How the American Rescue Plan will help higher ed

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.

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.

Final takeaways

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.