NAICU Washington Update

COVID Relief Bill Signed into Law; Questions Still Remain

January 08, 2021

The Coronavirus Relief and Response Supplemental Appropriations (CRRSA) Act and FY 2021 Omnibus Appropriations Act, signed into law on December 27, 2020, provides $900 billion in emergency federal assistance across all agencies to address the pandemic, and $1.4 trillion in annual spending for regular government programs.

As is typical, this massive bill crafted at the end of a congressional session carried many additional legislative items, including a rewrite of the need analysis system for federal student aid, and an extension of many tax and employer benefits from the CARES and Families First stimulus acts.

COVID Relief for Higher Education

The CRRSA provides much needed assistance for higher education, through $22.7 billion in additional direct funding to institutions of higher education. While this amount does not meet the exceptional costs colleges and universities are expending to address the pandemic, it is needed relief, and is $8.7 billion more than the CARES Act provided.  The CRRSA also reformulates the distributions of funds to provide proportionately more to public and private, nonprofit institutions than in the CARES Act. Specifically, the bill provides:

  • $20.2 billion for students and institutions through the Higher Education Emergency Relief Fund (HEERF).
  • $1.7 billion for Historically Black Colleges and Universities and Minority Serving Institutions.
  • $681 million for for-profit institutions.
  • $113.5 million for institutions with exceptional unmet pandemic need, large populations of graduate students, or those not otherwise provided funds.

The lag time between passing the bill and signing it into law has put the Department of Education on a fast track to try and disburse the new funds before the Biden Administration takes office on January 20, 2021. It is unclear how the events of this week might further affect this effort.

As with the CARES Act, the Department must take the legislative language and intent written by Congress and implement the new law based on its executive authority and legal interpretation. In addition to the time crunch, the fact that a new administration is taking office could complicate the distribution of funds. While institutional allocations and funding distribution can be straight forward, the interpretation of student eligibility and the use of funds could change between administrations. As soon as it can, the Department is hoping to simultaneously post institutional allocations and usage guidelines while activating distributions to institutions.

Funding is expected to flow directly to institutions, as it did under the CARES Act.  Additionally, institutions will likely not be required to reapply for funds if they previously received CARES Act funds.

Allowable uses of funds for CRRSA is different than under CARES. First, institutions must provide to students at least the same dollar amount they were required to provide students under the student portion of the CARES Act. Institutions can also spend funds on a broader range of uses. Specifically, CRRSA funds may be used to:

1) 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);

(2) carry out student support activities authorized by the HEA that address needs related to coronavirus; or

(3) 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. In making financial aid grants to students, an institution of higher education shall prioritize grants to students with exceptional need, such as students who receive Pell Grants.

Institutions that paid the endowment tax in 2019 will have their allocation limited to only half of their formulaic allocation. These institutions will also have a narrower allowable use of funds, limited to student grants or to cover pandemic expenses related to the health and safety of the campus.  These institutions cannot use these funds to defray costs broadly as defined above.  These limitations do not apply to work colleges.

The bill also allows institutions with unspent CARES Act funds to spend them under the new uses of funds, provided half of the funds are spent on students. Unfortunately, the bill also includes a provision that will prevent institutions that did not receive CARES Act funds, even because of administrative glitches, from accessing those funds. However, these institutions can apply for funds under CRRSA. The unused CARES Act funds will be redistributed. This provision caused the Department to have to call back an announcement they had made on December 23 that would have outlined how institutions that had not received their CARES funds could access those monies.

States have been allocated an additional $4 billion for education emergency funds, which allows governors to include resources to private, nonprofit colleges as they see fit for their state. States must protect state funding for institutions of higher education and state need-based student grant aid as a Maintenance of Effort condition to receiving Education Stabilization Funds under the bill.

NAICU will continue to share information on the implementation of CRRSA, as soon as the Department of Education issues guidance or FAQs on details of the HEERF funding.

FY 2021 Student Aid Appropriations

Despite the needed pandemic relief throughout many sectors of society, Congress maintained its bipartisan support for the federal student aid programs through the regular appropriations process, providing a $150 increase in the Pell Grant award maximum, and modest increases for all other programs. It is exceptional that during this time of crisis, Congress gave at least modest increases across the board in higher education. Specifically, higher education funding includes:

  • Supplemental Educational Opportunity Grants: $880 million (an increase of $15 million).
  • Federal Work-Study: $1.19 billion (an increase of $10 million).
  • TRIO: $1.097 billion (an increase of $7 million).
  • GEAR UP: $368 million (an increase of $3 million).
  • Graduate Education: $23.5 million (an increase of $500,000).
  • Strengthening Institutions Programs: $789 million (an increase of $29.5 million).
  • Title VI International Education: $78 million (an increase of $2 million).
  • Teacher Quality Partnership Grants: $52 million (an increase of $2 million).

Funding for these programs becomes available on July 1, 2021 for the 2021-2022 award year. 

FAFSA Simplification

While this portion of the legislative package is referred to as “FASFA simplification,” it is really a rewrite of the need analysis system used to determine eligibility and distribution of federal student aid, and thus a mini-reauthorization of the Higher Education Act. The rewrite was included as a tribute to retiring Sen. Lamar Alexander (R-TN), but the final language departs significantly from his original proposals and has resulted in the first rewrite of the student aid distribution formula in 30 years.

The good news is that an additional 555,000 students will become eligible for Pell Grants, and another 1.7 million students will receive the maximum Pell Grant award when the changes go into effect in 2023. However, the new formula changes came together quickly in the waning days of the 116th Congress and may require technical corrections or additional amendments to ensure smooth implementation of the intentions of the bill.

In particular, NAICU will be examining the impact the changes will have on families with multiple children in college, equity between families of similar income levels whose parents’ marital levels differ, and the effects on eligibility for state aid in states that rely on the current federal system to award aid. 

The good news is that the bill reduces the number of questions on the FAFSA, could make Pell Grant eligibility clearer for more low-income families, and restores Pell eligibility for students who are incarcerated, have a drug conviction, failed to register for the Selective Service System, or were defrauded by their institutions through a successful “borrower defense to repayment” claim. The bill also allows students who qualify for a subsidized student loan to use the in-school interest subsidy beyond six years of attendance.

Employer and Other Tax Benefits

The bill also included a host of employer tax benefits and other extensions of expiring provisions.  The employee-retention credit and credit for mandatory paid sick and family leave were both extended from the Families First stimulus bill.  Additionally, the expansion of Sec. 127 employer-provided education assistance, which allows the use of funds for student loan repayment, was extended for five years.  This was a top NAICU tax priority and was originally expanded in the CARES Act for one year.

Other tax benefits include a clarification that all grants to students (institutional, governmental, or private) are not taxable, and both charitable giving incentives enacted in the CARES Act were extended for 2021.  Finally, the bill simplified the existing student and family benefits by eliminating the tuition deduction and expanding the lifetime learning credit to avoid confusing and overlapping benefits.

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