Type: Law Bulletins
Date: 01/11/2021

Higher Education Relief in the Stimulus Act

The Coronavirus Response and Relief Supplemental Appropriations Act (Stimulus Act), a subpart of the larger Consolidated Appropriations Act, 2021, was signed into law by President Trump on Dec. 27, 2020. The Stimulus Act is the second round of federal coronavirus relief funding since the start of the pandemic. The first round of funding was provided in April 2020 through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Stimulus Act is intended to help individuals and businesses continue to prevent, prepare for, and respond to the COVID-19 pandemic. Like the CARES Act, the Stimulus Act provides regulatory and financial relief for students, schools, educational agencies, and higher education institutions. This bulletin focuses on higher education institutions. 

The Stimulus Act includes more than $81 billion in relief funding through the Education Stabilization Fund (ESF), which will remain available through Sept. 30, 2022. For reference, the CARES Act provided $30.8 billion in funding through the ESF. Nearly $23 billion of the ESF is reserved for institutions of higher education through the Higher Education Emergency Relief Fund (HEERF), which is nearly $9 billion more than the amount allocated under the CARES Act. The U.S. Department of Education (ED) will distribute the funds “to the extent practicable” by Jan. 26, 2021. Recall, pursuant to the CARES Act, the ED will audit institutional spending of HEERF funds. The same will be true under the Stimulus Act. Thus, it is imperative for institutions to understand how the allocations will be distributed, and how they can be used.

Eighty-nine percent ($20.2 billion) of the HEERF funds will be disbursed through Title IV distributions, calculated by the ED; 7.5 percent ($1.7 billion) for the Higher Education Act (HEA)’s Historically Black Colleges and Universities and Minority-Serving Institution programs; 3 percent ($681 million) for for-profit institutions of higher education (all of these funds must be spent on direct emergency student grant aid); and 0.5 percent ($113 million) will be used at the ED’s discretion to the greatest unmet needs related to coronavirus.

The Title IV-disbursed funds will be distributed through a formula that is slightly revised from the formula previously provided under the CARES Act. Additionally, 2 percent of the overall allocation under the new law provides funds for students who are enrolled in exclusively distance courses. The new formula accounts for part-time students in both the Pell and total enrollment calculations; whereas, the CARES Act formula only factored in full-time students (not including those exclusively enrolled in online courses prior to the coronavirus).

The Stimulus Act also provides institutions of higher education with more flexibility in how they use the new HEERF funds. Institutions may use the funds to:

  1. Defray expenses associated with COVID-19 (such as lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff training, and payroll).
  2. Carry out student support activities authorized by the HEA that address needs related to the coronavirus.
  3. Provide financial aid grants to students (including students exclusively enrolled in distance education), which may be used for any component of the student’s cost of attendance or for emergency costs arising from the coronavirus (such as tuition, food, housing, health care (including mental health care), and child care). Institutions are required to provide at least the same amount of funding (not percentage) in emergency grants to students that was required under the CARES Act.

The additional uses provided for under the Stimulus Act also apply to any repurposed funds under the CARES Act, so long as institutions still use at least 50 percent of the repurposed CARES Act funds on emergency student aid. In making financial aid grants to students, institutions must prioritize grants to students with exceptional need, such as students who receive Pell Grants. However, as in the CARES Act, the Stimulus Act does not explicitly state which students are eligible to receive emergency funds. It is uncertain whether the ED’s pending (and contested) Interim Final Rule, which provides that students must be eligible for Title IV Federal Student Aid funding in order to receive emergency grants, will be extended to the new funds distributed under the new law.

Like the CARES Act, the Stimulus Act maintains that institutions must “to the greatest extent practicable” continue to pay their employees and contractors during the period of any disruptions or closures related to the coronavirus. As required in the CARES Act, the Stimulus Act provides for ongoing reports accounting for the use of funds. 

Unlike the CARES Act, institutions subject to the excise tax on their endowments (excluding work colleges) will receive decreased allocations under the Stimulus Act, but the ED may waive this reduction in cases of demonstrated need. The Stimulus Act also prohibits institutions from using HEERF funds to pay costs associated with senior administrator or executive salaries, benefits, bonuses, contracts, incentives; stock buybacks, shareholder dividends, capital distributions, and stock options; or any cash or other benefit for a senior administrator or executive.

Along with the amount set aside for higher education institutions, the Stimulus Act provides $4.05 billion for the Governor’s Emergency Education Relief Fund (GEERF). Governors will distribute those funds using the same formula as was provided under the CARES Act.

The Stimulus Act also includes changes to the student financial aid process, including simplifying the current Free Application for Federal Student Aid application by reducing the number of questions from 108 to 36. Additionally, the Stimulus Act includes changes to student eligibility for federal Pell Grants, including restoring eligibility for incarcerated students and repealing the drug offense limitations on Pell Grant eligibility.

More details on the Stimulus Act and its impact on institutions of higher education may be provided at a later date as additional information becomes available. This article is for informational purposes only, and should not be construed as legal advice. If you have any questions about how to comply with your legal obligations under the Stimulus Act, please contact a member of Taft’s Higher Education group.

Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.

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