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Insight Center: Publications

CARES Act Provides Support and Flexibility for Institutions of Higher Education and Their Students

Client Alert

Authors: Amy C. Foerster and Michael E. Baughman

CARES Act Provides Support and Flexibility for Institutions of Higher Education and Their Students

Institutions of higher education (IHEs) are undertaking herculean measures to ensure students have the opportunity to continue their academic progress during this extraordinary time. In doing so, they are facing unprecedented challenges as they transition education to remote platforms, experience unanticipated financial losses, and compete (including with new external forces) to enroll the class of 2024. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed by President Trump on March 27 provides much-needed financial support and flexibility for IHEs in furtherance of these efforts. While the bill is lengthy and complex, we highlight here some of the key provisions for IHEs.

Education Stabilization Fund

The CARES Act creates an Education Stabilization Fund in the total amount of $30.75 billion. According to calculations published by the American Council on Education, the Education Stabilization Fund is allocated to the following three categories:           

  1. Governor’s Emergency Education Relief Fund (sec. 18002) – 9.8 percent ($2.953 billion)

  2. Elementary and Secondary School Emergency Fund (sec. 18003) – 43.9 percent ($13.229 billion)

  3. Higher Education Emergency Relief Fund (sec. 18004) – 46.3 percent ($13.953 billion)

IHEs will receive direct funding from the U.S. Department of Education under Fund 3. They may be eligible for limited additional support under Fund 1, depending on the purposes for which their state applies for and receives that funding.

The Higher Education Emergency Relief Fund dollars are further allocated as follows:

  • 90 percent ($12.558 billion) will be disbursed directly to IHEs using the existing Title IV distribution system. This amount will be apportioned 75 percent according to the relative share of full-time equivalent (FTE) Federal Pell Grant recipients enrolled at the institution as compared to all Pell Grant recipients, and 25 percent according to the relative share of FTE students at the institution who are not Pell recipients. (The formula excludes students who were enrolled solely online before the COVID-19 pandemic.)

  • 7.5 percent ($1.047 billion) is reserved for minority-serving institutions (e.g., historically black colleges and universities and tribal colleges).

  • 2.5 percent ($349 million) is reserved for smaller institutions that receive less than $500,000 from the 90 percent, but still have significant unmet needs as a result of the COVID-19 pandemic.

IHEs may use these funds “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus, as long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities; endowments; or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.” Sec. 18004(c). Importantly, at least 50 percent of the amount received by each institution must 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).” Id.

An elementary, secondary or post-secondary institution receiving funding is required “to the greatest extent practicable, [to] continue to pay its employees and contractors during the period of any disruptions or closures related to coronavirus.” Sec. 18006 (emphasis added). On its face, this language does not preclude necessary layoffs or terminations. The Secretary of Education will be establishing a reporting format for IHEs to document their use of these funds.

Other CARES Act Provisions Specific to Higher Education

Part IV, Subtitle B of the CARES Act is called the COVID-19 Pandemic Education Relief Act of 2020 (Education Relief Act). The Education Relief Act contains the following waivers and other flexibility for IHEs with respect to federal student aid, where necessitated by the COVID-19 pandemic:

  • waives the requirement that IHEs match federal funds in certain campus-based programs in AYs 2020 and 2021, and also waives the limits on transferring funds between Supplemental Educational Opportunity Grants (SEOGs) and Federal Work Study (FWS) programs. Sec. 3503.

  • allows IHEs to award additional SEOG funding as emergency grant aid to students for unexpected expenses and unmet financial needs. Sec. 3504.

  • allows IHEs to continue issuing FWS payments (lump sum or on the standard payroll schedule) to students unable to fulfill their work-study obligations. Sec. 3505.

  • allows IHEs to exclude attempted credits that students do not complete from their determination as to whether that student is maintaining satisfactory academic progress for purposes of federal student aid. Sec. 3509.

  • suspends student federal loan payments through September 30, 2020, without interest accrual. Sec. 3513.

Other CARES Act Provisions Relevant to IHEs

Several other provisions of the CARES Act not specific to IHEs are nonetheless relevant to colleges and universities as employers and as nonprofit entities, including:

  • tax incentives to encourage charitable giving. Secs. 2204, 2205.

  • an employee retention payroll tax credit for wages paid by employers to employees during the COVID-19 crisis, available to employers (including IHEs organized under Internal Revenue Code section 501(c)(3)) whose operations were “fully or partially” suspended due to government orders. Sec. 2301.

  • allowance for employers to defer payment of their share of payroll taxes that would otherwise be due through December 31, 2020, with 50 percent to be paid on both December 31, 2021 and December 31, 2022. Sec. 2302.

  • a loan program for nonprofit organizations and businesses with 501 to 10,000 employees, with loans not higher than 2 percent per year and no payments for the first six months. The borrower must certify that the loan is necessary to support its ongoing operations, that it will retain 90 percent of its workforce until September 30, 2020, and that it will not outsource or offshore jobs for a period of time ending two years after repayment of the loan. Sec. 4003.

There is sure to be additional clarification regarding the impact of the CARES Act on higher education in the coming days. Pepper Hamilton’s higher education attorneys will continue to monitor this developing guidance and issue additional alerts as information becomes available. Please visit Pepper Hamilton and Troutman Sanders’ COVID-19 Resource Center for additional tools and information for navigating this public health crisis.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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