CLIENT ALERT: U.S. DEPARTMENT OF EDUCATION RELEASES GUIDANCE ON THE AMERICAN RESCUE PLAN (HEERF III)

The U.S. Department of Education (“Department”) recently issued a set of frequently asked questions (“FAQs”) on the American Rescue Plan Higher Education Emergency Relief Fund (“HEERF III”). Congress passed the American Rescue Plan Act (“ARP”) in March of 2021 to provide approximately $40 billion for colleges and universities in their efforts to weather the COVID-19 pandemic. The Department made available earlier this week $36 billion in emergency aid to public and private non-profit institutions and $396 million to proprietary colleges. With a few key differences, HEERF III funds are to be used in accordance with the same terms and conditions as funds awarded under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (“HEERF II”). For an overview of the differences between HEERF III and HEERF II funds, please visit our previous blog post on the ARP, as well as our coverage of ED’s overall guidance for HEERF funds.

In 53 questions and answers, the Department’s FAQs cover eligibility for the emergency financial aid grant to students, institutional uses of funds, the newly required uses of funds under the ARP (as compared to HEERF II), and grant administration questions. Some noteworthy questions and answers in the FAQ include:

• Which students are eligible to receive emergency financial aid grants under HEERF? Students are eligible for emergency financial aid grants if they are or were “enrolled” at a postsecondary institution on or after March 13, 2020, the date in which President Trump declared the COVID-19 pandemic a national emergency. An “enrolled” student is defined at 34 C.F.R. § 668.2 as a student who has completed registration requirements at the institution where they are attending or, for correspondence schools, a student who has submitted at least one lesson after admittance and acceptance into an educational program. The Department’s final regulation setting forth this criteria for student eligibility takes a broad view of eligibility—encompassing citizens, permanent residents, refugees, asylum seekers, Deferred Action for Childhood Arrival (“DACA”) recipients, Dreamers, other undocumented students, and international students—and is a departure from the Department’s interim final rule under the Trump Administration, which limited eligibility to individuals eligible for Title IV aid. The Department emphasizes in the FAQ that institutions should continue to prioritize students with exceptional need and encourages institutions to prioritize domestic undergraduate students above international students when possible.
• When might the Department determine that an institution has failed to prioritize emergency financial aid grants to students with exceptional need? The Department lists examples of preconditions of emergency financial aid grants that will be viewed as failing to prioritize students with exceptional need. They include an institution’s imposition of a minimum GPA for grant eligibility, academic or athletic performance or good standing requirements, continued enrollment at the institution, or payment of an outstanding debt or balance by the student. The FAQ also provides examples of preconditions that do establish exceptional need, such as Pell eligibility, loss of employment by the student or the student’s family members, reduced income, or food or housing insecurity.
• What steps can an institution take if a student does not cash a check issued for the student’s emergency financial aid grant? The Department permits institutions to void the check and redistribute the funds to other students by the end of the HEERF grant performance period if a student does not cash the grant check by a reasonable date. The Department suggests that institutions make reasonable attempts to contact a student before doing so. Institutions should document the procedures, policies, and efforts they employ to contact students as part of their administration of HEERF funds. Institutions cannot use HEERF emergency financial aid grant funds to recover stop-payment fees from voided and re-issued checks since those funds are intended for students, but institutions can use institutional funds under HEERF to cover those expenditures.
• What are some examples of permissible “minor remodeling” that HEERF grant funds may support under the definition of 34 C.F.R. § 77.1? Institutions are prohibited from using HEERF institutional grant funds on “capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship,” such as deferred maintenance or capital improvements.  As a federal grant, HEERF funds must also comply with the Office of Management and Budget’s (“OMB”) Cost Principles at 2 C.F.R. Part 200 subpart E (“Cost Principles”), which prohibit purchases or construction of real property and capital expenditures for general purpose equipment, buildings, and land, subject to certain exceptions. However, institutions are permitted to use HEERF funds on “minor remodeling,” which are defined at 34 CFR § 77.1 as “minor alterations in a previously completed building.” Minor remodeling does not include building construction, building structural alterations, building maintenance, or building repairs, but does include the extension of water or electricity utility lines. The Department identifies in the FAQs examples of minor remodeling that likely qualify as permissible expenditures to prevent COVID-19, such as the installation or renovation of an HVAC system, the purchase or lease of temporary trailer classroom units, and the purchase or cost of installation of room dividers.
• Can an institution use ARP or other HEERF institutional grant funds to discharge student debt or unpaid balances to the institution? Institutions can discharge student debt or unpaid balances, including fees or penalties, and reimburse themselves for the amount from HEERF institutional funds as lost revenue. Alternatively, institutions can also provide and apply with the student’s affirmative consent an emergency financial aid grant to students in the amount of the debt or unpaid balance, including any fees or penalties that may have incurred. Institutions cannot impose or imply that the discharge of a student’s debt or unpaid balance is conditioned on the student taking any specific action (i.e., continued enrollment) and the institution must ensure that they only reimburse themselves through one source of HEERF funding (i.e., no double-dipping).
• What efforts to reengage students are allowable, and would not be classified as impermissible “marketing and recruitment”?  Institutions are prohibited from using HEERF institutional grant funds on marketing or recruitment. Under OMB’s Cost Principles at 2 CFR § 200.424, institutions are also prohibited from incurring costs for, or in support of, alumnae activities. However, the Department provides that institutions are permitted to use HEERF institutional grant funds on retention and reengagement of students who would otherwise be at risk of not completing their degrees due to COVID-19. Retention efforts include supporting academic or mental health systems available to students, while reengagement efforts include discharging the complete balance of a student’s institutional debt as lost revenue as part of the HEERF institutional grant (as discussed above). Such measures are encouraged by the Department to ensure that students continue and complete their education or obtain official transcripts to transfer or secure employment.
• What do the requirements to spend HEERF grant funds to “implement evidence-based practices to monitor and suppress coronavirus in accordance with public health guidelines” and to “conduct direct outreach to financial aid applicants about the opportunity to receive a financial aid adjustment due to the recent unemployment of a family member or independent student, or other circumstances” mean? The ARP added these two activities as required uses of HEERF institutional grant funds, though Congress did not specify expenditure amounts or exact methods or practices for implementing these activities. The Department clarifies that institutions should spend a “reasonable and necessary portion” of HEERF institutional grant funds to successfully implement these activities, and the FAQ at questions 28 through 32 identify a number of specific activities that would serve these purposes. 
• What are the quarterly and annual reporting requirements for HEERF III grants? Institutions must adhere to the two quarterly reporting requirements originally implemented through the CARES Act (“HEERF I”), which require posting to the institution’s website the Quarterly Institutional Public Reporting Form and the Quarterly Student Public Reporting Form by the tenth day following the end of each calendar quarter.  Each report is separate, not cumulative, for each calendar reporting period. Institutions are advised by the Department to refer to the HEERF III ARP webpage for more information on quarterly reporting requirements. The Department also anticipates collecting an annual report from institutions for HEERF III in early 2022 and will share more information once this is available.

The questions and answers discussed here by no means cover all the information provided in the Department’s FAQ. We encourage institutions to review this guidance and to contact HMBR’s Higher Education Group with any questions or concerns about the topics covered.