**This is EAB’s preliminary analysis of the key higher education provisions in the American Rescue Plan. Not all provisions are included in this analysis and this may be subject to revision**
On March 10, 2021, Congress passed President Biden’s American Rescue Plan (ARPA). ARPA will provide another much-needed infusion of federal relief dollars into American colleges and universities, building on relief bills passed earlier in the public health crisis (CARES and CRRSAA). It will also provide additional funding to state and local governments, which should have a positive downstream effect on public institutions’ budgets.
Learn about the major components of the American Rescue Plan affecting higher education institutions as well as guidance for leaders to consider when distributing relief funding.
6 things higher ed leaders should know about the American Rescue Plan
The American Rescue Plan uses and modifies the emergency programs created by the CARES Act and expanded by CRRSAA. The most important higher ed provisions are as follows:
1. ARPA contains $39.6B in dedicated higher ed funding—more money than CARES ($14.2B) and CRRSAA ($22.7B) combined
Despite its greater size, ARPA is still significantly smaller than the $97B that many advocacy associations (e.g., the American Council on Education) sought. Estimates of the Pandemic’s financial impact on higher ed range from $120B to $183B, meaning cumulative federal aid has only addressed between 40-60% of the total fiscal fallout. Crucially, student aid requirements diminish federal fiscal support for institutions.
2. The law requires that 50% of formula-allocated funding be awarded as emergency financial aid, like the CARES Act
Whereas CRRSAA only required the same dollar amount rather than a fixed percentage. The 50% student aid mandate’s impact on institutional support is illustrated below, comparing the funding use categories in CARES, CRRSAA, and ARPA. While ARPA will provide large sums of institutional aid, it comes out to only ~$4B more than CRRSAA after accounting for the higher student aid threshold.
Higher Education Emergency Fund (HEEF) Allocations
In billions of dollars, public and non-profit funds only
3. The Higher Education Emergency Relief Fund (HEERF) allocation formula is the same as CRRSAA
Both publics and non-profits will be eligible, despite a draft plan’s ambiguity on whether non-profit privates would be included.
The funding formula accounts for part-time students in both the Pell and total enrollment calculations. This will ensure community colleges—where 67% of enrollment is part-time—along with four-year publics, receive a proportionate share given their enrollment composition.
A few small tweaks were made to the formula allocations, including increasing the share awarded through the formula from 89% to 91% of HEERF—this means a greater proportion of the money will go to non-profits and publics by shrinking the amount of money going to students enrolled at for-profits. Additionally, the roughly 40 or so private institutions subject to the endowment excise tax will not have their allocations halved and restricted in use as was the case in CRRSAA.
Given the funding formula is identical to CRRSAA, institutions can approximate their ARPA formula allocations by multiplying their total CRRSAA award by 1.75. For example, an institution that received $1M through CRRSAA would likely receive $1.75M under ARPA with the requirement that $880K be awarded to students as emergency financial aid.
4. Eligible HEERF uses largely mirror CRRSAA with several notable modifications
Like CRRSAA, funds can be used to cover expenses associated with the Pandemic, including defraying lost revenue.
As mentioned above, at least 50% of funds must go to students as emergency financial aid grants, prioritizing students with exceptional financial need. However, ARPA does not explicitly allow institutions to use HEERF aid to provide student support services as CRRSAA did.
ARPA also requires institutions to use a portion of their funds to implement public health and safety best practices as well as to conduct outreach to financial aid applicants about opportunities for additional aid (e.g., professional judgment). It is not clear how much institutions must spend to demonstrate they used a portion of their HEERF money on these activities, nor are definitions of these activities clear. So, the Education Department (ED) will need to provide regulatory clarification here. There is the potential that ED will define COVID best practices using the forthcoming public health guidance for higher ed that the agency is working on with the Centers for Disease Control and Prevention (CDC).
5. The timeline of ARPA fund distribution and the expense eligibility window are both uncertain, pending ED guidance
Unlike CRRSAA, ARPA does not create a statutory requirement that ED distribute the funds by a certain date. Instead, ED can determine the timeline and award the funds as late as September 30th, 2023, although it will likely distribute the money as soon as possible.
Institutions may have to submit a new application to receive ARPA funding—in contrast to CRRSAA, where aid was distributed as an automatic supplemental award. The eligibility window to use the money is also undefined. In ED’s CRRSAA regulatory guidance, they limited the expense window start date to the enactment date (12/27/2020). Therefore, only expenses occurring after that date would be eligible for HEERF aid. This was not provided for in the actual statute and has severely constrained CRRSAA uses, given most COVID-related expenses occurred earlier in 2020. ED has announced that they are studying the issue and may extend the eligibility window back to the national emergency declaration on March 13th, 2020. Their final determination will likely shape the timeframe on ARPA eligibility and determine when and how institutions deploy the dollars.
6. In the short-term, ARPA’s $350B in state and local fiscal aid should mitigate the most dramatic cuts to public higher ed funding
While state budgets have held up better than first thought—some states have even seen revenues grow—increased public health and social services spending have strained fiscal resources. Meanwhile, temporary but sharp declines in commodity prices (e.g., oil) and consumption taxes (e.g., sales tax) severely hit many state and local government revenue streams.
Together these fiscal pressures and others have led to cuts to public higher ed funding with the potential for a $74B decline in state and local higher ed support nationwide. ARPA’s state and local budget stabilization funding could help alleviate immediate cuts and potentially avoid a disastrous repeat of 2009-13 where state higher ed funding fell precipitously. The extent ARPA state support helps higher ed will vary between states based on their budget shortfalls and policy priorities. But generally, this is good news for public institutions, especially community colleges who are highly dependent on state and local support.
Overall, ARPA builds upon earlier relief packages and provides further assistance to institutions and students as they navigate—hopefully—the Pandemic’s final stretch. But ARPA is not a blank check for higher ed, nor does it include sweeping changes to federal financial aid or major investments in higher ed infrastructure. It may also be the last large relief package so institutions will want to maximize every dollar in the event that Congress passes no further aid.
ARPA will also test ED under newly confirmed Education Secretary, Dr. Cardona. ED is again tasked with quickly distributing the funds and providing guidance on how institutions can use their allocations—a task that many higher ed leaders have expressed frustration with over the last year.
Emerging imperatives for institutional strategy
With this new round of federal relief forthcoming, we recommend that higher ed leaders keep these emerging imperatives in mind as they craft their approach.
Many institutions are currently still determining how to use their CRRSAA allocations (i.e., the funding they received from the 12/27/2020 federal relief package) and will now need to determine how to prudently use another significant funding infusion from ARPA. But leaders should be aware of restrictions on grant time period eligibility when determining their strategies for allocating both funding awards: Currently, CRRSAA funding can only be used to cover expenses or lost revenues incurred after 12/27/20, even though many of higher ed’s emergency COVID expenses and revenue losses occurred earlier in 2020. ED is currently reviewing this provision and may update its guidelines to allow CRRSAA funds to apply to eligible expenses incurred earlier in the Pandemic—perhaps going as far back as the national emergency declaration on 03/13/2020. The eligibility period for ARPA funding has yet to be determined, but ED will likely follow the precedent it sets in its CRRSAA review.
Should the 12/27/20 CRRSAA stipulation hold and ARPA funds are similarly limited by ED to its enactment date, this could mean that campuses will receive a significant amount of federal funding that cannot be applied to 2020 losses and expenses. This misalignment could make maximizing the funds' impact on institutional finances more difficult. However, institutions should have at least a year to spend their ARPA funds as was the case with CRRSAA. EAB continues to expect that ED will revise its CRRSAA guidance to extend grant obligations before the enactment date and will continue to monitor this space closely.
ARPA’s $18B in emergency financial aid distribution will coincide with peak financial aid season. Financial aid professionals are already at full capacity distributing CRRSAA student aid and preparing award packages for the fall. ARPA will add to their plate by providing substantially more funding and requiring targeted outreach to all financial aid applicants about further resources available to them in the event of job loss or other professional judgment eligible aid recalibrations. To prepare for the next emergency aid round and the added administrative burden, leaders should develop a contingency to provide surge staffing and resources to the financial aid office. For example, staff in other student-facing or administrative functions could be temporarily assigned to help answer inbound requests or reach out to students.
In this relief package, Congress added a stipulation requiring that a portion of ARPA HEERF aid be used to “implement evidence-based practices to monitor and suppress coronavirus in accordance with public health guidelines”. As noted above, ED will need to define what constitutes a “portion” and an “evidence-based practice.” ED is currently working with the CDC to develop best practices to safely operate colleges and universities under President Biden’s reopening schools executive order, and it may use these forthcoming guidelines to define evidence-based practices. Linking these guidelines with ARPA aid could incentivize institutions to adopt new federal standards but risks adding compliance burdens. Leaders will need to examine the guidelines when they’re published and determine to what degree they are already in compliance. EAB is monitoring this space for further guidance and will share updates with partners as we have them. Moreover, they should be prepared to set aside a portion of their institutional ARPA share to be used for these expenses either going forward or retroactively.
As with the CARES Act and CRRSAA, ARPA has generated substantial media coverage and interest from campus stakeholders. Staff, faculty, and students are already asking what this will mean for them and their institution. Leaders should strive to be transparent about how much funding the institution will receive, set expectations for how the funding can and cannot be used, and underscore the framework that will guide their decision on how to deploy the money. Wherever possible, leaders should emphasize that ARPA aid is not a “blank check” or a “slush fund” but restricted onetime emergency federal relief. They also should prioritize distributing the emergency student financial aid, along with the criteria and considerations used to award the grants.
Higher ed confronts an uncertain summer and fall in terms of revenue and operational disruptions due to the Pandemic. ARPA’s $1.9T price tag reduces federal fiscal firepower by increasing the budget deficit, lifting inflation concerns, and pushing up interest rates. This fiscal fallout could make passing future relief packages politically untenable, especially given slim Democratic congressional majorities and Republican opposition to further stimulus. Leaders cannot count on future federal aid. Therefore, institutions may be inclined to proceed cautiously with their ARPA aid as a hedge against future financial volatility. Therefore, wherever possible leaders should think beyond short-term finances and prioritize investments that will enable the institution to navigate the Pandemic’s lasting disruption to campus operations (e.g., virtual learning technology).
Watch EAB's on-demand webinar on the American Rescue Plan
Join a panel of EAB experts as we unpack the bill’s impact on higher education. We’ll analyze the American Rescue Plan and provide strategic guidance to institutions as they navigate the additional funds and stipulations.