Students walk on campus at night

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020, providing approximately $14 billion in relief funding for higher education institutions through the Higher Education Emergency Relief Fund (HEERF). The language in the CARES Act provides broad discretion on the disbursement and administration of the HEERF funds, and subsequent interpretation by the Department of Education (ED) has only partially ameliorated this ambiguity. Many institutions, therefore, have questions about how to ensure compliance in disbursing these funds while maximizing the benefit to both students and the institution.

The HEERF funds have been released over the course of several weeks as follows:

  • On April 9, 2020, ED announced initial plans outlining the goals and expectations of the approximately $6.3 billion in funding to U.S. institutions earmarked for direct payments to students. 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.”
  • On April 21, 2020, ED announced the availability of the second portion of HEERF funding, meant to provide relief to institutions. The accompanying Secretary of Education's letter outlined the goals and expectations of the funding from ED to U.S. institutions “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus.”
  • On April 30, 2020, in a letter to U.S. institutions, the Secretary of Education provided information on how to access the final portion of HEERF funding, provided by Congress under Section 18004(a)(2) and Section 18004(a)(3) of the CARES Act. Per the Secretary, “Section 18004(a)(2) provides grants for Historically Black Colleges and Universities (HBCUs), Tribally Controlled Colleges and Universities (TCCUs), and other Minority Serving Institutions (MSIs) as well as other institutions eligible for the Strengthening Institutions Program (SIP). Section 18004(a)(3) provides additional funds for institutions under Part B of Title VII of the Higher Education Act of 1965, as amended (HEA), through the Fund for the Improvement of Postsecondary Education (FIPSE).”

Throughout April and May 2020, Baker Tilly has connected with representatives from nearly 100 higher education institutions in various forums to discuss key questions, opportunities and challenges presented by the CARES Act. As a result, we have developed interpretive guidance in the form of three sets of frequently asked questions (FAQ), one addressing the student assistance funds, one addressing the institutional assistance funds and one addressing the Section 18004(a)(2) and (a)(3) funds.

Expand the section(s) below to view the FAQ.

Note: The student aid FAQ and institutional aid FAQ have been updated as of May 8, 2020, to include the latest guidance on taxability and reporting.

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 a Frequently Asked Questions [FAQ] document dated April 21, 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.

In April 2020, Baker Tilly 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 April 21, 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 April 21, 2020, 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 April 21, 2020, 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 April 21, 2020, FAQ document states that “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?

The Secretary’s April 9, 2020, letter stated that “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, ED’s April 21, 2020, FAQ document, question 9, clarifies the definition of “student” by stating that “only students who are or could be eligible to participate in programs under Section 484 in Title IV of the Higher Education Act of 1965, as amended (HEA), may receive emergency financial aid grants.” 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 April 21, 2020, FAQ document. question 12, 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?

ED’s current guidance does not specifically include or exclude incoming freshman; therefore, it appears to be at the institution’s discretion to determine whether these students would be eligible.

Can these funds be provided to international or undocumented students (i.e., students who would not be eligible for Title IV financial aid)?

International and undocumented students would appear not to be eligible to receive these funds. The answer to question 6 within ED’s April 21, 2020, FAQ document states that "only students who are or could be eligible to participate in programs under Section 484 in Title IV of the Higher Education Act of 1965, as amended (HEA), may receive emergency financial aid grants.” It goes on to clarify that “the criteria to participate in programs under Section 484 of the HEA include but are not limited to the following: U.S. citizenship or eligible noncitizen; a valid Social Security number; registration with Selective Service (if the student is male); and a high school diploma, GED, or completion of high school in an approved homeschool setting.”

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. Some institutions are considering developing an application in order 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.

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), etc.)
  • 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?

Institutions are considering how they can best support students and the institution, which may mean providing funds to students beyond the spring semester, if they are still in financial need due to the campus disruption caused by the coronavirus. The Student Assistance Funding Certification makes reference to one year for the disbursement period.

10. How should funds be distributed to students?

Per ED’s April 21, 2020, FAQ document, 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.”

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, etc.), 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?

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. 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.

17. What are the reporting requirements for these funds? (UPDATED MAY 8, 2020)

Yes, 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 indicated that they will issue further instructions on providing the required information to the Secretary in the near future (as of the date of their Electronic Announcement on May 6, 2020). In the interim, ED has asked that institutions’ post the following information that is “in a format and location that is easily accessible to the public 30 days after the date when the institutions received its allocation under 18004(a)(1) and update every 45 days thereafter”. The required elements as stated in the May 6, 2020 Electronic Announcement include:

  1. 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.
  2. The total amount of funds that the institution will receive or has received from the Department pursuant to the institution’s Certification and Agreement [for] Emergency Financial Aid Grants to Students.
  3. 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).
  4. 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.
  5. The total number of students who have received an Emergency Financial Aid Grant to students under Section 18004(a)(1) of the CARES Act.
  6. 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.
  7. Any instructions, directions, or guidance provided by the institution to students concerning the Emergency Financial Aid Grants.

18. How does the CARES Act impact satisfactory academic progress (SAP)?

The CARES Act provides institutions the ability to exclude, at the request of the student, any attempted credits that were not completed as a result of COVID-19 from the quantitative component of the SAP calculation.

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.

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)

ED’s April 21, 2020, FAQ Document

CARES Act

ED Funding Allocations

Methodology for Calculating Allocations

The Hope Center Guide to Emergency Grant Aid Distribution

IRS FAQ May 7, 2020

On April 21, 2020, the U.S. Department of Education (ED) announced the availability of the second portion of 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 approximately $6 billion in funding from ED to U.S. institutions to provide relief assistance directly to institutions. The goal of these funds is to “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus.”

Colleges and universities now face administrative and strategic questions as they move forward with using these funds. ED has offered guidance (through the Secretary’s letter as well as the Recipient’s Funding Certification and Agreement for the Institutional Portion of the Higher Education Emergency Relief Fund (referred to herein as Institutional Assistance Funding Certification) and a Frequently Asked Questions [FAQ] document dated April 24, 2020) as to how these funds should be spent and the expectations for record-keeping and documentation of internal controls for the expenditures.

1. How are these institutional assistance funds supposed to be spent?

ED has given institutions broad discretion over the use of these funds. As outlined in Division B, Title VIII, Section 18004 of the CARES Act, the institutional funds can be used “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus, so 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.”

Many institutions suffered a significant financial impact when they refunded students for a portion of the Spring semester’s housing, food, parking, health center fees and other services. ED clearly states in the Institutional Assistance Funding Certification that, “it is permissible for Recipient to use the funds for Recipient’s Institutional Costs to reimburse itself for costs related to refunds made to students for housing, food, or other services that Recipient could no longer provide.”

In addition, many institutions incurred significant expenses when quickly transitioning their students to online or distance education, including providing laptops to students, investing in online platforms and providing internet access to allow for online instruction. ED likewise states that these funds can be used to reimburse the institution, “for hardware, software, or internet connectivity that Recipient may have purchased on behalf of students or provided to students.”

The Secretary’s letter also recommended, but did not require, that institutions use the funds for two purposes:

a. “to expand your remote learning programs, build your IT capacity to support such programs, and train faculty and staff to operate effectively in a remote learning environment,” or

b. “to expand support for your students with the most significant financial needs arising from the coronavirus pandemic” (i.e., supplementing the student aid portion of CARES Act assistance).

Clarification was provided on acceptable uses of the institutional funds in ED’s April 24, 2020, FAQs document. Specifically, the following items were noted (emphasis ours):

  • Equipment and Software - “Institutions may use the funds for Recipient’s Institutional Costs to purchase equipment or software, pay for online licensing fees, or pay for internet service to enable students to transition to distance learning as such costs are associated with a significant change in the delivery of instruction due to the coronavirus.”
  • Additional Aid to Students - Institutions may use the funds for Recipient’s Institutional Costs to make additional emergency financial aid grants to students as long as the students receiving these grants meet the eligibility requirements outlined in Section 18004 of the CARES Act.
    -This would require the institution to comply with the terms and conditions included in the Recipient’s Funding Certification and Agreement: Emergency Financial Aid Grants to Students on such use of these dollars, including the applicable reporting requirements. See our FAQs for additional guidance on the student portion of the CARES Act assistance here.
    -Distance Learning Fees Associated with Disruption - The institution may use the institutional funds to pay an Online Program Management (OPM) provider to assist with services related to distance learning, learning management systems, online resources, or other support services as long as these services are not for recruiting or enrolling new students at the institution.
    -NOTE that the funds cannot support distance learning programs that were already in place. “The institutional funds cannot be used to provide emergency grants to students who enrolled exclusively in online programs on March 13, 2020”
  • Scholarships - Use of funds to award scholarships or to provide payment for future academic terms is permitted only under limited circumstances. Specifically, if the awarding of the funds for future academic terms is to cover costs associated with significant changes to the delivery of instruction due to coronavirus or, if provided as emergency financial aid related to the disruption of campus operations due to coronavirus, such uses are allowable. Institutions should be prepared to document such considerations given the limited applicability of this approach.

2. Do institutions have to accept the student portion of the CARES Act assistance funds in order to receive the institutional portion of these funds?

 Yes. The Institutional Assistance Funding Certification states that “as a condition for receiving funds for Recipient’s Institutional Costs, Recipient must have entered into the Funding Certification and Agreement for Emergency Financial Aid Grants to Students under the CARES Act.” However, the institution does not need to have drawn down or disbursed funds to students prior to submitting the certification for the institutional funds.

It is important to note that, once the Certification and Agreement form is submitting related to student aid funds, the reporting timeline for those funds begins; an institution therefore may not want to submit that certification until it is ready to begin reporting on funds disbursed to students for emergency aid.

3. Across what time period should funds be spent?

The Institutional Assistance Funding Certification states that, “Recipient shall promptly and to the greatest extent practicable use the funds for Recipient’s Institutional Costs by one year from the date of this Certification and Agreement.” Similar to the student aid funds, institutions will have one year from the date of certification to spend the funds, but it is assumed that ED would prefer that these funds be encumbered as expeditiously as possible.

4. 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 84.425E), with the specific letter following the CFDA indicating which funding source it relates to under the Education Stabilization Fund (e.g., Higher Education Emergency Relief, Education Stabilization Fund Discretionary Grants, etc.). Since the Office of Management and Budget (OMB) has provided a CFDA number, it is assumed that these funds will be subject to Uniform Guidance and Single Audit requirements. There has not been a clear indication as to whether or not these programs would be part of a cluster for Single Audit testing. We anticipate that all sources under the Education Stabilization Funding will be audited as one program (e.g., 84.425B, 84.425C, 84.425E, etc.).

Institutions should assume detailed expense tracking and reporting are required as well as documentation that supports they have internal controls in place to comply with the guidance on use of the funds. In ED’s April 24, 2020, FAQ document, ED states “the institution should be prepared to report the use of the funds for Recipient’s Institutional Costs, demonstrating such use was in accordance with Section 18004(c), accounting for the amount of reimbursements to the Recipient for costs related to refunds made to students for housing, food, or other services that Recipient could no longer provide, and describing any internal controls Recipient has in place to ensure that funds were used for allowable purposes and in accordance with cash management principles institutions can expect that detailed tracking of the use of funds, justification for the use of funds.”

Additionally, the Institutional 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.

5. What are the tracking and reporting requirements for these funds?

In accordance with Section 15011(b)(2) of Division B of the CARES Act, institutions are required to submit quarterly reports to ED that include the amount of funds received, the amount of funds received that were expended, and a detailed list of all projects or activities that the funds were expended on. ED may require additional reporting in the future, but that is yet to be determined.

6. What is the impact of furloughing or laying off staff to an institution’s ability to receive CARES Act funding?

The Institutional Assistance Funding Certification includes the following condition: “Recipient agrees that to the greatest extent practicable, Recipient will pay all of its employees and contractors during the period of any disruptions or closures related to the coronavirus.” 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.

7. How should schools interpret the term “refunds” to students as described in paragraph 4(b) of the Certification and Agreement? Would “refunds” include only cash payments to students, or the total amount of the reduction applied to the student’s account for the portion of the semester they were not in housing or using dining services? (UPDATED MAY 8, 2020)

In paragraph 4(b), the Secretary makes specific reference to the recipient retaining discretion, which provides the institution a fair amount of flexibility. Given that, it appears reasonable that the term “refund” would mean the reduction in revenue, regardless of actual cash distributions to students. This is predicated on the fact that a student’s credit balance may be influenced by other factors, such as an outstanding balance (or lack thereof) that was not resolved prior to the pandemic.

8. Can the institutional portion be applied to projected/ budgeted revenue lost by an institution (e.g., lost housing revenue related to reducing occupancy of campus housing from double/triple to single occupancy to allow for adequate social distancing)? (UPDATED MAY 8, 2020)

While there is not perfect clarity in the guidance, this decrease in revenue may not be allowable. Section 18004(c) of the CARES act specifies that this funding is meant to “cover any costs associated with significant changes to the delivery of instruction due to the coronavirus;” it does not speak to covering “lost revenue.” Based on this, the conservative approach would be to not use these funds to cover lost revenue. To share the obvious exception, the CARES Act does specifically appear to allow these funds to cover lost revenue in the form of refunds made to students due to a disruption of campus operations (e.g., the example provided in Question 7).

In addition, if the institution incurred costs associated with making these living arrangements or cleaning campus housing; that should be an appropriate use of these funds.

9. Is the draw down or use of the institutional portion limited to the amount drawn down or disbursed from the student portion? (UPDATED MAY 8, 2020)

The guidance is not perfectly clear but in the Secretary’s letter it was stated that the institutional portion “is separate from the funding previously made available for Emergency Financial Aid Grants to Students.” Industry groups have somewhat varied interpretations and have asked ED to opine on this question, but as of the current guidance there does not appear to be a requirement to draw down or pay out funds proportionally.

Resources:

April 21, 2020, Letter from the Secretary of Education

Recipient’s Funding Certification and Agreement for the Institutional Portion of the Higher Education Emergency Relief Fund

ED’s April 24, 2020, FAQ Document

CARES Act

ED Funding Allocations

Methodology for Calculating Allocations

On April 30, 2020, the U.S. Department of Education (ED) announced the availability of the third portion of funding to U.S. colleges and universities under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Secretary of Education’s letter outlined the goals and expectations of the approximately $1.4 billion in funding from ED to U.S. institutions to provide relief assistance directly to institutions under Division B, Title VIII, Section 18004(a)(2) and (3). ED has offered guidance (through the Secretary of Education’s letter as well as the Recipient’s Funding Certification and Agreement for an Award under Section 18004(a)(2) (referred to herein as 18004(a)(2) Assistance Funding Certification), and Recipient’s Funding Certification and Agreement for an Award under Section 18004(a)(3) (referred to herein as 18004(a)(3) Assistance Funding Certification).

1. What institutions are eligible for these funds?

Funding under Section 18004(a)(2) provides grants to the following entities:

  • Historically Black Colleges and Universities (HBCUs)
  • Tribally Controlled Colleges and Universities (TCCUs)
  • Other Minority Serving Institutions (MSIs)
  • Other institutions eligible for the Strengthening Institutions Program (SIP)

Funding under Section 18004)(a)(3) provides funds through the Fund for the Improvement of Postsecondary Education (FIPSE) to institutions that received less than $500,000 under other parts of Section 18004.

Funding under Section 18004(a)(2) and 18004(a)(3) is in addition to the student and institutional portion under Section 18004(a)(1). See our FAQ for the student and institutional portion here.

2. How do I know how much in funding my institution is eligible for and under what program(s)?

ED provided separate allocations for each funding source. Section 18004(a)(2) allocation can be found here. Section 18004(a)(3) allocation can be found here.

3. What can this funding be used for?

The Secretary of Education stated in her letter that these funding streams can be used to “defray institutional expenses, which under Section 18004(a)(2) and Section 18004(a)(3) may include lost revenue, reimbursement for expenses already incurred, technology costs associated with the transition to distance education, faculty and staff training and payroll.” Uses of these funds is consistent with the institutional funds from Section 18004(a)(1). Additionally, the Secretary of Education stated that institutions may use the funds “for grants to students to cover any component of the student’s cost of attendance, including tuition, course materials, and technology” as long as the student receiving the grant is eligible to receive federal financial student aid under Section 484 of the Higher Education Act (HEA), which is the same eligibility standard as funding from Section 18004(a)(1), which excludes international students, undocumented students and students who were exclusively attending school online prior to March 13, 2020.

4. Are there any specific restrictions on the use of the funding?

In the 18004(a)(2) Assistance Funding Certification and the 18004(a)(3) Assistance Funding Certification, the following expenses are specifically prohibited:

  • Senior administrator and/or executive salaries, benefits, bonuses, contracts, incentives
  • Stock buybacks
  • Shareholder dividends
  • Capital distributions
  • Stock options
  • Any other cash or other benefit for a senior administrator or executive

5. Are there any additional funding opportunities from ED?

As of May 11, 2020, we know that there is at least one opportunity, a competitive grant program through ED, to award approximately $15 million in funding. These funds are from the balance remaining under the Higher Education Emergency Relief Fund under Section 18004(a)(3) that were not distributed.

6. What are the tracking and reporting requirements associated with these funds?

In accordance with Section 15011(b)(2) of Division B of the CARES Act, institutions are required to submit quarterly reports to ED that include the amount of funds received, the amount of funds received that were expended, and a detailed list of all projects or activities that the funds were expended on. ED may require additional reporting in the future, but that is yet to be determined.

7. Will the spending on these funds be subject to audit?

A Catalog of Federal Domestic Assistance (CFDA) number has been assigned to the Higher Education Stabilization Fund (CFDA 84.425E), with the specific letter following the CFDA indicating which funding source it relates to under the Education Stabilization Fund (e.g., Higher Education Emergency Relief, Education Stabilization Fund Discretionary Grants, etc.). Since the Office of Management and Budget (OMB) has provided a CFDA number, it is assumed that these funds will be subject to Uniform Guidance and single audit requirements. There has not been a clear indication as to whether or not these programs would be part of a cluster for single audit testing. We anticipate that all sources under the Education Stabilization Fund will be audited as one program (e.g., 84.425B, 84.425C, 84.425E, etc.).

Institutions should assume detailed expense tracking and reporting are required as well as documentation that supports they have internal controls in place to comply with the guidance on use of the funds. Additionally, the 18004(a)(2) Assistance Funding Certification and the 18004(a)(3) 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.

Resources:

April 30, 2020, Letter from the Secretary of Education

Recipient’s Funding Certification and Agreement for an Award under Section 18004(a)(2) of the Higher Education Emergency Relief Fund

Recipient’s Funding Certification and Agreement for an Award under Section 18004(a)(3) of the Higher Education Emergency Relief Fund

CARES Act

Section 18004(a)(2) ED Funding Allocations

Section 18004(a)(2) Methodology for Calculating Allocations

Section 18004(a)(3) ED Funding Allocations

Section 18004(a)(3) Methodology for Calculating Allocations

The Baker Tilly higher education team stands ready to help clients understand the expectations and requirements associated with the HEERF funding, develop compliant, effective and viable approaches to leveraging these funds and gain assurance regarding the consistency and accuracy of funds distribution and reporting.

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