Policy Changes and $23 Billion for Higher Ed — What You Need to Know

Consolidated Appropriations Act, 2021 expands upon the Coronavirus Aid, Relief, and Economic Security (CARES) Act from March 2020 and provides aid to the higher education industry — and the economy more broadly — as they struggle to recover from the COVID-19 pandemic. The act includes several policy changes for educational institutions, though most don’t go into effect until the 2023 – 2024 award year. Examine key takeaways from the legislation that you and your institution should know.

Distribution of funds

First, the very basics: the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act, included in the omnibus bill, provides approximately $82 billion to the Education Stabilization Fund established under the CARES Act. This financial assistance to the education sector is distributed as such:

• $22.7 billion for higher education institutions
• $54.3 billion for K-12 education
• $4.1 billion for the Governor’s Emergency Fund

Higher education grants

The $22.7 billion allocated to higher education institutions is to be distributed as follows:

• 89% ($20.2 billion) is to be paid directly to approximately 3,500 private and public institutions, weighted heavily on a combination of headcount, ratio of part-time students to full-time equivalents (FTEs), and the number of Pell-only recipients. The allocation formula is as follows:
  • 37.5% for FTE enrollment of Pell Grant recipients who were not enrolled exclusively in distance education courses prior to the qualifying emergency
  • 37.5% for headcount enrollment of Pell recipients who were not enrolled exclusively in distance education courses prior to the qualifying emergency
  • 11.5% for FTE enrollment of non-Pell recipients who were not enrolled exclusively in distance education courses prior to the qualifying emergency
  • 11.5% for headcount enrollment of non-Pell recipients who were not enrolled exclusively in distance education courses prior to the qualifying emergency
  • 1% for FTE enrollment of Pell recipients who were exclusively enrolled in distance education course prior to the qualifying emergency
  • 1% for headcount of Pell recipients who were exclusively enrolled in distance education courses prior to the qualifying emergency
• 7.5% ($1.7 billion) is to be distributed as additional awards to historically black colleges and universities (HBCUs), institutions serving low-income communities, charter schools, the development of Hispanic-serving institutions, and tribal colleges and universities (TCUs). While similar to the CARES Act, this allocation is generally weighted based on headcount of Pell Grant recipients (70%), overall headcount (20%), and endowment size (10%).
• 3% ($681 million) has been allocated to for-profit schools; these funds are not to be used for the institution’s operations, only for emergency grants to students.
• The remaining 0.5% ($114 million) is to be provided to the most severely impacted higher education institutions. The bill suggests that the Department of Education would have 60 days to establish an application process to determine which institutions have the greatest need.

Application and award timeline

Institutions that have already submitted approved applications under Section 18004(a) of the CARES Act are not required to submit new applications for these funds. Funding requirements may be waived based on a determination of need on a school-by-school basis.

The timeline of this funding is expected to be awarded as follows (timeframe beginning when the law was enacted on December 27, 2020):

• Public, private, and for-profit schools — within 30 days
• HBCUs, TCUs, and Minority Serving Institutions (MSIs) — within 60 days
• Fund for the Improvement of Postsecondary Education (FIPSE) — within 120 Days

Keep in mind that if your institution receives these funds, you are subject to reporting requirements beginning at the six-month mark. Watch for additional guidance from the Department of Education.

Eligible and ineligible uses of funds

Once your institution secures the stimulus, it’s important to comply with the rules set forth by the act. The following are some instances of eligible uses of the funds:

• Defrayment of expenses associated with COVID-19 (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll).
• Student support activities authorized by the Higher Education Act of 1965 (HEA) that address COVID-19-related needs.
• Emergency financial aid grants to students (including those enrolled exclusively in 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, such as tuition, food, housing, health care (including mental health care), or child care. The institution must prioritize highest need students, such as those who are Pell eligible.

Consult with a professional to help verify compliance, and consider some ineligible uses of these funds by higher education institutions:

• Payment of contractors for the provision of pre-enrollment recruitment activities
• Marketing or recruitment
• Endowments
• Capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship
• Senior administrator or executive salaries, benefits, bonuses, contracts, or incentives
• Stock buybacks, shareholder dividends, capital distributions, and stock options
• Any other cash or other benefit for a senior administrator or executive

Special provisions to consider

Institutions must provide at least the same amount of funding in emergency financial aid grants to students as was required under Sections 18004(a)(1) and (c) of the CARES Act, but unlike the CARES Act, the CRSAA does not require that at least 50% of the funds be spent on emergency student grants. However, your institution must spend the same dollar amount on student grants as they were required to under the CARES Act. Since the funding is expected to be larger, schools may have the option to use the funds for eligible institutional purposes.

Any CARES Act funding unspent as of December 27, 2020, can be repurposed for eligible uses outlined above, but still must be split evenly between student grants and eligible institutional purposes.

For schools that must remit payment to the IRS for the excise tax based on investment income (as mandated by the Tax Cuts and Jobs Act), allocations are reduced by 50%. These amounts must be used exclusively for student grants or the following institutional purposes: sanitation, personal protective equipment, or other expenses associated with the general health and safety of the campus environment related to the qualifying emergency.

Additional financial relief — $1.3 billion in forgiveness of federal loans used for capital building and repair projects — is granted to HBCUs.

Upcoming policy changes

The act also lists several policy changes and provisions. Unless noted below, these become effective for the 2023 – 2024 award year.

Simplifies Free Application for Federal Student Aid (FAFSA)

• To make the application process more efficient, the number of questions on the form has been reduced from 108 to 36.
• Changes have been made to the need analysis formula, which allows students and their parents to preview their eligibility for Pell based on the number of parents in the household.
• The Expected Family Contribution (EFC) has been renamed to the Student Aid Index (SAI). Like the EFC, the SAI calculates need for need-based programs.

Repeals Subsidized Usage Limit Applies (SULA) requirement

Currently, students are barred from receiving subsidized direct loans for more than 150% of the published length of their program. The bill repeals this limitation.

Expands Pell Grant program

• A minimum amount is guaranteed to be awarded to students whose family income falls below a set percentage of the poverty line.
• Eligibility is restored to those with successful borrower defense to repayment claims.
• Eligibility is restored for incarcerated individuals.
• 500,000 additional students are expected to be eligible for the maximum award.

Eliminates drug conviction and Selective Service registration requirement

Students convicted of a drug crime are now eligible, and male applicants no longer must register for the Selective Service.

Provides flexibility in professional judgement cases

During a national emergency, disaster, or economic downturn, the bill allows financial aid administrators to determine that the income earned from work is zero if the applicant can provide supporting documentation.

Expands additional awards

The bill includes a $25 million increase to the Federal Work Study (FWS) and Federal Supplemental Educational Opportunity Grant (FESOG) programs.

Increases Pell Grant maximum award

The maximum annual award was increased $150 to $6,495, effective for the 2021 – 2022 award year.

How we can help

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

• Consult on operational and financial avenues for your institution.
• Help you understand critical cash flows during times of uncertainty. CLA has developed a simple yet fully interactive comprehensive model to help in the short term.
• Provide information to help you gauge the impact of potential funding received by your institution and its direct effect on financial statements.
• Help your organization assess projected impacts on the federal composite score due to COVID-19 losses and federal revenues.
• 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 pandemic in our COVID-19 resource center. 

Contact Us