What’s in the New Higher Education Emergency Relief Fund

By: Michele Streeter

The pandemic is exacerbating existing inequities in the nation’s higher education system. Low-income students and students of color have disproportionately borne the effects of the COVID-19 pandemic and recession, including job losses and falling wages. With the economy likely to take at least two more years to recover, expected state cuts to public colleges could set back an equitable recovery.

The omnibus bill is an important piece of legislation that will help cushion the blow of the pandemic on students. But even together with the CARES Act, which was enacted in March 2020, much more must be done to survive the pandemic and reinvest in colleges to promote an equitable recovery.

Notably, the bill fails to extend or expand the federal student loan payment and interest pause included in the CARES Act (and extended by the Education Department). Those benefits are currently set to expire on February 1, 2021. The result will be weeks of unnecessary chaos and uncertainty as borrowers wait to see if the Biden Administration will extend the pause upon taking office on January 20, 2021.

Early next year, Congress and the Biden Administration will need to build on the omnibus bill by delivering additional support to states and colleges, ensuring states reinvest in colleges as the economy recovers, strengthening protections for students against low-quality colleges, delivering loan relief to struggling borrowers, and working toward doubling the Pell Grant to close equity gaps in college enrollment and completion.

Education Stabilization Fund

The bill provides nearly $81.9 billion in an Education Stabilization Fund (ESF) to support the educational needs of students, states, school districts, and higher education institutions in response to the pandemic.

For comparison, the CARES Act provided $30.8 billion through its ESF. (Since the passage of the CARES Act, colleges have requested at least $120 billion in additional federal relief.)

One percent of the ESF (approximately $819 million) is reserved for U.S. outlying areas and Bureau of Indian Education schools and Tribal Colleges and Universities.

As in the CARES Act, the rest of the ESF is divided into the following pots of money:

Pot 1: The bill provides 5 percent of total remaining funds ($4.1 billion) to governors to distribute through a Governor’s Emergency Education Relief Fund (GEERF).

Governors can distribute these funds to agencies and institutions across K-12 and higher education that “have been most significantly impacted by coronavirus” to support their ability to continue to deliver education and services to students.

Pot 2: The bill provides separate chunks of dedicated funding directly to K-12 agencies through an Elementary and Secondary School Emergency Relief Fund (ESSERF) and directly to colleges and universities through a Higher Education Emergency Relief Fund (HEERF).

Of this funding pool, 67 percent of funds ($54.3 billion) are dedicated to K-12 and 28 percent ($22.7 billion) are dedicated to higher education.

While this pot of funds does come with a maintenance of effort (MOE) requirement, it is less stringent than the one included in the CARES Act.

Under the omnibus bill, states are required to dedicate the same proportion of state funding to K-12 and higher education in fiscal year 2022 as they averaged over fiscal years 2017, 2018, and 2019. As in the CARES Act, the bill gives the Education Secretary broad authority to waive this requirement.

For comparison, the CARES Act included an MOE requirement that states maintain their average funding for K-12 and higher education from the three fiscal years preceding enactment for fiscal years 2020 and 2021. This provision remains in effect for 2021, but will not affect states’ 2022 budget decisions.

Higher Education Emergency Relief Fund (HEERF)

Funding Breakdown

Of the $22.7 billion dedicated to colleges and universities:

• 89 percent ($20.2 billion) will go directly to public and private nonprofit institutions of higher education (IHEs) (more on these funds below).
• 7.5 percent ($1.7 billion) is reserved exclusively for Historically Black Colleges & Universities and other Minority-Serving Institutions.
• 3 percent ($681 million) is reserved for for-profit institutions, but unlike the funds reserved for public and nonprofit institutions, for-profit institutions are required to spend all their funds on direct emergency student grant aid. The allocation formula is the same as that used for public and nonprofit institutions (see below).
• 0.5 percent ($113 million) is reserved exclusively for institutions that the Education Department determines have the most unmet need related to the effects of coronavirus (through the Fund for the Improvement of Postsecondary Education (FIPSE)).

Funding to Public & Private Nonprofit IHEs

Of the $20.2 billion dedicated to public and private nonprofit institutions:

These funds will be distributed using the below formula, which accounts for both full-time equivalent (FTE) enrollment and headcount — a change from the CARES Act formula, which only factored in full-time enrollment.

• 37.5 percent based on FTE enrollment of Pell recipients who were not exclusively enrolled in distance education courses prior to the qualifying emergency;
• 37.5 percent based on headcount enrollment of Pell recipients who were not exclusively enrolled in distance education courses prior to the qualifying emergency;
• 11.5 percent based on FTE enrollment of non-Pell recipients who were not exclusively enrolled in distance education courses prior to the qualifying emergency;
• 11.5 percent based on headcount enrollment of non-Pell recipients who were not exclusively enrolled in distance education courses prior to the qualifying emergency;
• 1 percent based on FTE enrollment of Pell recipients who were exclusively enrolled in distance education courses prior to the qualifying emergency; and
• 1 percent based on headcount of Pell recipients who were exclusively enrolled in distance education courses prior to the qualifying emergency.

For reference, the CARES Act HEERF formula required 75 percent of funds to be distributed to schools based on FTE enrollment of Pell recipients (not including those exclusively enrolled in online courses prior to coronavirus) and the remaining 25 percent to be distributed to schools based on FTE enrollment of non-Pell recipients (not including those exclusively enrolled in online courses prior to coronavirus).

Uses of Funds

Colleges have more flexibility in how they can use new HEERF funds than they did under the CARES Act. These expanded allowable uses apply both to new funds distributed under the omnibus bill and any unspent CARES Act funds. Institutions are still required to spent at least 50 percent of any unspent CARES Act funds on emergency student aid.

Institutions can use the new HEERF funds to:

• Defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll);
• Carry out student support activities authorized by the HEA that address needs related to coronavirus; or
• 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 that arise due to coronavirus, such as tuition, food, housing, health care (including mental health care), or child care.

While the omnibus bill requires institutions to “prioritize grants to students with exceptional need, such as students who receive Pell Grants,” it makes no explicit mention of which students would be eligible to receive emergency funds. The CARES Act was also silent on this, and the provision was a major sticking point in the implementation of the CARES Act, as the Education Department issued an interim final rule requiring students to be Title IV-eligible to receive CARES emergency aid. Notably, such a requirement excludes undocumented students.

As in the CARES Act, schools cannot use funds to cover payments to contractors for the provision of pre-enrollment recruitment activities, marketing or recruitment, endowments, athletic facilities, sectarian instruction, or religious worship.

The omnibus also requires institutions to provide “at least the same amount of funding in emergency financial aid grants to students” as was required to be provided under the CARES Act.

The omnibus bill includes a new provision, not included in the CARES Act, that affects schools who are subject to the endowment tax. Such institutions have their allocation of funds cut in half and are required to use their funds only for either direct emergency aid to students or for sanitation, personal protective equipment, or other expenses associated with the general health and safety of the campus environment related to the pandemic.

The omnibus bill also includes new language prohibiting the use of HEERF funds to cover costs associated with senior administrator 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.

Michele Streeter is a senior policy analyst at The Institute for College Access & Success.

Originally published at https://ticas.org on December 23, 2020.