By Jill Desjean, Policy & Federal Relations Staff

The Department of Education (ED) on Thursday released the details of how colleges and universities can distribute the more than $21 billion in COVID-19 relief aid recently approved by Congress — and for which purposes those funds can be used.

Among the documents released Thursday were institutional allocations, a fact sheet, an FAQ document, and details for the distribution of the second round of Higher Education Emergency Relief Fund (HEERF II) dollars authorized by Congress in the 2021 Consolidated Appropriations Act, which was signed into law on Dec. 27, 2020. 

Unlike the last round of funding approved under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, ED does not limit emergency grants to only students eligible to receive Title IV financial aid, though the agency stopped short of including international students, those enrolled in the Deferred Action for Childhood Arrivals (DACA) program, and undocumented students in the eligible group. ED previously said those student groups are ineligible to receive emergency grants due to a 1996 welfare reform law prohibiting them from receiving federal public benefits, such as grants.

The Act allows for more expansive uses of funds than the CARES Act, for both the student share and the institutional share. While the CARES Act required that student grants could only be made for student expenses related to the disruption of campus operations, student grants made under HEERF II can 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, prioritizing students with exceptional need. 

Institutions will also have greater flexibility in how they use the institutional share of the new funds, including lost revenue, reimbursement for expenses already incurred, faculty and staff training, and more. Rather than being restricted to covering expenses connected to changes in the delivery of instruction as required by the CARES Act, institutional share funds may be used 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), and to carry out student support activities authorized by the Higher Education Act (HEA) that address needs related to coronavirus. Any unexpended CARES Act funds, both student share and institutional share, may be used in the same way they are allowed to be used under the HEERF II rules.

Thursday’s announcement applies only to funds that fall under Section 314(a)(1) of the Act, previously referred to as the Student Share and Institutional Share funds, and not to funds under Sections 314(a)(2) or (a)(3), which are reserved, respectively, for Historically black colleges and universities (HBCUs), minority-serving institutions (MSIs), and tribal colleges and universities (TCUs), and for Fund for the Improvement of Postsecondary Education (FIPSE). The law instructed ED to make this first round of allocations within 30 days of enactment, whereas it permits 60 days for the HBCU/MSI/TCU funds and 120 days for the FIPSE funds.

ED also released details on how funds will be distributed to institutions, as well as the terms and conditions that apply to this new round of funding. Funds will once again be released to schools using the G5 system and, in accordance with the law, will not require a new Certification and Agreement for institutions that had already been approved to receive HEERF funds under Section 18004(a)(1) of the CARES Act. Those institutions will receive an email when their funding is available, and the Grant Award Notice for those institutions will include language indicating that drawing down funds indicates acceptance of terms and conditions.

While awards for institutions that previously received CARES Act HEERF funds will be processed automatically, ED indicated in a briefing call on Thursday that this could take several weeks due to staffing and technology limitations. Institutions that have already submitted their HEERF annual report via the Annual Report Data Collection System will receive priority in supplemental funds disbursement. 

Institutions that did not receive either or both of the institutional share and student share of CARES Act funds will need to submit applications following the CARES Act process to receive supplemental allocations. New applications are due by April 15, 2021, but institutions are encouraged to apply as quickly as possible because ED indicated that they plan to process applications in the order they are received.

Institutions subject to the endowment tax are also required to provide a separate Notification of Endowment Excise Tax Paid form, regardless of whether they will have funds automatically processed or have to complete a new application.

Federal rules require that HEERF grantees minimize the time between drawing down funds from G5 and paying obligations incurred by the grantee (liquidation). For grants to students, ED may evaluate for compliance grantees who have drawn down the funds from G5 and not paid the obligations (the financial aid grants to students) to the students within 15 calendar days. For all other allowable uses, ED may evaluate grantees who have not taken these steps within three calendar days.

Institutions should only draw down enough funding that they are able to spend within those time frames, and make subsequent drawdowns for future expenditures as needed. 

Institutions will continue to have one year from the date of their CARES Act HEERF award to spend those dollars, and will also have one year from the date they received these supplemental funds to spend them. These supplemental funds may be used for pre-award costs incurred on or after Dec. 27, 2020.

While the law sets out new approved uses of funds for this new round of funding, ED also provides additional clarity on how institutions can spend these supplemental funds. ED indicates that they will not require students receiving these supplemental funds to meet all of the Higher Education Act (HEA) Section 484 student eligibility requirements, which include meeting satisfactory academic progress, not being in default or owing a refund on federal student aid, and being a U.S. citizen or eligible noncitizen. This interpretation of student eligibility for CARES Act HEERF funds was met with significant opposition when it was announced last summer in an Interim Final Rule (IFR) published June 17, 2020. It is NASFAA’s understanding that the portion of the IFR that relates to the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) still applies, given ED did not specifically state otherwise. PRWORA prohibits international students, those enrolled in the Deferred Action for Childhood Arrivals (DACA) program, and undocumented students, from receiving federal public benefits, such as grants.

Additionally, institutions are required to prioritize grants to students demonstrating exceptional financial need, such as those who receive Pell Grants, when rewarding relief grants. However, students do not need to be limited to only Pell recipients or students who are eligible for Pell Grants. Institutions should carefully document how they prioritize students with exceptional need in distributing financial aid grants to students, as this prioritization is likely to be a future reporting requirement.

Unlike the CARES Act, which required that institutions spend at least 50% of their HEERF allocation on student emergency grants, the new law requires them to spend at least the same amount of funding in emergency financial aid grants to students as was required to be provided under sections 18004(a)(1) of the CARES Act. ED interprets this to mean the greater of either the amount the institution was required to spend under the CARES Act or the amount the school is allocated in supplemental funds from Section 314(a)(1)(E) and (F) for students who exclusively enrolled in distance education prior to the qualifying emergency. For instance, if Institution A received $9 million in CARES HEERF funds, meaning that $4.5 million had to be spent on student grants, and the portion of their HEERF II allocation that came from students exclusively enrolled in distance education was $35,000, they would be required to spend $4.5 million on HEERF II student grants. If institution B received $900,000 in CARES HEERF funds, meaning that $450,000 had to be spent on student grants, and the portion of their HEERF II allocation that came from students exclusively enrolled in distance education was $500,000, they would be required to spend $500,000 on HEERF II student grants. Allocation tables reflect the amount institutions must spend on student grants.

ED will permit these supplemental funds to be applied directly to student accounts if the student opts into this method of disbursement, so long as receipt of funds is not conditioned upon opting in. CARES Act HEERF funds could only be disbursed directly to students.

ED did not specify whether student grants received from these supplemental funds will be exempt from treatment as estimated financial aid (EFA), exempt from taxation, and exempt from being reported on the FAFSA, as was the case with CARES Act HEERF funds.

Also announced on Thursday were the application instructions and allocations for HEERF II funds for proprietary institutions. Included in the Consolidated Appropriations Act, was an allocation for just over $680 million, which was made available to proprietary institutions of higher education to provide financial aid grants to students. Unlike the funding made available to private and public non-profit institutions, proprietary institutions who receive these funds may only use the funds to make financial aid grants to students. Similar to the HEERF II funding streams for private non-profit and public institutions, these institutions are required to prioritize students with exceptional need, and students may use the grants toward any component of their 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.

An application is required for all proprietary institutions, regardless of any CARES Act HEERF awards they may have received previously. Institutions must apply for new awards within 90 days, or by April 15, 2021. 

Thursday’s guidance indicated that reporting requirements will be specified in future announcements however, in conversations with NASFAA, ED indicated that it anticipates using the same reporting mechanisms already in place for CARES Act HEERF funds for these supplemental funds as well.

In an effort to avoid the multiple and at times confusing rounds of guidance that followed the CARES Act passage and plagued the implementation, ED on Thursday published several documents, including an FAQ. ED officials said they had already received several calls and questions from institutions confused over how to receive and spend the newest round of funds.

Publication Date: 1/14/2021

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