The CARES Act’s Impact on Higher Ed Students

The U.S. Department of Education recently issued guidance on the use of Higher Education Emergency Relief Fund (HEERF) funds under the Coronavirus, Aid, Relief, and Economic Security (CARES) Act. The guidance consists of a Frequently Asked Questions (FAQ) addressing emergency financial aid grants to students, a FAQ related to institutional costs associated with significant changes to the delivery of instruction due to the coronavirus, a new Funding Certification and Agreement into which institutions must enter to receive institutional HEERF funds, and a letter from the Secretary. The HEERF fund was established through the CARES Act and provides roughly $14 billion in funding to U.S. colleges and universities.

FAQ on Student Emergency Financial Aid Grants 

The FAQ on student emergency financial aid grants details who may be eligible for such grants and how institutions should distribute those grants. The guidance clarifies that only students who are or could have been eligible for Title IV federal student aid may receive student emergency financial aid grants. This includes students who filed a Free Application for Federal Student Aid (FAFSA) or who are eligible to file a FAFSA. Notably, international students and undocumented students (including DACA students) are not eligible for such aid, and students who were enrolled exclusively in an online or distance education program on March 13, 2020 are also ineligible for the emergency financial aid grants.

The guidance further provides that the grants must be unencumbered by the institution, meaning “debts, charges, fees, or other amounts owed to the institution may not be deducted from the emergency financial aid grant” and may be provided “using checks, electronic transfer payments, debit cards, and payment apps that adhere to the Department’s requirements for paying credit balances to students.” Institutions will be responsible for reporting “how grants were distributed to students, how the amount of each grant was calculated, and any instructions or directions that the institution gave to students about the grant.”

Finally, funds paid directly to institutions by the Department of Education through the HEERF fund will not be included as revenue for 90/10 purposes.

FAQ on Institutional HEERF Funds 

The second FAQ on institutional HEERF funds reminds schools that per the CARES Act, institutional HEERF funds are to be used to cover costs connected with significant changes to the delivery of instruction due to the coronavirus. However, in no event is a college or university to use the institutional portion of the HEERF funds to pay contractors engaged in pre-enrollment recruitment activities, including marketing and advertising, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.

The Department’s guidance directs institutions of higher education to use at least half of funds received for expenses related to the disruption of campus operations due to coronavirus. The guidance makes clear that institutions cannot use the funds to reimburse themselves for refunds provided to students for room and board, tuition, course materials, IT equipment, health care, child care and student employment expenses, such as amounts paid to student workers unless the institution can demonstrate that such costs were incurred as a result of the significant changes to the delivery of instruction, including interruptions in instruction, due to coronavirus.

Similarly, institutional HEERF funds may be used to award scholarships, to provide payment for future academic terms or to provide additional emergency financial aid grants to eligible students only if the institution can demonstrate that such grants are needed for expenses related to the disruption of campus operations due to coronavirus. Although institutional HEERF funds may be used to pay a per-student fee to a third-party service provider, such as an Online Program Manager (OPM), institutions may not use institutional HEERF funds to pay third-party recruiters or OPMs for recruiting or enrolling new students at the institution. Given these parameters, it will be imperative for recipient institutions to document how their reimbursements are related to the COVID-19 interruption.

Additional Funding Certification and Agreement 

In order to receive the institutional portion of HEERF funds, an institution must enter into a new Funding Certification and Agreement with the U.S. Department of Education. The agreement ensures that institutions cannot select to receive only the institutional—but not student—portion of the HEERF funds. The agreement also makes clear that institutional HEERF funds cannot be used for a number of uses, including senior administrator and/or executive salaries, benefits, bonuses, contracts, incentives; stock buybacks, shareholder dividends, capital distributions, and stock options; or any other cash or other benefit for a senior administrator or executive.

Thoughts from the Secretary 

Finally, the Secretary, in her letter, encourages institutions to use institutional HERRF funds to increase support for students most in need, “expand [] remote learning programs, build [] IT capacity to support such programs, and train faculty and staff to operate effectively in a remote learning environment.” That said, the new Funding Certification and Agreement, provides that each institution “retains discretion in determining how to allocate and use the funds provided hereunder, provided that funds will be spent only on those costs for which Recipient has a reasoned basis for concluding such costs have a clear nexus to significant changes to the delivery of instruction due to the coronavirus.”

The above described guidance clarifies the scope and uses of both the student grants and institutional HERRF funds. Specifically, the guidance makes clear that an institution cannot comingle funds received for student emergency financial aid grants with institutional funds received for expenses related to the disruption of campus operations due to coronavirus. Additionally, only institutions that currently receive student emergency financial aid grants and who have entered into the Funding Certification and Agreement specific to institutional funds are eligible to receive institutional HEERF funds. We strongly advise that institutions in receipt of HEERF funds keep detailed records explaining how student grants were distributed, how the amount of each grant was calculated and whether instructions or directions were given to the student as well as how reimbursements related to the COVID-19 interruption were disbursed. The Department of Education has indicated it will publish a notice in the Federal Register to provide additional instructions to institutions on these reporting requirements. For more detailed questions, please contact the author of this post or any other Franczek attorney.