beacon has tapped federal bond guarantees to extend long-term, fixed-rate facilities financing to charter schools in underserved communities. The CDFI was awarded a $70 million bond loan from the Treasury program in 2022. 22Beacon says it has leveraged over $1 billion in financing for charter schools serving more than 100,000 students in 30 states using its own capital and guarantees.
The capital from the new bond “allows us to turn facilities into assets rather than liabilities, helping schools move from surviving to thriving while strengthening the entire educational ecosystem,” said 22Beacon’s Alan Washington.
The Department of Education last year sent a “Deal Colleague Letter” to district and state officials prohibiting what it characterized as “illegal DEI practices,” which it did not define, as a condition of federal education aid, including the charter school support. A federal judge voided the guidance as unconstitutional and last month the Education Department dropped its appeal.
“We prefer to not have any restrictions except to make good investments,” Kesevan said. “We think we can put the money to work in the way we think is right, regardless of conditions. Ideally, the credit enhancements come with the condition of making good investments, but not telling us how to invest it.”
