Iowa Higher Education Loan Authority


FINANCING PROGRAMS
REVENUE ANTICIPATION NOTES
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Revenue Anticipation Notes ("RAN") are tax-exempt, short-term securities used extensively by all types of governmental entities as a cash management tool. Colleges and universities issue RANs to supplement their general fund cash reserves for the fiscal year and to act as a cushion for any temporary cash flow needs that may be experienced. Colleges and universities are often faced with the difficult situation of trying to fund regular monthly expenditures with irregular receipts such as tuition, grants, and other special revenue. Proceeds from the sale of a RAN issue may be used to cure imbalances by the mismatch between revenues and expenditures.

In addition to serving as an operating fund reserve, RAN proceeds can also be an important source of revenue. To the extent that RAN proceeds are not needed to cover cash flow imbalances, they can be invested in higher-yielding taxable securities to generate additional revenue. Revenue opportunities occur when a positive "spread" exists between taxable and tax-exempt interest rates. Given the tax-exempt nature of RANs, investors are willing to accept a lower interest rate on RANs relative to other "taxable" investment alternatives. Therefore, educational institutions can borrow at interest rates considerably lower than those available to private entities.

RAN notes are currently offered on both a rated and unrated basis. In order to qualify for the short-term Standard & Poor's rating, certain institutions may be required to secure a supporting letter-of-credit. Please contact the Authority for further details on the issuance of Revenue Anticipation Notes.


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