On April 9, 2020, the U.S. Secretary of Education announced initial plans to provide funding to U.S. colleges and universities under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Secretary’s letter outlined the goals and expectations of the first approximately $7 billion in funding from the Department of Education (ED) to U.S. institutions. The goal of these funds is to “provide students with emergency financial aid grants to help cover expenses related to the disruption of campus operations due to coronavirus,” and to get these funds to students “as quickly as possible.”
Colleges and universities now face administrative and strategic questions as they move forward with providing these funds to students. ED has offered guidance (through the Secretary’s letter as well as the Recipient’s Funding Certification and Agreement: Emergency Financial Aid Grants to Students [referred to herein as Student Assistance Funding Certification] and subsequent Frequently Asked Questions (FAQ) documents updated Oct. 14, 2020; see Resources below) as to how these funds should be spent, who should receive funds and how to process, record and report these disbursements, yet some room for interpretation remains.
Since April 2020, Baker Tilly has connected with representatives from nearly 100 institutions in various forums to discuss key questions, opportunities, and challenges presented by the CARES Act. Below we have summarized these questions and related current guidance and considerations, as of Dec. 10, 2020.
1. How are these student assistance funds supposed to be spent?
The CARES Act provides institutions with significant discretion on how to award the emergency assistance to students. As outlined in Division B, Title VIII, Section 18004 of the CARES Act, the only statutory requirement is that the funds be used to “provide emergency financial aid grants to students for expenses related to the disruption of campus operations due to coronavirus (including eligible expenses under a student’s cost of attendance, such as food, housing, course materials, technology, health care, and child care).”
This means that each institution may develop its own system and process for determining how to allocate these funds, including identifying recipient groups, establishing grant amounts, developing disbursement mechanisms, considering application methods, and addressing compliance documentation and reporting protocols.
2. Are there any particular restrictions on the use of these student assistance funds?
Per the Student Assistance Funding Certification, each recipient must agree to “not use the advanced funds to reimburse itself for any costs or expenses, including but not limited to any costs associated with significant changes to the delivery of instruction due to the coronavirus and/or any refunds or other benefits that Recipient previously issued to students.” Further, ED’s FAQ document clarified that these funds cannot be used to reimburse institutions for refunds provided to students for room, board, tuition, or fees. Nor can the funds be used to reimburse institutions for costs incurred to provide information technology hardware and other related equipment to students.
3. If an institution has not yet issued refunds, can future refunds be included?
Per the Student Assistance Funding Certification, each recipient must agree to “not use the advanced funds to reimburse itself for any costs or expenses, including but not limited to any costs associated with significant changes to the delivery of instruction due to the coronavirus and/or any refunds or other benefits that Recipient previously issued to students." ED’s FAQ document does not explicitly address future refunds; however, based on ED’s answer regarding refunds already made, it is reasonable to assume that any refunds (either previously issued or to be issued in the future) would not be covered by this funding.
4. Can these funds be used to pay for tuition and fees?
The Student Assistance Funding Certification states that the emergency financial aid grants are to be made “directly to students for their expenses related to the disruption of campus operations due to coronavirus, such as food, housing, course materials, technology, health care, and child-care expenses.” This would imply that these funds should not be used to pay for tuition and fees for students.
5. If a student owes a balance from the spring or prior semester, can these funds be used to cover that balance?
No. Per item 2 of the Student Assistance Funding Certification, "Recipient shall not use the advanced funds to reimburse itself for any costs or expenses related to the disruption of campus operations due to coronavirus.” Further, ED’s FAQ document states in question 26, “the institution may not use that portion of the Higher Education Emergency Relief Fund set aside for emergency financial aid grants to students to satisfy a student’s outstanding account balance.”
6. Which students should receive these funds? (UPDATED SEPT. 15, 2020)
The Secretary’s April 9, 2020, letter stated, “each institution may develop its own system and process for determining how to allocate these funds, which may include distributing the funds to all students or only to students who demonstrate significant need.” Further, the interim final rule published by ED on June 17, 2020 formalizes the definition of “student” by stating, “Congress intended the category of those eligible for ‘emergency financial aid grants to students’ in section 18004 of the CARES Act to be limited to those individuals eligible for title IV assistance.” Specifically:
Must students have shown need previously or prove need currently?
No. This is not need-based aid and ED has specified that recipients can include students who did not file a Free Application for Federal Student Aid (FAFSA) or demonstrate financial need.
Can these funds be provided to students in programs that were solely online prior to the pandemic?
No. ED’s FAQ document, question 20, states that “those students who were enrolled exclusively in an online program on March 13, 2020, the date of the President’s Proclamation, ‘Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak,’ Federal Register Vol. 85, No. 53 at 15337- 38, are not eligible for emergency financial aid grants.”
Can these funds be provided to incoming freshmen?
Yes. ED’s FAQ document states in question 27, “the intent of the CARES Act is to make emergency financial aid grants immediately available to students.” However, “if funds remain after making these immediate disbursements, eligible students enrolled during subsequent terms may receive emergency financial aid grants even if they were not enrolled during the spring 2020 term.” The FAQ document acknowledges that students may incur expenses resulting from the disruption of campus operations due to coronavirus after the semester or quarter in which the national emergency was declared.
Can these funds be provided to graduating seniors?
Guidance from ED's FAQ document does not explicitly forbid or allow institutions to award emergency financial aid grants to graduating seniors. Should institutions award funding to students who incurred expenses prior to graduating in spring 2020, we suggest documenting the methodology for and consistently applying decisions regarding timing and eligibility.
Can these funds be provided to international or undocumented students (i.e., students who would not be eligible for Title IV financial aid)?
No. This was previously an area of ambiguity, but the interim final rule published by ED on June 17, 2020 clarified that in order to receive emergency financial aid grants, students must be eligible to relieve Title IV financial aid. This excludes undocumented, international, and Differed Action for Childhood Arrivals (DACA) students, among others, from receiving emergency financial aid grants through the CARES Act. The rule specifies that grants that have already been distributed are not subject to the restriction.
However, there are exceptions for certain institutions. On June 12, 2020, a federal judge in Washington state issued a preliminary injunction stopping ED’s interim final rule from taking effect in that state. Similarly, a federal judge in California ruled in favor of California Community Colleges on June 17, 2020, stating that ED can neither enforce the limitations on student eligibility nor penalize colleges for providing grants to students who are not eligible for Title IV aid within the California Community College system. Additionally, on Sept. 8, 2020, a court in the state of Massachusetts has preliminarily enjoined ED from enforcing the interim final rule as to any institution of higher education in Massachusetts and any student attending a school that is located in Massachusetts.
7. Is the institution required to develop and circulate an application process for students to complete in order to receive these funds?
No. An application process is not required per current ED guidance. While not specifically required by guidance from ED, a common practice is for institutions to use an application to best identify needs in the current environment and to document the fact that students have been impacted by eligible expenses. However, under current guidance, institutions may also consider allocating funds using an alternative methodology that does not utilize an application process if they can gain assurance that students incurred eligible expenses.
8. How should these funds be allocated across students?
ED’s current guidance allows for considerable flexibility in allocating these funds. Institutions should aim to develop a reasonable and consistent approach that will both benefit students and support institutional objectives. However, it is important to note that the more complex the allocation, the greater the administrative burden and potentially the greater the timeline. Regardless of allocation method, institutions must ensure that funds are used to cover eligible expenses associated with the disruption of campus operations as stated in the Student Assistance Funding Certification.
Under current guidance, institutions are considering allocation options such as:
- Allocate a standard amount to each student (assuming the institution can demonstrate that each student incurred eligible expenses, which may be a challenge)
- Utilize a tiered structure of set amounts based on certain categorizations (e.g., Year, Expected Family Contribution [EFC])
- Develop a survey or application to identify new financial needs (e.g., current financial aid information may not accurately represent current need due to changing circumstances)
- Identify students with the highest need via an application process
- Split the funds into two tranches; distribute one broadly across students and distribute the other to students identified as having higher need (e.g., through an application)
- Allocate funds only to students who meet certain criteria (e.g., Pell eligible, at least one parent has lost job due to the pandemic)
- Leverage current Cost of Attendance (COA) calculations to disburse to specific students with higher need
- Consider maximum grant amounts (e.g., per the Student Assistance Funding Certification form, institutions should consider limiting the maximum grant to the maximum Pell grant amount)
- Consider the ability to utilize professional judgment available under Section 479A of the Higher Education Act of 1965 (HEA), 20 U.S.C § 1087tt, to make awards on a case-by case basis
9. Across what time period should funds be spent? (UPDATED SEPT. 15, 2020)
The Student Assistance Funding Certification references a disbursement period of one year from the date of the Certification and Agreement. ED's FAQ document withdrew the previously communicated timeframe of Sept. 30, 2022, and clarified in question 6 that institutions have one year from the date of the award specified in the Grant Award Notification (GAN) to spend HEERF funds.
10. How should funds be distributed to students? (UPDATED JULY 10, 2020)
Per ED's FAQ document, question 19, the suggested methods include:
- Checks
- Electronic transfer payments
- Debit cards
- Payment apps that adhere to ED’s requirements for paying credit balances to students
Further, ED states that the “disbursement of the emergency financial aid grant to the student must remain unencumbered by the institution; debts, charges, fees, or other amounts owed to the institution may not be deducted from the emergency financial aid grant.”
A common practice has been for schools to process emergency financial aid grants as checks through the student’s account to clearly document the disbursement for reporting purposes. It is critical that grants disbursed to student accounts not be applied against any outstanding or upcoming balances, in line with guidance above from ED.
11. How do you ensure equity of funds provided to students?
ED has provided a great deal of discretion as to how each institution chooses to award the emergency grants to students. Many forms of other financial aid use a need-based formula to determine eligibility, coupled with the discretion of professional judgment for unforeseen or unusual circumstances. To ensure students are informed of the availability of the funding, institutions are looking to a mix of communication mechanisms, including emails, targeted outreach (e.g., using current financial aid system to communicate to those students who are most likely to have need, students who have already taken out emergency loans), communication via professors and/or counselors, social media, and institutional websites.
12. When does the institution draw down these funds and how does the institution record the amount that is not yet disbursed?
Based on current available guidance, it is assumed that institutions may draw down the funds all at once and hold funds in an account until fully expended. Our recommendation would be to hold these funds in a separate account to simplify the tracking of funds as well as any interest earned. The Higher Education Stimulus funding appears to be subject to the requirements of the Uniform Guidance audit requirements, which include compliance requirements surrounding cash management (similar to handling of Title IV funds). While ED has instituted the “3-day rule” for Title IV purposes, stating all advance funds must be made available to students within three days of drawdown, it is not clear if this rule will be implemented for the stimulus funding. The Student Assistance Funding Certification references the funds as “advanced funds” and requires the institution to hold these “funds in trust for students and act in the nature of a fiduciary.” Further, it states that: “Recipient shall promptly and to the greatest extent practicable distribute all the advanced funds in the form of emergency financial aid grants to students by one year from the date of this Certification and Agreement.” Lastly, the agreement requires reporting on the use of funds to ED starting 30 days after the date of the agreement and continuing every 45 days thereafter.
13. Are these funds treated as taxable income to students, and does the institution need to issue 1099s to the students? (UPDATED MAY 8, 2020)
No, the IRS recently issued clarification that these payments made to students would not be considered taxable income as they are qualified as disaster relief payments under section 139 of the Internal Revenue Code. Therefore, the grant is not included in a student’s gross income. It should be noted that if a student chooses to use these funds to pay for course materials, they would not be able to claim these costs as a deduction on their income tax return since these funds are not included in their gross income.
14. Are these funds counted in the calculations of a student’s expected family contribution? (UPDATED DEC. 10, 2020)
If the funds are paid from the Federal Emergency Grant stimulus, they are not counted in the calculation of a student’s expected family contribution; ED does not consider these individual emergency financial aid grants to constitute Federal financial aid. HEERF Frequently Asked Questions, originally published by ED on Oct. 2, 2020 state, “the emergency financial aid grants under the CARES Act are not considered Title IV aid.” We anticipate that the IRS may provide guidance regarding the impact on 1098-Ts.
15. Must students confirm in some way how they are using the funds, or provide receipts to evidence eligible expenses?
Nothing in the statements or publications made by ED indicates that institutions are required to obtain documentation to support students’ spending of the funds. In addition, ED’s guidance has not mentioned documentation expectations and it can be assumed that requiring receipts from students would be an unreasonable expectation for documentation.
16. Will the spending on these funds be audited?
A Catalog of Federal Domestic Assistance (CFDA) number has been assigned to the Higher Education Stabilization Funding (CFDA 84.425). Since Office of Management Budget (OMB) has provided a CFDA number, it is assumed that these funds will be subject to Uniform Guidance and Single Audit reporting requirements. Additionally, the Student Assistance Funding Certification makes reference to other OMB requirements. There have been cases where federal programs with CFDA numbers have not been subject to these requirements (e.g., certain American Recovery and Reinvestment Act funds), but that scenario is unlikely.
We are awaiting further guidance on expectations for documentation and compliance audit procedures. What is most important is that the institution documents its methodology for allocation of the funding and consistently applies that methodology to all students. ED's Oct. 2, 2020 FAQ document, question 8, clarifies that grant funds awarded under the HEERF are subject to the requirements of Uniform Guidance in 2 CFR part 200.
17. What are the reporting requirements for these funds? (UPDATED DEC. 10, 2020)
ED has released interim reporting guidelines for the reporting requirements for the Student Portion of the HEERF funding.
The Certification and Agreement directs each institution applying for HEERF funds to comply with Section 18004(e) of the CARES Act and submit an initial report (the “30-day Fund Report”) to the Secretary thirty (30) days from the date of the institution’s Certification and Agreement to the ED. ED has since issued an Electronic Announcement dated Aug. 31, 2020 that decreases the frequency of reporting after the initial 30-day period from every 45 days thereafter to every calendar quarter. The required elements as stated in the Electronic Announcement include:
- An acknowledgement that the institution signed and returned to the Department the Certification and Agreement and the assurance that the institution has used, or intends to use, no less than 50 percent of the funds received under Section 18004(a)(1) of the CARES Act to provide Emergency Financial Aid Grants to Students.
- The total amount of funds that the institution will receive or has received from the Department pursuant to the institution’s Certification and Agreement Emergency Financial Aid Grants to Students.
- The total amount of Emergency Financial Aid Grants distributed to students under Section 18004(a)(1) of the CARES Act as of the date of submission (i.e., as of the 30-day Report and every 45 days thereafter).
- The estimated total number of students at the institution eligible to participate in programs under Section 484 in Title IV of the Higher Education Act of 1965 and thus eligible to receive Emergency Financial Aid Grants to students under Section 18004(a)(1) of the CARES Act.
- The total number of students who have received an Emergency Financial Aid Grant to students under Section 18004(a)(1) of the CARES Act.
- The method(s) used by the institution to determine which students receive Emergency Financial Aid Grants and how much they would receive under Section 18004(a)(1) of the CARES Act.
- Any instructions, directions, or guidance provided by the institution to students concerning the Emergency Financial Aid Grants.
The Electronic Announcement dated Aug. 31, 2020 also provides clarifications regarding reporting item #4 above.
18. How does the CARES Act impact satisfactory academic progress (SAP)? (UPDATED JULY 10, 2020)
ED published additional guidance on May 15, 2020, clarifying that:
- Institutions can exclude from the quantitative component (pace measurement) of SAP attempted credits a student was unable to complete as a result of the COVID-19 national emergency.
-These credits can also be excluded from the maximum timeframe when determining SAP. - Students do not need to have filed an SAP appeal in order for an institution to exclude the attempted credits. However, in order for the institution to exclude these credits, the institution must have reasonably determined that the student’s failure to complete those credits was a result of a COVID-19 related circumstances, such as, but not limited to:
-Illness of the student or family member
-Need to become a caregiver or first responder
-Economic hardship
-Added work hours
-Loss of childcare
-Inability to continue with classes via distance education
-Inability to access wi-fi due to closed facilities
19. What is the impact of furloughing or laying off staff to an institution’s ability to receive CARES Act funding?
The Student Assistance Funding Certification includes the following condition: “Recipient has continued to pay all of its employees and contractors during the period of any disruptions or closures to the greatest extent practicable.” The use of the term “all” for employees could be assumed to include student employees. ED has not provided specific guidance on this topic; this appears to give the institution a degree of flexibility to retain all employees to the greatest extent practicable. Institutions would be advised to document the basis and approvals of any determination that retaining all employees is not practicable.
20. Is guidance from FAQs published by ED legally enforceable? (UPDATED DEC. 10, 2020)
ED includes the following disclaimer in its FAQ document: “These FAQs constitute a guidance document. Guidance documents represent the Department of Education’s current thinking on a topic. They do not create or confer any rights for or on any person and do not impose any requirements beyond those required under applicable law and regulations. Guidance documents lack the force and effect of law.”
However, the interim final rule published by ED on June 17, 2020 carries the force of law, with the exception of rulings impacting Washington State, Massachusetts and California Community Colleges outlined above.
Resources:
April 9, 2020, Letter from the Secretary of Education
Recipient’s Funding Certification and Agreement: Emergency Financial Aid Grants to Students (referred to herein as Student Assistance Funding Certification)
CARES Act
ED Funding Allocations
Methodology for Calculating Allocations
The Hope Center Guide to Emergency Grant Aid Distribution
IRS FAQ May 7, 2020
Interim final rule regarding student eligibility
Electronic announcement dated Aug. 31, 2020
ED's HEERF Frequently Asked Questions Rollup Document (issued Oct. 14, 2020)
