Alerts and Updates

Higher Education Institution and Student Relief in the CARES Act

April 1, 2020

Education Stabilization Fund resources are being made available to post-secondary institutions and students by the U.S. Department of Education.

The CARES Act appropriates $30.75 billion for an Education Stabilization Fund available through September 30, 2021, to assist governors and postsecondary institutions with preventing, preparing for and responding to COVID-19. The Act also includes important student relief and temporary regulatory flexibilities.

Grants and Relief Funds

Education Stabilization Fund resources are being made available to post-secondary institutions and students by the U.S. Department of Education through two funds:

  • The Governor’s Emergency Education Fund authorizes state grants awarded by the Secretary of Education to be utilized by local education agencies, institutions of higher education and education-related entities most heavily impacted by the pandemic. These awards will be made after application by states and approval by the secretary.
  • The Higher Education Relief Fund provides approximately $14 billion in direct funding from the secretary to institutions of higher education based on an allocation tied to the institution’s relative share of on-ground full-time equivalent (FTE) students, 75 percent of the funds allocated based on Pell recipients and 25 percent based on non-Pell students.

Higher Education Relief Fund details:

  • Fully online institutions are not eligible.
  • Institutions must distribute at least 50 percent of the funds received for emergency financial aid grants to students to cover any component of the student’s cost of attendance (including food, housing, course materials, technology, healthcare and child care).
  • Institutions may use remaining funds “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus, so long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities; endowments; or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.”

Other important student relief provisions include:

  • Suspension of payments and collections on Federal Student Direct Loans through September 30, 2020, waiver of interest accrual during that time, and treatment of nonpayment during the suspended period as if the payment was made for purposes of any loan forgiveness or rehabilitation program.
  • Cancellation of the borrower’s obligation to repay the portion of a Direct Loan associated with a payment period during which a student withdrew due to the COVID-19 emergency.
  • Waiver of Return to Title IV (R2T4) refund requirements for Title IV loans and grants for institutions and students, for students who withdraw during the payment period as a result of the qualifying emergency.
  • Provides flexibility for use of Supplemental Educational Opportunity Grant funds for student emergency expenses, temporary waiver of nonfederal share requirement for the Federal-Work Study Program, and allowance for continued FWS payments to students.
  • Provides authority for institutions to provide a student with an approved leave of absence that does not require the student to return to the same point in the program at which the student began the leave of absence if the student returns within the same semester (or equivalent).
  • Permits institutions to exclude from the quantitative (attendance) component of the Title IV satisfactory academic progress student eligibility requirement any attempted but not completed credits or hours for a student whose attendance is impacted by COVID-19, without requiring an appeal by the student.
  • Adjustment of subsidized loan usage limits to exclude from the period of enrollment for federal loan purposes that semester (or equivalent payment period) that the student does not complete due to the qualifying emergency.
  • Exclusion from a student’s Pell Grant duration limit the semester (or equivalent payment period) that the student does not complete due to the qualifying emergency.

Small Business Loans

Some institutions may also be eligible for CARES Act low interest Small Business Administration loans. A portion of these is forgivable for certain costs.

Charitable Gifts and Exclusions

Some institutions may also benefit from modifications to the charitable contribution rules in order to encourage Americans to support nonprofit entities. The Act will allow taxpayers who do not itemize deductions to deduct up to $300 in contributions to charitable organizations. This is important because the $10,000 cap on the SALT deduction imposed by the 2017 Tax Cuts and Jobs Act means that many Americans no longer itemize deductions on their tax returns, which makes the charitable contribution deduction less important to such taxpayers.

The Act also raises the annual cap on the deduction for cash charitable contributions for those who itemize, increasing it (for 2020 only) from 50 percent to 100 percent of adjusted gross income. For corporations, the Act increases the annual limit from 10 percent to 25 percent of taxable income, for 2020 only.

No Guidance Yet on Timeline

Although the Act provides extraordinary waivers, grants and assistance designed to mitigate the impact of the COVID-19 for schools and students, the Department has yet to provide guidance on when and how such relief will become available. That guidance is expected within 30 days. In particular, additional clarity is required regarding allowable use of Higher Education Relief Fund monies by institutions and students. More guidance will also be forthcoming on how the funds will flow to institutions and required recordkeeping or other requirements.

Implications

Institutions may have the opportunity to receive substantial federal funds to help students transition to distance learning and otherwise deal with the disruption caused by the COVID-19 pandemic. Students are also receiving welcome short-term relief from federal loan obligations and financial assistance through emergency grants and waivers. Due to the enormous disruption caused by COVID-19, more targeted and perhaps longer-term relief will likely be required. Congress is already working on a Phase IV stimulus package that may address some unmet school and student needs.

Institutions must continue to meet all their obligations not modified by statute, regulation or special guidance from the Department of Education, including civil rights, privacy, audits and other requirements. Congress was careful to withhold from the secretary the ability to waive many regulatory requirements under Title IV, including those concerning financial responsibility. This will certainly hamper efforts by the Department to provide additional regulatory relief in some instances unless Congress provides expanded waiver authority for the secretary in certain areas. The Act also requires that any entity receiving funds continue to pay its employees and contractors during any disruption related to COVID-19 “to the greatest extent practicable.”

About Duane Morris

Duane Morris has created a COVID-19 Strategy Team to help institutions plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

For More Information

If you have any questions about this Alert, please contact Edward Cramp, Katherine D. Brodie, Lisa T. Scruggs, any of the attorneys in the Higher Education Group, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.