What CARES Act Means for Higher Education Institutions

April 6, 2020

By: Alicia Nicoletto, Frank Harty

The Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) authorizes $30 billion to go directly to education to ease the financial impact caused by COVID-19, roughly $14 billion of which will go directly to higher education institutions and their students. Of the roughly $14 billion that is going to higher education, the funds will be divided and distributed into three buckets, as follows:


  • 90% of the funds will be distributed to institutions based 75% on the enrollment of full-time equivalent (FTE) Pell Grant recipients and 25% on enrollment of FTE non-Pell Grant recipients. Students exclusively enrolled in online courses are excluded from this calculation.
  • 5% of the funds are reserved for minority serving higher education institutions. Funds will again be distributed to such institutions as described in the first bullet point above.
  • 5% of the funds will be provided to higher education institutions hit the hardest by the COVID-19 pandemic. How the Department of Education (the “Department”) will determine who was hit the hardest is still to be determined.



When will the funds be disbursed?


Congress has instructed the Department to disburse the funds as soon as possible.  Yet, given the formula for disbursing funds and the current databases used by the Department it could take a while.  Terry Hartle, Senior Vice President for Government & Public Affairs at the American Council on Education (“ACE”), estimates that higher education institutions could see funds as soon as one month but it could take up to three  months. The biggest hurdle the Department will face is how to distribute the funds.  The Department wants to use the Pell Grant Disbursement System to disburse the funds. Still, this system does not contain all of the data necessary to populate the disbursement formula. The IPEDS database is likely the database the Department will need to use to populate the disbursement formula, however, the IPED database contains self-reported institutional data and is sometimes found to be inconsistent with other databases.  Therefore, it may take the Department a while to sort out these logistical issues.



How much money will a particular higher educational institution receive?


This will depend largely on the Department establishing a formula and determining which data to use.  However, ACE has developed a simulation that institutions can use to estimate the amount of funds they will receive from the Department.  The simulation results can be found here. Please note that the estimates contained in the ACE simulation are only estimates and should not be relied upon.  However, according to Terry Hartle, a representative of the Department did informally acknowledge the estimates and believes they are close.



What can higher educational institutions use the money for?


Half of the funds received by an institution must go directly to students in the form of emergency financial grants to cover expenses incurred by the students related to the COVID-19 pandemic. Institutions cannot use funds designated to go to students to reimburse the institution for any refunds the institution has been required to give relating to classes or room and board. The other half of the funds received by the institution is to be used to cover pandemic-related expenses, although given the language of the CARES Act, many believe that institutions will have broad discretion on how to use these funds.



How closely will the Department attempt to oversee use of the funds?


Terry Hartle believes that there are three possible approaches the Department could take with respect to overseeing use of the funds:


  1. The Department could say “this is what the statute says. We think it is self-evident. Go ahead and spend the money as you wish.” The Department will always have the ability to go back and audit use of the funds. This would be best case scenario.
  2. The Department could issue guidance on how funds are to be spent. The Department would then use the guidance as a tool when auditing an institution’s use of the funds. This option would take time to implement and therefore is less preferable for institutions.
  3. Finally, the Department could issue regulations instructing institutions how to spend the funds. This would take significant time to prepare, and therefore, is the least preferred approach.



What’s next?


Congress will turn to a fourth supplemental.  Committees of the House of Representatives are already thinking about what will be in the fourth supplemental. One thing that we anticipate seeing is some sort of student loan forgiveness ($10,000 in student loan forgiveness for every student loan borrower has been discussed).  This was debated as part of the CARES Act but did not make it into the final CARES Act.  However, as with all legislation, there is no guarantee this will make its way into the fourth (4) supplemental.


In addition to the relief described above, institutions may be entitled to additional relief under other components of the CARES Act, such as components relating to employment and healthcare (given the broad definition of “health care provider” under the CARES Act). 


The CARES Act also includes provisions on research funding, changes to the rules regarding the tax deductibility of charitable contributions, as well as student loan debt relief.


We understand that colleges and institutions are working hard to help support the community in this time of need. If you have any questions on the CARES Act and any benefits your institution can take advantage of, please feel free to reach out to anyone in the Higher Education practice group.


Additional CARES Act Coverage