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CARES Act regulatory update for higher education institutions

Authored by Ashley Deihr and Blaine Jasper

The focus has shifted for many higher education institutions as the spring term comes to an end. Given the unprecedented disruption to campus operations caused by the coronavirus, institutions have spent the last two months navigating a landscape of relief funding options and changes to existing regulations affecting every aspect of their organization. Despite being the end of the semester, many institutions are still working to implement their distribution plans for the Higher Education Emergency Relief Funding (HEERF), which was authorized as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide funds to colleges and universities and directly to their students.

On May 15, 2020, the Department of Education (ED or the Department) issued an electronic announcement titled “UPDATED Guidance for interruptions of study related to Coronavirus (COVID-19),” which provides updates, expanded guidance to ED’s March 5 and April 3, 2020 announcements, and additional regulatory flexibilities. A summary of key provisions is included below. Institutions can read the announcement in its entirety for further information.

Distance education

In the April 3, 2020 announcement, ED waived the requirement to obtain advanced approval from the Department to provide distance learning modalities for periods that began or overlapped March 5, 2020. The May 15, 2020 electronic announcement extended this waiver to include any payment period that overlaps March 5, 2020, or that begins on or between March 5 and Dec. 31, 2020.

Financial statement and compliance audit

The Secretary is exercising the extension provided by the Office of Management and Budget Memorandum 20-17 to extend the financial statement and compliance audit deadlines by six months. As required by Uniform Guidance 2 CFR 200.512(a), the audit package and data collection form shall be submitted “30 days after receipt of the auditor's report(s), or 9 months after the end of the fiscal year – whichever comes first.” As such, this extends the nine-month requirement to 15 months.

CARES Act – Paycheck Protection Program (PPP)

PPP loan: effect on composite score

Institutions that received a loan through the Small Business Administration’s (SBA) PPP loan program may qualify for full or partial forgiveness under §1102 of the CARES Act, provided they meet certain qualifying requirements. As such, if an institution includes an estimate or actual forgiveness in its audited financial statements for the year in which the loan was received, and such information is attested to by the institution’s auditor, the Department will exclude this portion of the PPP loan from total liabilities and increase the institution’s equity or net assets by that amount when calculating the composite score. Institutions should be reminded to consult with their auditor to understand the accounting and reporting requirements for these types of transactions.

Treatment of student workers for PPP eligibility

Additionally, the SBA has provided institutions clarification on whether or not to include student workers in their headcount calculation for eligibility purposes. As defined by the U.S. Department of Treasury in the Interim Final Regulation, institutions may exclude student workers from headcount calculations so long as: (a) the applicant is an institution of higher education, as defined in regulation at 34 C.F.R. § 675.2; and (b) the student worker’s services are performed as part of a Federal Work-Study (FWS) Program or a substantially similar program of a state or political subdivision thereof. This may provide welcome flexibility for some institutions that could be eligible for PPP funding given this clarification. Institutions must also exclude student wages when determining the amount of payroll costs for purposes of calculating the final PPP loan amount.

CARES Act – HEERF: emergency grants to students

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.

Campus-based waivers/reallocation and FSEOG emergency aid grants

As provided in Section 3503 of the CARES Act, an institution is permitted to waive the matching requirement associated with the FWS and the Federal Supplemental Educational Opportunity Grant (FSEOG) programs for the 2019-2020 and 2020-2021 award years. The Department provided additional guidance to institutions on the method in which they are permitted to reimburse themselves for their nonfederal match, while also reaffirming guidance on the awarding of FSEOG emergency grants to students.

Return of Title IV funds (R2T4)

Section 3508 of the CARES Act provides institutions with regulatory flexibility in administering the R2T4 process for students who withdrew due to a qualifying emergency. Specifically, ED states that, “for any student who begins attendance in a payment period or period of enrollment that begins on or includes March 13, 2020, and subsequently withdraws from the period as a result of COVID-19-related circumstances, an institution is not required to return Title IV funds.” Specifically:

  • If the institution has completed the R2T4 calculation: ED clarified that this requirement extends to a student who withdrew due to a qualifying emergency during the applicable period, even if the institution has already performed an R2T4 calculation. In such a case, an institution should re-disburse Title IV funds to those students and make the necessary adjustments to the student’s ledger, Common Origination and Disbursement (COD) and the G5 payment system. The Department further requires institutions to report specific information for each student for whom it performed a redraw of funds under the waiver exception.
  • If the institution has not yet completed the R2T4 calculation: If a student has withdrawn and the institution has not completed the R2T4 calculation, the guidance requires an institution to complete the required R2T4 calculation, but directs the institution to make no further adjustment to the student’s ledger or COD. The Department further requires institutions to report specific information for each student for whom it was not required to return Title IV funds under the waiver exception.

Given the complexity surrounding the R2T4 process, institutions are encouraged to read the announcement in its entirety to understand the full extent of all directives provided by the Department.

For more information on this topic, or to learn how Baker Tilly higher education specialists can help, contact our team.

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