This article is not intended to provide auditing, legal, or compliance advice. As always, institutions should consult with their auditors and counsel on those matters. This page is subject to revision and change depending on ED guidance and other policy developments.
On May 11th, the US Department of Education (ED) published their long-awaited funding allocations and guidance around the $39.6B allocated to the Higher Education Emergency Relief Fund (HEERF III) in the American Rescue Plan. ED’s new guidance builds upon their March 19th updated interpretation for HEERF II uses and lost revenue reimbursement. Overall, ED’s most recent update provides greater clarity on fund usage while granting institutions and students flexibility.
To help leaders quickly interpret and act on this new guidance, EAB has summarized the seven most consequential updates below.
1. Grant administration
Key takeaway: HEERF III funds will be made available starting in May, cover expenses back to 03/13/2020, and have a year use window.
ED will make HEERF III grants available starting in May 2021. Institutions will not need to apply for aid—funds operate as a supplement to their existing HEERF award, like HEERF II. Upon grant receipt, institutions must draw down from G5 (ED’s grant management platform) at least $1 or more to accept the award within 90 days. Once the award is accepted, per clause 7 of the supplemental funding agreement, colleges and universities must minimize time between drawing down funds from G5 and paying expenses, or face a higher auditing requirement. This means institutions should not draw down funds until they intend to spend them, because they only have between 3-15 calendar days to use the funds once they access them (3 days for the institutional share and 15 days for the student share).
Eligible expenses, including lost revenue, can date back to 03/13/2020. This is identical to HEERF I and II. HEERF III grants last a year, with the grant window extended to May 2022 for all HEERF awards. ED states in the HEERF III FAQ, question 39, institutions can request a maximum 12-month extension, allowing the funds to extend into FY23. However, ED urges institutions to expend HEERF aid sooner rather than later. More practically, FY20 and FY21 contain the greatest financial costs and lost revenue stemming from COVID. Therefore, institutions looking to recover the maximum amount of lost revenue will have the strongest case for doing so in those fiscal years.
While ED gave institutions time to deploy HEERF III, ED makes it clear that the grants are not to be treated as quasi-strategic reserves or “rainy day” funds—they strongly advise using them to cover COVID expenses and losses already incurred in FY20 and 21. ED also attempted to provide guidance upfront with HEERF III to give institutions confidence to spend the funds sooner—in sharp contrast to HEERF I and II. From our conversations with dozens of institutions, we expect most colleges and universities will have deployed a significant, if not the full, share of HEERF II institutional aid by the summer, primarily on lost revenue. With HEERF III, many institutions plan to gather eligible use cases and make initial decisions on how to spend the dollars during their FY22 planning and budget exercise.
2. Emergency student financial aid
Key takeaway: Institutions can determine student eligibility for HEERF emergency aid and award grants to DACA and international students, prioritizing students with exceptional need.
ED’s updated HEERF guidance takes an expansive view of eligible students. This is achieved through a final rule that repeals the Trump Administration’s imposition of Title IV eligibility. Here are the primary changes:
- Institutions now have discretion over what students are eligible in adherence to federal non-discrimination laws (e.g., Title IX).
- Eligible individuals for HEERF aid do not need to be Title IV eligible or have filed a FAFSA (per question 7 of the HEERF III FAQ).
- Students must have been enrolled on or after 03/13/2020 to be eligible, including students who have stopped their enrollment.
- ED’s guidance allows undocumented, permanent resident, and international students to receive aid. Additionally, part-time, dual enrollment, exclusively distance, newly matriculated, graduate, and study abroad students are HEERF emergency aid eligible.
Institutions still must ensure that students with exceptional need receive priority—including Pell-eligible students and undergraduates with significant financial need. In their guidance, ED more thoroughly identified the negating criteria it will use to evaluate if institutions prioritized students with exceptional need. That four-part criteria is as follows (see question 12 for more details):
- No setting a minimum GPA requirement
- No imposing of athletic, academic, or other good standing conditions
- No linking aid to enrollment
- No requiring aid to pay outstanding balances
Moreover, ED encourages institutions to prioritize domestic students over international students in aid distribution.
ED also clarified how funds can be applied to student accounts: Funds can only be applied to an outstanding balance with the student’s written and affirmative consent, and students must always have a choice to receive a direct cash payment. HEERF student aid is not taxable and will not affect students’ Title IV aid. Importantly, institutions cannot include HEERF aid in their financial aid award letters, as ED believes this aid is not traditional financial aid as it operates as a direct cash payment (per question 17). Neither can institutions use HEERF funds to directly market to current or prospective students about the opportunity to receive student aid, as that violates HEERF’s marketing and recruitment prohibition provision.
ED does not offer a standard timeline for dispersing HEERF III student aid, nor do they require that institutions award all the aid at once. Many colleges and universities will likely start distributing HEERF III student aid this summer and potentially offer multiple distribution windows through FY22. Institutions have the discretion to set the timeline and methodology. The maximum Pell award ($6,495) is again the recommended maximum award amount per student per year.
ED finally resolved the student eligibility question after a year long period of uncertainty. Institutions now can craft aid distributions that are tailored to their community needs, reaching students previously excluded from HEERF and Title IV aid. Given the size of HEERF III student aid, institutions should consider doing multiple fund dispersals and use both individual applications and formula-based block grants to identify student need. Clear communication, transparent methodology, and student-centric policies remain paramount imperatives. ED’s new guidance on what prioritizing students with exceptional need looks like in practice will also give leaders a firmer foundation to construct their distribution policy on and confidence that they achieved the expectation
3. Stipulations in HEERF III: Direct student outreach and COVID health & safety
Key takeaway: HEERF III requires that a portion of institutional funds be used both to conduct direct student outreach about additional federal financial aid opportunities and to implement COVID health and safety measures. ED elected to define the eligible activities that qualify for funding here but did not specify how much aid institutions must allocate to these activities.
Unlike HEERF I and II, a portion of HEERF III institutional funds must be spent on two activities:
- Implement COVID health and safety measures
- Conduct direct student outreach regarding opportunities for further federal financial aid
Congress imposed these broad mandates in the American Rescue Plan and left ED to define them more thoroughly. ED’s new guidance better defined the activities associated with these stipulations but did not stipulate the exact amount of HEERF III that needs to be spent on them. The defined parameters for each mandate are as follows:
- The COVID health and safety best practice measure is broadly defined through the existing CDC, ED, and state-level ED lists four thematic areas–testing, prevention, reducing barriers to vaccination, and supporting students—but notes that these are not exhaustive (see question 28 for more specific activities). Most of these measures have become standard practice on campuses over the last year and have direct costs associated with them. Given the breadth of eligible activities listed by ED, CDC, and other public health authorities, most institutions will have numerous expenses that they can justify that fulfill this requirement.
- The direct outreach requirement is defined as notifying students about professional judgment-eligible aid adjustments for further federal financial aid (per questions 30 and 31). They specify that direct outreach is more than a passive website update and requires institutions to, at a minimum, notify their students via email. ED is not requiring one on-one student financial aid consultations.
Rather than define a fixed monetary amount or percent of funds that must be allocated to these activities, ED imposes an interpretive “reasonable and necessary” standard. This gives institutions the flexibility to determine how much HEERF institutional aid to allocate based on their specific campus needs. To prove that they meet this standard, institutions must determine and document five elements (see question 35 for more context):
- Institutional strategies deployed to monitor and suppress COVID (e.g., surveillance testing)
- Evidence that supported those strategies (e.g., public health research)
- Alignment with public health guidelines (e.g., CDC guidelines)
- Manner and extent of direct outreach to students (e.g., email, communication text, and list of students notified)
- Justification of how the amount of HEERF aid spent on COVID mitigation and direct outreach was reasonable and necessary at the institution (i.e., articulated rationale and underlying evidence for how the institution fulfilled the requirement)
As currently constructed, this “reasonable and necessary” standard creates an administrative burden on institutions to determine and report on. It also will constrain HEERF III institutional funds to a higher degree than HEERF II. These two mandates incentivize applying a greater share of HEERF III to direct COVID health and safety costs. Whereas HEERF II, which lacks these mandates, is more fungible. However, ED is giving institutions deference on how they allocate their HEERF aid. ED primarily wants institutions to demonstrate their rationale and prove they aren’t being arbitrary and capricious.
4. Student debt discharge
Key takeaway: Institutions can use HEERF aid to discharge eligible students’ outstanding account balances or other forms of student debt through lost revenue reimbursement or emergency student financial aid if given students’ affirmative consent.
Following ED’s March 19th guidance, many institutions expressed interest in canceling student debt through HEERF aid but were unsure of the exact mechanism to do so. This has been expanded on in question 26 of the HEERF III FAQ. Institutions have two defined paths to do so.
- First, they can recover the outstanding balance through lost revenue replacement using their institutional aid. As the expenses being recovered and dollars being used belong to the institution, not the student, they do not need to get the student’s affirmative written consent to do so.
- The second option is to allow students to apply their emergency financial aid grant to their balance upon receiving their informed consent.
In both cases, the balance must be associated with a student enrolled on or after 03/13/2020, although the student may have discontinued their enrollment at any point following that date. ED also implies that the balance needs to be linked to a bursar hold such as a transcript, enrollment, or transfer hold. Even using lost revenue recovery, institutions cannot condition clearing the debt on student actions, such as re-enrollment.
ED still does not clarify how institutions should justify that outstanding balances have a clear link to COVID as that is a requirement for lost revenue reimbursement. However, as long as the outstanding balance is incurred after 03/13/2020 and there is an aggregate, not necessarily a case by case, rationale for why the outstanding balances were materially impacted by COVID (e.g., retention decline) they likely are eligible for revenue replacement.
5. Retention and reengagement activities
Key takeaway: Initiatives to promote student retention and reengagement (e.g., waiving student bursar holds) can be HEERF eligible.
ED explains that retention and reengagement activities can be eligible expenses under HEERF in question 27 of the HEERF III FAQ. While HEERF funds cannot support any marketing or recruitment activities (e.g., advertising to students), academic and student support services that address student needs and promoted retention during COVID are considered eligible expenses. This also aligns with ED’s HEERF II guidance on providing student support services, such as mental health and advising resources.
This explicit interpretation that retention and reengagement activities can be HEERF-eligible allows institutions to use HERRF funds to invest in their student success mission. The activities must have a connection to the pandemic response, and advertising still is excluded. Eligible initiatives can include additional staff, new student success technology, success coaching, and targeted student outreach.
6. Payroll support
Key takeaway: Some payroll expenses can be covered by HEERF institutional aid if they have a clear link to COVID.
HEERF payroll uses are further defined in question 25 of the HEERF III FAQ. Institutions can use HEERF institutional aid to pay for new or repurposed staff as long as the cost is associated with COVID and occurred after 3/13/2020. Student employees are also eligible, including internships and job training. Some examples include:
- New staff such as teaching assistants, contact tracers, more instructors to lower class size, and IT workers
- Staff unable to work or who lost wages due to COVID, potentially payable retroactively (e.g., cafeteria, dorm, and clerical workers)
- Overtime pay for custodial workers, staff training, etc.
7. Capital expenses
Key takeaway: Outside of minor remodeling projects, most capital projects are not eligible expenses under HEERF.
Most capital and deferred maintenance projects are not eligible for HEERF use (per question 23). However, ED will allow “minor remodeling” expenses, including HVAC upgrades and other public health infrastructure installations. For example, keyless doors and contactless bathroom fixtures fit the criteria ED provides as long as the institution provides a COVID-based rationale for installing or upgrading. Other physical plant modifications to increase class space or facilitate social distancing measures may also be eligible.
Learn more about the American Rescue Plan
Watch EAB’s webinar on the American Rescue Plan’s higher ed provisions and how best to craft your institution’s strategy.