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Education Stabilization Fund of $31 billion to Help Educational Institutions and State Governments

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides budgetary relief, student aid support via the COVID-19 Pandemic Education Relief Act of 2020, and tax relief to institutions of higher education through a number of provisions. 

Budgetary Relief

The CARES Act creates an Education Stabilization Fund (the Fund) of almost $31 billion to help educational institutions and state governments manage challenges brought on by the pandemic. The fund will remain available through September 30, 2021, with proceeds available to support efforts by U.S. educators at all levels to prevent, prepare for and respond to the spread of coronavirus among students and faculty, both domestically and internationally

Grants to Institutions of Higher Education

While the Department of Education has yet to finalize the formula for distributing a $13.95 billion of grants to colleges and universities, it is expected that 90% of the funds will go directly to institutions via the Title IV distribution system. Early indications are that allocations from this fund will be weighted toward institutions with a higher number of low-income students, as the formula is expected to focus on the number of Pell Grant recipients at each school.. 

Recipients of grants from this fund must use them for direct emergency aid to students to defray the cost of expenses arising from the disruption of campus activities due to coronavirus. This includes, but is not limited to food, housing, course materials, technology, health care and childcare. 

Grant Aid Provided Directly to the States

A $2.95 billion grant aid to states will be allocated based on the population of individuals between the ages of 5 and 24 and the number of elementary and secondary school-age children who reside in the state. 

State governors will have discretion to award these funds to both public and private institutions in their state and are not required to award a set amount or percentage to either elementary and secondary schools or colleges and universities. State governors also have discretion to allocate these funds based on their determination of the extent to which a school was affected by coronavirus.

Student Aid Support

A section of the CARES Act known as the “COVID-19 Pandemic Education Relief Act of 2020” (Education Relief Act) provides relief for current college and university students as well as former students with outstanding federal student debt. It also provides funding to historically black colleges and universities (HBCUs) and research and arts agencies and institutions.

Campus-Based Aid

For award years 2019-2020 and 2020-2021, institutions that participate in campus-based programs such as the Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Work Study (FWS) and Federal Perkins Loans (Perkins), are not required to provide a non-Federal share to match the Federal funds. This provision does not apply to private for-profit colleges or universities. 

• Institutions will be permitted to transfer up to 100% of unexpended FWS funds to their FSEOG program. However, any unexpended funds under the FSEOG program cannot be transferred to the FWS program.
• Institutions can reserve any amount of their allocation of FSEOG funds to award emergency financial aid grants that assist students with unexpected expenses or unmet needs arising as a result of COVID-19.
• Institutions participating in the FWS program may make payments to students who were unable to complete or fulfill work-study obligations due to the effects of COVID-19 (i.e. workplace closures, etc.), subject to a set of conditions (see whitepaper).

Student Aid Provisions

The Education Relief Act provisions also include changes to certain benefit calculations and obligations for students and institutions. Students are eligible for:

• An exclusion for any semester that the student does not complete due to COVID-19, from a student’s “period of enrollment” for purposes of determining eligibility to receive Federal Direct Stafford Loans.
• An exclusion of Pell Grants awarded during the emergency from the calculation of annual or cumulative limits if the recipient is unable to complete a term due to the COVID-19 emergency. 
• Relief from obligations to repay Direct Loans associated with a payment period if the student withdrew due to COVID-19.

An institution can:

• Waive the requirement that it return Title IV funds if the recipient of the assistance withdraws from the institution during the payment period or enrollment period as a result of COVID-19. The institution will still be required to report the number of such recipients, the amount of grant or loan assistance associated with each such recipient and the total amount of grant or loan assistance the institution has not returned under these provisions.
• Exclude from the quantitative component of the calculation of satisfactory academic progress any attempted credits that were not completed by a student as a result of COVID-19 without requiring an appeal by such student.

HBCUs can defer payment for the duration of COVID-19 on any loan received under Part D of title III of the HEA of 1965 (Part D – Historically Black College and University Capital Financing). 

Relief for Student Loan Borrowers

The Education Relief Act also provides relief to borrowers obligated to make payments on their federal Direct Loans and ED-held FFEL loans through September 2020. Additionally, interest will not accrue on loans during this period. Borrowers currently in federal loan forgiveness programs will still have this suspension period counted towards their payment requirements, even if payments are not made. These provisions do not impact Perkins Loans and private student loans. 

The Department of Education has stopped any involuntary collections of loan payments during this period. 

Tax Relief

The CARES Act includes a number of provisions with the goal of providing relief to employers and their employees. Click here for further information on these provisions and how they may impact institutions of higher education.

Action Plan for Higher Education Institutions

The absence of timely and clear guidance from regulatory agencies is already a major challenge. We strongly recommend that every institution immediately review the provisions of the CARES Act to evaluate opportunities that may be beneficial.

Assistance and Guidance from Freed Maxick

The Freed Maxick Covid-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of Covid-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

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