The CARES Act Could Bring Relief for Higher Education Institutions

On Friday March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted into law. The Act includes several provisions to aid the higher education industry during this challenging time. The main provision established the Education Stabilization Fund of approximately $31 billion. This fund provides financial assistance to the education sector, as broken out below:

• $14 billion — Higher education institutions
• $14 billion — K-12 education
• $3 billion — Governor’s Emergency Fund

Higher education grants

The $14 billion allocated to higher education institutions will be further divided as follows:

• 90%, or $12.6 billion, will be paid directly to schools based on the portion of students who were full-time Pell Grant recipients not exclusively enrolled in distance education courses prior to the pandemic.
• 7.5%, or $1 billion, will be distributed as additional awards to low income serving institutions, historically black colleges and universities, charter schools, developing Hispanic-serving institutions, and tribal colleges.
• 2.5%, or $400 million, will be provided to the most severely impacted higher education institutions.

Institutions participating in the Title IV program

The $12.6 billion will be allocated to most institutions of higher education that participate in the Title IV program; however, the final calculation allocates a substantial amount of funding to institutions that have the most full-time Pell Grant recipients who were not enrolled in distance education.

Approximately 75% of the $12.6 billion ($9.45 billion) is allocated to all schools that have full-time Pell Grant recipients (not enrolled in distance education). The remaining 25% of the $12.6 billion ($3.15 billion) is allocated to all schools based on full-time enrollment of students who were not full-time Pell Grant recipients (not enrolled in distance education). Schools that do not have Pell Grant recipients are eligible to receive funding from this 25% allocation, depending on their enrollment and distance learning.

If your institution receives funding from the $12.6 billion allocation, you must provide, at minimum, 50% of the funds received to students impacted by the pandemic by way of emergency grants. On April 9, 2020, the Department of Education (ED) provided guidance that funds are to be disbursed at the discretion of the institution. The only stipulation is that disbursements are to be used to cover expenses related to the disruption of campus operations due to the pandemic. Examples of such expenses are the various items included within a student’s cost of attendance, such as food, housing, course materials, technology, health care, and child care. Institutions may choose to disburse this allocation to all students or they may choose to disburse funds to students who are determined to have a need resulting from the pandemic. The ED encourages institutions to provide funding to the students with the greatest need. The ED also suggests setting an individual cap (such as the 2019 – 2020 maximum Pell Grant of $6,195) to ensure as many students as possible are assisted; however, each institution must evaluate if this is reasonable.

You may use the remaining funds (up to 50% of the total) to cover certain operational expenses incurred during the pandemic, as well as any cost associated with significant changes to instruction delivery due to the coronavirus, as long as such costs do not include payment to contractors for the provision of:

• Pre-enrollment recruitment activities
• Endowments
• Capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship

The ED released additional guidance on this funding, including the final formula and allocation for the $12.6 billion.

Betsy DeVos, secretary of education, issued a cover letter with the April 9, 2020, guidance. The letter indicates that, in an attempt to get the student portion of the emergency funds into the hands of the students, the ED will be immediately distributing the student portion, provided the institutions complete and execute a certification of agreement. Once institutions complete the agreement, they must create an account on the federal government’s grant application website and upload the form. The funding will be distributed by way of G5, which is the Department of Education’s grant management system, or by other means the school receives federal funding, as soon as April 15, 2020.

Funding to low income serving, historically black colleges and universities, charter schools, developing Hispanic-serving institutions, and tribal colleges

The $1 billion funding will be proportionally allocated to such schools based on the relative share they received from previous federal funding in 2020. The institutions that received aid under Titles III, V, and VII programs are eligible to repurpose remaining funds to respond to the pandemic.

Severely impacted institutions

The $400 million funding will be allocated to the highest need institutions. If an institution received less than $500,000 from other allocations, they will be given priority.

As an overall requirement of the Education Stabilization Fund, each institution that receives money from the Fund shall, “to the greatest extent practicable, continue to pay its employees and contractors during the period of any disruptions or closures related to coronavirus.”

Grants from the Governor’s Emergency Fund

A portion of the $3 billion will be allocated to each of the 50 states, based on population demographics. Both K-12 schools and higher education institutions can apply for these funds. The Department of Education must provide the fund application process by April 26 (30 days subsequent to the passage of the CARES Act). All applications will be approved or denied within 30 days of receipt.

As of today, the Department of Education has not yet set forth the application process. CLA will provide an update when that information is released. Institutions can use Governor’s Emergency Fund grant funding they receive to support the continuing educational services and ongoing functionality of the institution.

Other significant funding opportunities

As part of the CARES Act, several other provisions could provide substantial financial assistance to organizations across industries. CLA’s recent CARES Act article covers these in-depth.

1. Employer Retention Tax Credit — Potential refundable payroll tax credit
2. Small Business Administration loans (including Paycheck Protection Program Loans) — Eligible employers with no more than 500 employees can apply and should consider tips for navigating the loan application process; includes an applicable forgiveness provision
3. Deferral of employer share of Social Security tax — Potential cash management opportunity
4. Low interest loans for midsize employers — Federal Reserve loans for employers with 500 – 10,000 employees
5. Net Operating Losses limitations suspended — Removal of certain provisions from the Tax Cuts and Jobs Act for nonprofit institutions

Institutions need to plan carefully. Consider consulting with your CPA and your attorneys for additional guidance, as participation in some of these opportunities preclude an institution from participating in others.

How we can help

During these challenging times, CLA’s team is here to provide guidance and equip you with the tools and knowledge to help you move forward. Here are just some of the ways we can help you:

• Gather information for potential loan or grant applications.
• Consult on operational and financial avenues might be best for your institution.
• Assist in understanding critical cash flows during this time of uncertainty. CLA has developed a simple yet fully interactive, comprehensive model at significant value to help in the short-term.
• Provide information concerning the impact of potential funding coming to your institution and its direct effect on financial statements.
• Help your organization assess projected impacts on the federal composite score due to the COVID-19 losses and federal revenues.
• Advise regarding (and potentially perform) the calculations for your refunds to students.
• Consult and assist with the logistics of the emergency grant disbursements to students (and institutions, when available) and the related reporting requirements.

We also have a number of resources to support you through the coronavirus pandemic in our COVID-19 resource center. Read part two of this article series talking about additional education provisions.

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