John Toscano | April 1, 2020
On March 27, 2020, Congress passed, and the President signed into law, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—a roughly $2 trillion stimulus intended to aid struggling businesses, boost unemployment benefits and provide direct payments to individuals. In addition to certain guidance provided by the Department of Education earlier in March to ease certain compliance requirements, the CARES Act includes a number of provisions that provide for budgetary, compliance and tax relief for institutions of higher education, as well as allocations for state, local and tribal institutions. The Education Provisions in the law are categorized and discussed below:
- Education Stabilization Act (budgetary relief)
- Student Aid and Compliance Provisions (compliance relief)
- Business and Individual Tax Provisions (budgetary and tax relief)
Education Stabilization Act
The law includes approximately $31 billion of funding for educational institutions to prevent, prepare for, and respond to coronavirus, domestically and internationally. The funding is allocated as follows:
Higher Education Emergency Relief Fund
Approximately $13.9 billion is available for colleges and universities to directly assist students with urgent needs and support the institutions’ needs directly related to coronavirus.
- 90% or approximately $12.5 billion will be apportioned between full-time equivalent Pell and non-Pell recipients (75%/25%) who are not exclusively enrolled in distance education courses.
- 5% or over $1 billion shall be allocated to minority serving institutions and Historically Black Colleges and Universities (HBCU)
- 5% or approximately $348 million will be available for colleges and universities that the Secretary of Education (the Secretary) determines to have the greatest unmet needs related to the pandemic.
The law stipulates that no less than 50% of the awarded funds shall be used to provide emergency financial aid grants to students for expenses incurred as a result of the coronavirus. Eligible expenses include food, housing, course materials, technology, health care and childcare. Institutions may use funds received under this provision to cover any costs associated with changes to the delivery of instruction resulting from the coronavirus. However, funds may not be used for expenses related to pre-enrollment recruiting, endowments, or capital outlays for athletic, sectarian instruction or religious worship facilities. Lastly, a final provision in this section of the law requires that the institution “shall to the greatest extent practicable, continue to pay its employees and contractors….”.
Elementary and Secondary School Emergency Relief Fund
Roughly $13.2 billion has been reserved for elementary and secondary school emergency relief grants to each State educational agency.
- No less than 90% of funds shall be awarded to local school districts, including charter schools.
- Funds will be allocated in the same proportion of part A of title I of the Elementary and Secondary Education Act of 1965 (ESEA).
- Funds may be used for developing and implementing procedures and systems to improve preparedness and response efforts of local school districts; training and professional development on sanitation methods; purchasing of sanitation supplies; educational technology (software, hardware, connectivity); adaptive equipment for students with disabilities; mental health services; and many other purposes included in more detail within the law.
- Under this Act, school districts receiving funding are obligated to provide equitable services to low-income children attending private schools in a manner similar to the way in which these services are provided under ESEA.
Governor’s Emergency Education Relief Fund
Approximately $2.9 billion of funding shall be made available to Governors of each state for emergency support grants. Distribution of funds will be based on their determination of those public and private institutions (elementary and secondary schools, colleges and universities) most significantly impacted by the coronavirus and those deemed to be essential for carrying out emergency educational services to students, including childcare, early childhood education, social and emotional support, and the protection of education-related jobs. The appropriations will be made using a formula that prorates the funding on the basis of the population aged 5 through 24 and the number of primary and secondary school-age children in the state. The Governors may exercise flexibility and discretion in the manner of allocation.
Student Aid and Compliance Provisions
Campus-Based Aid Waivers
- Waives the institutional matching requirement for funds made available for award years 2019-2020 and 2020-2021
- Allows institutions to transfer up to 100% of unexpended Federal Work-Study (FWS) Program funds to Federal Supplemental Educational Opportunity Grants (FSEOG) — not applicable to private for-profit institutions
Use of FSEOG for Emergency Aid
- Allows the awarding of FSEOG funds as emergency financial aid grants to undergraduate or graduate students impacted by COVID-19
FWS During a Qualifying Emergency
- Allows payment of FWS funds to students who are unable to fulfill their work-study obligation for the period of time (not to exceed one academic year) of the qualifying emergency
Federal Student Loan Borrower Relief
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- Interest shall not accrue
- Any suspended payments during the period shall be treated as if they were made by the borrower (will not penalize the borrower for consumer reporting)
- Involuntary collection, including wage garnishments, reduction of tax refunds or reduction of other federal benefit payment, shall also be suspendedAll student loan payments (principal and interest) shall be suspended through September 30, 2020
Provisions Related to Semesters or Equivalent Not Completed Due to COVID-19
- Period not completed shall be excluded for purposes of:
- lifetime subsidized loan eligibility
- lifetime Pell eligibility
- Return to Title IV (R2T4) Flexibility
- Waiver of the requirement for the institution to return Pell grants or federal student loans; certain related statistical information will need to be reported
- Student Waiver of the requirement to return Pell grants or federal student loans
- Borrowers are relieved of the obligation to repay Direct Loans related to a payment period during which the student was required to withdraw as a result of COVID-19
- Removes the impact of the uncompleted credits for purposes of determining Satisfactory Academic Progress
Service Obligations for Teachers:
- For purposes of TEACH Grants, teaching service that is part-time or temporarily interrupted as a result of COVID-19 shall be considered to be full-time service and to fulfill the service obligation requirements of the TEACH Grant.
- For purposes of Teacher Loan Forgiveness, the Secretary shall waive the requirements that teaching service shall be consecutive, provided that the service is interrupted due to COVID-19, and teaching service is resumed after the temporary interruption and the teacher completes a total of 5 years of qualifying teaching service under the applicable sections of the Act.
Business and Individual Tax Provisions
The CARES Act contains a number of important business and individual tax provisions. A summary of the provisions applicable to educational institutions follows and are explained in more detail in our article “President Signs CARES Act – Including Paycheck Protection Program”.
Business Provisions
- Employee retention credit
- Delay of payment of employer payroll taxes
- Modifications for net operating losses, including suspension of the 80% limitation enacted by the Tax Cuts and Jobs Act
- Payroll protection program – low-interest loans for qualifying small institutions
- Low-interest loans for institutions with between 500 and 10,000 employees:
- Mid-sized institutions with between 500 and 10,000 employees will have access to quick, low cost, government guaranteed credit through their local lender or financial institution.
Individual Provisions
- Provides for a $300 deduction for charitable contributions for all taxpayers and modifies limitations on charitable contributions made during 2020
- Exclusion for certain employer payments of student loans
- Cash payments to individuals
- Expanded unemployment benefits
Your blum education professionals are dedicated to monitoring further legislation and will continue to share our observations as it develops.
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.
Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation
