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For Higher Ed, Stimulus Relief Offers Flexible Spending

The American Rescue Plan includes almost $40 billion for community colleges, four-year schools and universities. It’s less than the sector says it needs, but there are options with how the funds can be used.

Fall 2020 enrollment at public colleges, which account for 70 percent of postsecondary students, fell 2.5 percent, a drop of nearly half a million students. The sharpest declines were at two-year colleges, a career lifeline for both youth and working Americans. Enrollment in these schools dropped more than 13 percent, according to the National Student Clearinghouse. 

Communities of color have been disproportionately harmed. The Strada Education Network found that Black and Latino students were almost twice as likely to have changed or canceled their education plans because of the pandemic. 
Doug Shapiro, who heads research at the National Student Clearinghouse, says that these trends are unprecedented. "You can almost think of this as an entire generation that will enter adulthood with lower education, lower skills, less employability, ultimately lower productivity," he told NPR.

This potential for long-term economic trouble runs alongside a present disaster for colleges. Estimates of the money they need to address the financial impact of the pandemic range from $120 billion to $183 billion. Revenue losses have come in concert with a need for billions in unplanned investments to keep these schools operating at all, from COVID-19 testing to training and technology for remote learning.

The American Rescue Plan includes almost $40 billion for institutes of higher education. This is $3 billion more than the combined funding from the CARES Act and the Coronavirus Response and Relief Supplemental Appropriations Act. It retains guidelines designed to weight support toward students who need it the most, and offers new rules with flexibility to match funds to the specific circumstances of institutions and individuals.  

What’s in the Bill

The ARP appropriates an additional $36 billion to the Department of Education for a Higher Education Emergency Relief Fund (HEERF), first established under the CARES Act. Funds will be distributed directly to public and private nonprofit colleges, with the amount determined on the basis of both full-time-equivalent and headcount enrollment of Pell grant recipients, students with exceptional financial need. No less than half of the funds must go to student grants.

Using both metrics in the formula is important; headcount enrollment includes part-time students, and more than two-thirds of community college students attend on a part-time basis. The American Council on Education (ACE) has created a simulation of what every institution in the country might receive.

HEERF funds go directly to institutions of higher learning. A Congressional Research simulation attempted to create a picture of what this might mean on a state-by-state basis.

The bill includes $3 billion for historically Black colleges and universities, tribal colleges, Hispanic-serving institutions and other minority-serving institutions, an additional $198 million for institutions with the greatest unmet needs related to COVID-19 and $35 million for Howard University. Almost $400 million will go to for-profit colleges, with the stipulation that all the money they receive be used for student grants.

Welcome Flexibility

Schools can use their 50 percent portion of the funds to cover expenses associated with the pandemic, including lost revenue, costs they have already incurred, technology necessary for distance education and faculty and staff training. The exact needs will vary from institution to institution, says Jonathan Fansmith, director of government relations at ACE.

“The impact of the pandemic on a small private institution and the impact of the pandemic on a large R1 research institution with a teaching hospital are very different,” he says. “Where the blows to revenues come from, where the new costs are going to be, where the crack lines that have formed are being seen, differ from campus to campus.”

Enrollment declines are a common source of financial pain. Another, surprisingly, is the cost of COVID-19 testing, a “massive” expense, he says. Colleges can count on so-called auxiliary revenue from sources such as housing, dining halls and on-campus stores for anywhere from 10 to 30 percent of their revenue, and these became ghost towns during the pandemic. The costs of moving instruction online, whether buying new servers, hiring online tutors or expanding staff have added to the impact.

“What’s great about the way the federal government provided the funds is that they recognized the pandemic hit different schools differently,” says Fansmith. “They provided the flexibility to allow schools to address their own campus needs — it wasn't a uniform, top-down sort of approach.”

Help for Students

The financial challenges faced by students are also varied, and the ARP is also inclusive in regard to them. Students enrolled only in distance learning are eligible for aid, as are non-degree seeking, continuing education and noncredit students.

The funds are intended as grants to cover emergency costs due to the pandemic, says Megan Coval, vice president, policy and federal relations at the National Association of Student Financial Aid Administrators (NASFAA), and schools have considerable latitude regarding how they are awarded. 

Schools can use the grants to cover any component of a student's cost of attendance, she says. “Maybe they lost their job, or their parents lost their job and they couldn't pay their tuition, maybe they’re having difficulty paying for food, housing, health care or child care — it’s pretty broad.”

Schools welcome this flexibility as well as the new infusion of grant money, adds Coval. The previous administration’s Department of Education prohibited certain classes of students from receiving grants from CARES funds. Excluded groups included DACA students, and the Department of Education has not yet issued guidance on this point. 

The ARP funds can be used to cover expenses related to the coronavirus that date all the way back to the beginning of the national emergency. “If a student has a tuition balance from October of last year, a grant can be used to cover that balance,” says Coval. “That's really great news.”

The rescue plan includes another feature that can have significant impact on student solvency. For years, veteran advocates have urged Congress to close a loophole that fueled predatory practices by private colleges. These institutions are required by law to obtain at least 10 percent of their income from sources other than federal Title IV grants.

“The goal was for schools to demonstrate their value by finding revenue sources that could serve as independent checks on quality,” says Yan Cao, a Century Foundation Fellow who studies for-profit colleges.

However, funds from military tuition assistance programs are not part of Title IV. Schools offering a combination of low-value services and high tuition that the market would never support began to recruit veterans with aggressive marketing, misrepresenting the legitimacy of their educational programs and pushing veterans into bad loans to cover exorbitant fees.

The ARP closes this loophole, excluding all federal funds from the 10 percent of the 90/10 standard. The most optimistic scenario is that the bad actors will go out of business, but that’s not inevitable. “The problem emerged from gamesmanship, and time will tell what the next phase of gamesmanship might look like,” says Cao.

A Mutually Rewarding Relationship

“The nearly $40 billion included for students and campuses will be enormously helpful, but this emergency is not over for either higher education or the country as a whole,” said ACE president Ted Mitchell in March when Congress approved the ARP. 

At the time, he believed that students and institutions “battered by steep declines in revenues and soaring expenses” needed at least $57 billion more. If subsequent estimates are valid, the number could be twice as high.

Future investments in higher education have as much to do with economic recovery as with making colleges whole. Fortunately, the Biden administration has a different view of these institutions than its predecessor, says ACE’s Fansmith. “There’s an awareness of their importance at the highest levels — Jill Biden teaches at a community college.”

It won’t be possible to rebuild the economy, develop the technologies of the future, train a workforce that can make the country globally competitive, or reach communities throughout the country with vaccinations and health care without the help of universities, he says.

“It's a mutually rewarding relationship; we're going to help them meet their goals, and they're going to help us meet our goals.”
Carl Smith is a senior staff writer for Governing and covers a broad range of issues affecting states and localities. He can be reached at or on Twitter at @governingwriter.
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