Impacts to Higher Education Industry From the COVID Relief Package

Following a protracted negotiation, Congress passed a $900 billion COVID relief package on Monday night. The legislation will provide relief for nearly all industries and will specifically provide $22.7 billion for institutions of higher education, as well as a $284 billion expansion to the Payroll Protection Program to provide greater availability to certain tax-exempt organizations.

Higher Education Specific Provisions

In an unexpected (albeit modest) win for the higher education industry, the legislation will provide an additional $22.7 billion in pandemic relief to colleges and universities—one of the most notably affected sectors of the economy. Funding will be allocated in a format similar to the allocation model used in the CARES Act this past March and is as follows:

• 5% of a school’s allocation will be based on its relative share of full-time equivalent enrolled students who are Pell Grant recipients and who were not exclusively enrolled in distance education courses prior to the pandemic’s outbreak;
• Another 37.5% will be based on the relative share of its total number of students (headcount) who are Pell Grant recipients and who were not exclusively enrolled in distance education courses prior to the pandemic’s outbreak;
• 5% will be based on its relative share of full-time equivalent enrolled students who are not Pell Grant recipients and who were not exclusively enrolled in distance education courses prior to the pandemic’s outbreak;
• 5% will be based on the relative share of its total number of students (headcount) who are not Pell Grant recipients and who were not exclusively enrolled in distance education courses prior to the pandemic’s outbreak;
• 1% will be based on the relative share of its total number of students (headcount) who are Pell Grant Recipients and who were exclusively enrolled in distance education courses prior to the pandemic’s outbreak; and
• 1% will be based on the relative share of its total number of students who are not Pell Grant Recipients and who were exclusively enrolled in distance education courses prior to the pandemic’s outbreak

Institutions will be required to split their aid allocation between institutional resources and emergency grants to students. However, the new round of funding opens the door for institutions to utilize funding to “defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll).” If an institution was required to pay the net investment income excise tax under the Tax Cuts and Jobs Act (TCJA), the total allocation will be reduced by 50% with funding limited to emergency grants to students and general health and safety expenditures.

The legislation also includes specific forgiveness for $1.3 billion in capital loans to historically black colleges and universities (HBCUs); $1.7 billion in funding for HBCUs, tribal colleges, and other minority-serving institutions; and a $150 increase to the maximum Pell Grant for aid year 2021-2022.

Some procedural changes are also included with the intention to provide greater access to student aid. The first comes in the reduction of the size of the FAFSA from 108 questions to 36, aiming to reduce the barrier to entry for many students who do not complete the burdensome form each year. Perhaps the most unexpected feature of the legislation is an expansion of Pell Grant eligibility for incarcerated persons, a long-time goal of many of the more left-leaning members of Congress.

Notably absent from the legislation are any provisions concerning student loan forbearance, which is due to expire on Jan. 31, 2021.

Corporation for Public Broadcasting Relief

The legislation also makes available to the Corporation for Public Broadcasting (CPB) $475 million for distribution during the fiscal year 2023. (This funding is subject to certain limitations related to entertainment and discrimination.) In addition, $20 million will be earmarked for costs associated with replacing and upgrading the public broadcasting interconnection system and other technologies and services that create infrastructure and efficiencies within public media. Allocation of these funds to institutional licensee stations and community licensee stations will be determined by the CPB.

Expanded PPP Funding and Other Employer Considerations

Expansion of the PPP program has been a long awaited and necessary component of the legislation. It comes in the form of an additional $284 billion, along with clarity regarding the permitted use of tax deductions for normal business expenses (even when such expenses were paid for by forgiven PPP loans). Those organizations that borrowed under the first round of PPP may apply for a second loan provided they have 300 or fewer employees and can prove a 25% reduction in gross receipts during a quarter in 2020 compared with the same quarter in 2019. The maximum loan under this second round is $2 million (compared with a $10 million maximum in the first round). The loan amounts will be determined based on payroll, which is consistent with the program’s first round.

The legislation also expands the employee retention tax credit (ERTC) for certain public entities, including colleges and universities, through July 1, 2021. Notably, the expansion includes the following elements:

• Increase credit rate from 50% to 70% of qualified wages
• Increase in the limit on per-employee creditable wages from $10,000 for the year to that amount per quarter
• Removal of the 30-day wage limitation
• Clarification of the determination of gross receipts for certain tax-exempt organizations
• Clarification of which group health plan expenses can be considered qualified wages even when no other wages are paid to the employee
• Provision for employers who receive PPP loans to qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.

Several benefits created in previous COVID relief legislation were also expanded and extended under the new legislation. Tax benefits created under the act are extended through March 21, 2021, and provide employees with expanded paid sick and family leave. However, these benefits are not available to public college and university employers. In addition, the mandate that this leave be provided to employees has been replaced with an opt-in process. The legislation also continues the IRC §127 provision for employers to offer up to $5,250 in student loan repayment benefits on a tax-free basis through 2025.

Because the new legislation is over 5,000 pages long, details are still coming to light. Our higher education CPAs will continue providing updates as we discover new ways in which it affects your industry and your organization.

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