On December 21st, 2020, Congress finalized a new stimulus package and federal budget in the Consolidated Appropriations Act of 2021 to provide another round of relief to the US economy. While this latest relief package (the Coronavirus Response and Relief Supplemental Appropriations Act or CRRSAA) is far smaller and later than many of us would have hoped for, higher education leaders can expect some additional federal assistance to start 2021.
To help university leaders understand what the latest relief package means for the industry (and start to work out what it means for their institutions), EAB has outlined the law’s major components below. We’ve also shared lessons learned from higher education’s experience with CARES Act funding this past spring to help leaders plan for this next round of federal relief.
How will the CRRSAA impact the higher education industry?
At a high level, the Act’s higher education provisions are similar to the existing relief vehicles created in the CARES Act, with several notable modifications as follows:
- The Act appropriates about $8B more in total dedicated funding for higher education institutions ($22.7B vs. $14.2B). While this is a marked increase, it is significantly less than what the industry requested or was allocated in other relief proposals (e.g., The HEROES Act). The requirement that the same amount as allocated in the CARES Act go to financial aid will diminish funds for institutions but is a more favorable breakdown than the 50% mandate in the CARES Act.
- The funding formula for all institutions accounts for part-time students in both the Pell and total enrollment calculations. In contrast, the CARES Act’s formula only factored in full-time students. This will provide more money to community colleges and regional publics than the CARES Act did, as those types of institutions tend to enroll more part-time and Pell students.
- Higher Education Emergency Relief Fund (HEERF) institutional allocations can be used to defray lost revenue and provide student services tied to the Pandemic. This should give institutions greater flexibility in how they spend their allocations (since the more narrowly defined uses in CARES were limited to expenses tied to the emergency remote instruction shift). This change will also be applied to any unspent institutional CARES funds.
- For-profits are excluded from receiving institutional funds. This will leave more money for non-profit and public institutions than the CARES Act, which included proprietary institutions in the allocation. Aid is still set aside for students of proprietary institutions.
That said, while this act eases some of the limitations of the CARES Act, it does not address all of its shortcomings. For example, it fails to provide support for state budgets. Further, it imposes some new restrictions that will be detrimental to some institutions. Notably, institutions subject to the excise tax on their endowments (excluding work colleges) will see a 50% penalty imposed on their allotment—all but guaranteeing they receive less funding than they did in the spring if they elected to accept it.
Finally, as with the CARES Act, the legislation leaves some room for regulatory interpretation by the Department of Education (ED) and could result in further stipulations being imposed on fund usage in the months ahead. There may be more volatility this time around, given differences in policy approaches between the outgoing Trump Administration and incoming Biden Administration. Leaders should be prepared for a Biden ED to potentially revise the regulatory guidance on relief fund uses, especially where it pertains to eligible students for emergency financial aid.
What can colleges and universities expect in federal financial resources and regulations?
Emergency Higher Education Funding and Stipulations
The CRRSAA provides $82B to support the education stabilization fund. $54B of that funding is allocated directly to K12 schools and $818M for outlying areas and tribal education. The remaining funds will be allocated between two major funding pools established by the CARES Act (HEERF and GEERF) as follows:
$22.7B is allocated to the Higher Education Emergency Relief Fund (HEERF). Those funds are further divided into institutional funds, student financial aid at for-profits, additional HBCU/MSI aid, and supplementary emergency grants. These funds will be distributed by the G5 System, as was the case for CARES grants.
- $20.2B is allocated to all Title IV eligible public and private non-profit institutions. Notably, these funds will be awarded through a more complicated formula than CARES funds were. In essence, Congress tweaked the funding formula to both prioritize aid distribution to institutions who serve lower-income students and account for differences in part-time and full-time enrollment at these institutions. In other words, Congress is attempting to correct for some of the equity concerns inherent in its CARES Act allocation formula.
- The new six-part formula allocates funds through a Pell-weighted calculation:
- 37.5% based on the institution’s share of full-time Pell-eligible students, excluding students enrolled in exclusively distance education before the Pandemic:
- 37.5% based on the institution’s share of total (including part-time) Pell-eligible students, excluding students enrolled in exclusively distance education before the Pandemic
- 11.5% based on the institution’s share of non-Pell full-time students, excluding students enrolled in exclusively distance education before the Pandemic
- 11.5% based on an institution’s share of total (including part-time) non-Pell students, excluding students enrolled in exclusively distance education before the Pandemic
- 1% based on institution’s share of exclusively distanced full-time Pell-eligible students before the Pandemic
- 1% based on institution’s share of exclusively distanced total (including part-time) Pell-eligible student before the Pandemic
- All six-parts of the formula calculations are based on student enrollment data prior to the Pandemic. This will not penalize institutions who did not return their fall class to campus this fall and prioritize aid to institutions whose operations have been most disrupted.
- To determine how much funding your institution will receive under the formula and how much you will need to award as emergency student aid, refer to ED’s funding allocation table.
- As with the CARES Act, a certain amount of the funds awarded through the Pell-weighted formula must be passed through to students in the form of emergency financial aid. However, rather than a specific percentage (i.e., 50% for CARES), CRRSAA only requires that the dollar amount of student aid match the amount awarded to student under the CARES Act. For example, an institution that was required to award $1M in student aid under CARES will be required to award at least $1M in aid under CRRSAA. For most institutions, this will leave more than 50% of CRRSAA funding reserved at the institution’s discretion.
- These funds can now also be awarded to students enrolled exclusively in distance education, unlike the CARES Act. This will be especially helpful to institutions who did not return their full student body to campus this year. The aid can be used to cover any component of a student’s cost of attendance as well as other emergency costs they incur related to the Pandemic (e.g., technology).
- The remaining institutional funds can be used to cover pandemic-related expenses, including lost revenue, payroll, and COVID campus modifications.
- Institutions who only receive funding through parts 5 + 6 of the six-part formula can only use their allocations for emergency student financial aid. This reflects Congress’s desire to not provide institutional aid to exclusively distanced or virtual providers.
$680M to for-profit colleges to provide financial aid grants to students awarded through the same six-part Pell-weighted formula. These funds cannot be used for any other purpose.
- $1.7B is reserved for additional funds under Title III (parts A & B), Title V (parts A & B), and Title VI (part A subpart 4). These funds are awarded on top of the larger pool of institutional aid (i.e., HBCUs and MSIs will receive these funds in addition to funding from the Institutional Allocations and Emergency Student Financial Aid fund described above).
- The funding breakdown for all eligible institutions, except for Tribally Controlled Colleges and Universities (TCCUs) and Historically Black Graduate and Professional Institutions (HBGIs), will be through the following formula:
- 70% according to the institution’s share of total Pell students
- 20% according to the institution’s share of total enrollment
- 10% according to the institution’s share of total endowment size
- TCCUs will receive their funding through the statutory HEA formula.
- HBGIs will have their funding allocated based on the allotments made in last year’s budget.
- These funds will be allocated to institutions within 60 days after the act becomes law.
- $113M will be awarded as grants to institutions with “the greatest unmet need,” as determined by the Secretary of Education, including institutions with large graduate enrollments or who did not receive funding under the other HEERF programs. These funds will be accessed through a grant application process under the Fund for the Improvement of Post-Secondary Education (FIPSE). These funds can be used either for institutional purposes or student financial aid.
- The application for these funds must be published within 60 days following the passage of the act.
$4.05B is provided for the Governor’s Emergency Education Relief Fund (GEERF). States will receive their funds using the following formula (same as the CARES Act):
- 60% based on the state’s relative population of 5- to 24-year-olds
- 40% based on their eligible student population calculated under the Education and Secondary Education Act (ESEA)
$2.75B of these funds are reserved for exclusive grants to K12 private schools, limiting the funding available for higher ed institutions from this pool. Outside the reserved funds for K12 private schools, governors have broad discretion on how these funds can be used and can award them to both K12 providers and higher education institutions (public and private).
- The statute indicates three eligible purposes for how HEERF funds can be used:
- To “defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll)”
- To carry out student support services related to the Pandemic response
- To “provide financial aid grants to students (including students exclusively enrolled distance education), which may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus.”
- As with the CARES Act, a certain amount of the funds awarded through the Pell-weighted formula must be passed through to students in the form of emergency financial aid. However, the exact amount is not entirely clear from the statute alone, as the act only states that amount must be the same as provided in the CARES Act rather than a specific percentage. This will likely require regulatory guidance by ED but likely will still result in at least 50% of funds to be passed through to students as emergency financial aid. These funds can now be awarded to students enrolled exclusively in distance education, unlike the CARES Act. The aid can be used to cover any component of a student’s cost of attendance and for other emergency costs related to the Pandemic (e.g., technology).
- Funds awarded to students as emergency financial aid should be prioritized to students with need (e.g., students receiving Pell grants). Institutions will need to document their methodology for awarding aid and demonstrate that they factored in student socioeconomic need. Student aid must be awarded as direct payments to students. It cannot be conditioned to incentivize or coerce students to reenroll. The aid can also not used to clear any outstanding student balances unless the student provides written consent and has the option to request a direct payment. The maximum amount of aid awarded to a single student should not exceed the maximum Pell award in dollar amount. Importantly, ED notes that the interim rule requiring that students be eligible for Title IV aid to receive emergency aid grants.
- Funds cannot be used for contracted pre-enrollment recruitment activities, endowments, or capital facility projects for athletic, sectarian instruction, or religious worship purposes.
- EAB interprets the institutional uses in this legislation as substantially broader than the HEERF institutional aid awarded under the CARES Act, as they do not tie the expense exclusively to the shift to emergency remote instruction and allow for defraying expenses related to lost revenue. This will be especially beneficial for institutions that did not return their full student population to campus and for covering indirect costs associated with the Pandemic response.
- Institutions (excluding work colleges) that paid an excise tax on their endowments in 2019 (institutions whose endowment’s value is greater than $500K per enrolled student) will have their allocations cut in half and can only use these funds for student aid or limited health and safety expenses (e.g., PPE). About 20 to 40 institutions fall into this category.
- Existing Title III, V, and VII grants can be repurposed to respond to COVID-19.
- All HEERF grants received and remaining under the CARES Act can be repurposed to the broader uses established in this legislation as long as 50% goes to emergency student financial aid.
- Colleges and universities that take HEERF money agree to pay employees and contractors to the greatest extent possible, although this remains loosely defined and has no enforcement mechanism.
- States who take GEERF money also enter a maintenance of effort expectation to sustain public funding for higher education. However, there is a wavier provision that states can take advantage of (and we expect many will).
- Institutions will need to report how they used the funds no later than six months after receiving them.
Student Financial Aid
The new budget enacts substantial tweaks to federal financial aid that will go into effect July 2023, especially on Pell eligibility:
The form will be revised to be more accessible for students and families, cutting the number of questions from 108 to 36.
- The new budget expands Pell to the greatest extent since the Recovery Act of 2009. The maximum award level is now set at 175% of the federal poverty line for families and 225% for single parents. An additional 550K students are now eligible for Pell with over 1.5M now receiving the full Pell award.
- The maximum Pell award increases by $150 for the next school year to $6,495.
- Incarcerated students are now eligible for Pell aid with the repeal of the 1994 ban. Students convicted of certain drug crimes are now also eligible for federal financial aid.
- Students who made successful “borrowers defense claims” against fraudulent colleges will now have their Pell eligibility access restored.
HBCU Capital Financing Program
$1.34B in federal capital loans to 44 HBCUs will be forgiven in the omnibus budget. The CARES Act had originally allowed for payment deferrals on these loans, but this new forbearance goes far further for full debt cancellation.
Federal Loan Programs
The Paycheck Protection Program (PPP) is extended and allocated an additional $284B for first and second forgivable loans. Institutions who received PPP loans earlier this year and experienced a revenue decline more than 25% may be eligible for a second loan draw into 2021. Revenue loss is calculated from 2019 to 2020 on a per quarter basis. The maximum loan amount is also lowered to $2M from $10M. However, only private institutions with fewer than 300 employees will be eligible for a second PPP loan in this round.
Four lessons from CARES to guide institutional strategy
Higher education leaders can learn from the industry’s experience with the CARES Act this past spring. In particular, we recommend that leaders consider these four key lessons when planning for this round of aid:
While CARES Act funds were dispersed relatively quickly, the regulatory stipulations (e.g., Education Department guidance on how funds could be used, who was eligible for funds, etc.) lagged substantially and were often bogged down in bureaucratic ambiguities, conflicting interpretations, and federal politics. With this relief package, ED can use the existing policies it created for the first round of HEERF—this should expedite fund distribution and provide clearer upfront guidance. However, Congress again elected to pass a vague law that leaves room for regulatory interpretation by ED and other federal agencies, so leaders should prepare for further regulatory uncertainty. The ongoing Presidential Transition will further add policy volatility, as the Biden Administration may reverse or modify the regulatory guidance.
ACE and other higher education associations estimate that Pandemic’s total costs and lost revenue for higher education exceed $120B. This relief package will address only a fraction of those losses. It only appropriates $22B in one-time funds, reduced further by the 50% student aid requirement, and will do little to support state finances or address college affordability. While any federal aid is better than none, institutional stakeholders will need to plan for financial pressures to persist and potentially increase, regardless of this round of aid.
The CARES Act brought increased attention to how institutions planned to handle its large taxpayer-funded grants, especially the emergency student financial aid funds. Students and staff will expect transparency on how this additional relief money will be spent and will likely advocate for institutions to use their funds to address the pandemic’s impact on them. Leaders will need to set expectations around what the funds can and can’t be used for and articulate the principles that will guide the institution’s decisions on their use.
In addition, institutions should prioritize student needs in distributing financial aid and not appear to be stingy or self-serving in how they allocated the aid. This is an opportunity to promote student equity and demonstrate commitments to student success and wellbeing.
The speed of events in the spring, coupled with the magnitude of unanticipated financial stresses on institutions, led many institutions to use CARES funds to reimburse themselves on student refunds and other immediate unplanned expenses. While this tactical deployment of funds helped address short-term financial challenges, in some cases, it limited strategic investments in the continuity of instruction and a COVID-resilient campus. Wherever possible, leaders should approach federal relief funds with a broader strategic frame to prioritize investments that will enable the institution to navigate the pandemic’s sustained disruption to campus operations for the foreseeable future.
Finally, congressional leaders and the incoming Biden Administration have signaled there may be additional and much needed stimulus measures that impact higher ed in 2021. EAB will continue to monitor this space as developments occur.
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