AGB Policy Alert: COVID-19 and the CARES Act, Phase III Emergency Aid and Regulatory Relief

By AGB March 27, 2020 April 9th, 2020 AGB Alerts

Today, President Trump signed H.R. 748, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a historic $2 trillion emergency aid and regulatory relief package, which is the largest in U.S. history. It is the most significant congressional action to address the rapidly intensifying coronavirus crisis, which is overwhelming most of our communities and grinding the economy to a halt.

The following information offers a brief overview of the bill as it relates to higher education.

Funding

About $30 billion is included as an Education Stabilization Fund for K-12 and higher education, which will be overseen by the U.S. Department of Education (ED).

$14 billion of the Stabilization Fund will be made available to higher education. 

  • Ninety percent of the $14 billion will be allocated to higher education institutions via a formula that is based on 75 percent FTE Pell enrollment and 25 percent FTE non-Pell enrollment, excluding students who were exclusively online prior to the pandemic.
    • Colleges and universities must use at least half of their allocations to provide emergency financial aid to students, including grants to students for food, housing, course materials, technology needs, health care, and childcare.
    • The other half of their allocation may be used to defray institutional operational expenses related to COVID-19, such as lost or refunded revenue (tuition and fees, room and board), technology costs associated with the transition to distance education, and other unbudgeted expenses such as cleaning/disinfecting classrooms, labs, and residence halls.
  • Ten percent of remaining funds are allocated as follows:
    • Over $1 billion for Historically Black Colleges and Universities (HBCUs) and Minority-Serving Institutions (MSIs). Funding will be distributed through MSI programs in the same proportion as funding was provided for those programs in the FY2020 appropriations bill.
    • About $349 million for institutions with the greatest unmet needs. Funding will be distributed at the discretion of the Secretary of Education; all institutions are eligible, and priority will be given to institutions that do not receive at least $500,000 under the aforementioned Pell allocation.

Governors will be given roughly $3 billion to use on K-12 and postsecondary education, separate from the $14 billion. These funds are not restricted to public schools or institutions. Funding is allocated to states based on the state’s population of people ages 5-24 and the percentage of children counted under ESEA. Governors have broad authority on how to use the funds.

  • States must provide an assurance they will maintain support for K-12 and postsecondary education in Fiscal Years (FYs) 2020 and 2021, with ED able to waive this requirement for states that experience extraordinary economic loss.

In addition to the Education Stabilization Fund, the legislation provides funding for research. Specific amounts include $945 million to the National Institutes of Health, $75 million to the National Science Foundation, $99.5 million to the Department of Energy Office of Science, and $60 million to NASA for COVID-19-related research. The higher education community continues to work with members of Congress to advocate for funding related to university research that addresses national needs.

Other Important Provisions

  • Small Business Administration (SBA) loans. The legislation expands existing borrowing eligibility. An institution with 500 or fewer employees will be able to apply for an SBA loan, up to $10 million. Unfortunately, it appears that student employees count towards the 500-employee maximum, meaning that many institutions will be ineligible. Funds can be used for payroll, mortgage, rent, utilities, and other core expenses.
  • Student loan payment suspension. The bill also includes several provisions which would suspend payment and interest on most loans for 6 months. ED would also suspend the garnishment of wages, Social Security and tax refunds for borrowers in default during this period. Unfortunately, approximately 20 percent or so of total student loan borrowers may not qualify for this suspension of payments due to the loan program they borrowed under.
  • Student aid program waivers. The legislation offers regulatory relief for several programs established to provide aid to students, including Federal Supplemental Education Opportunity Grants (SEOG), Pell Grants, TEACH Grants, and others. A comprehensive summary list can be found hereon page 2.
  • Temporary universal charitable deduction. The bill includes a temporary universal charitable tax deduction for donations of up to $300 per individual for non-itemizing taxpayers, in addition to suspension of donor limitations for the 2020 tax year.
  • Payroll tax payment delays. Employers, including nonprofit colleges and universities, are permitted to delay payment of FICA payroll taxes until January 1, 2021. Employers who choose to delay payroll taxes will be required to repay half of their original payment by December 31, 2021, and the remaining half by December 31, 2022.

Questions for Boards

  1. What are your institution’s, system’s, and/or foundation’s most urgent needs?
  2. Does your institution and/or institutionally related foundation need a loan? Is your institution and/or institutionally related foundation eligible? If yes to both, do you know how to apply?
  3. Soon, your institution will be receiving an emergency aid allocation from the U.S. Department of Education. The allocation will be based on the following: 75 percent of the funds available are based on the full-time equivalent (FTE) enrollment of Pell Grant recipients, and 25 percent are based on FTE enrollment of students who did not receive a Pell Grant. These figures exclude students who were exclusively online prior to the pandemic. While it’s difficult to estimate the amount that you might receive from ED, you will be required to use at least half of your allocation for emergency financial aid to students, including grants to students for food, housing, course materials, technology needs, health care, and childcare. Do you have a policy and process for identifying students who need emergency aid? How will these funds be distributed?
  4. What is or can your governing board and senior leadership team do to address the current crisis? For example, more communication—additional calls; special ad hoc committees or task forces; reconfiguring budgets (in light of refunds and lost revenue), etc. What changes could or are being made to your operating budget?How about next year’s budget?
  5. What are the most significant steps you are taking, or considering, to reduce operational costs (if you’re in a financial situation in which you need to reduce costs)?
  6. As a result of the current pandemic, in what ways will you revise your enrollment strategy or projections? How might your tuition and institutional student aid strategies need to change?
  7. How might the pandemic affect your asset-management strategy (foundation or endowment)? What policies should you consider to effectively utilize available funds?

Resources