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What’s in the CARES Act for Higher Education?

It is now clear that COVID-19 will have immediate and long-lasting implications for higher education as governments and institutions respond to the growing public health crisis. In the fight to “flatten the curve,” colleges and universities were some of the first large organizations to move operations online, by asking faculty and staff to meet in virtual classrooms across the country. As everyone works to do their part, Congress last month passed the third in a series of relief bills, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act.

The CARES Act focuses on three major areas of support for higher education: direct relief for institutions, students and borrowers; critical regulatory relief as schools move operations online and many students are unable to complete their studies; and tax relief to alleviate costs and increase employee retention.

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Direct Relief for Institutions, Students, and Borrowers

The direct relief in the Act comes from an Education Stabilization Fund (ESF), split roughly evenly between support for K-12 and higher education, which each receive approximately $14 billion. These funds will be distributed to institutions through the office of Federal Student Aid using a formula based on the number of full-time enrolled students (excluding those enrolled exclusively online) and the percentage of those who are Pell-eligible. Minority-serving institutions receive a specified portion of the funds (roughly $1 billion), and a small amount of the total can be directed by the Secretary of Education towards schools most impacted by COVID-19.

Of this direct aid, at least 50% of funds for each institution must be used to provide emergency assistance to students to help ease the transition to online education and ensure they still have access to necessities like housing, food, technology, and child care.

On top of the resources described above, state governors are also allocated roughly $3 billion from the ESF for direct disbursement. A state may use this funding to support their K-12 or higher education system.

For most federal student loan borrowers, this legislation provides immediate relief by suspending loan interest and loan payments for six months (through September 2020). Payments suspended during this time will count towards requirements for loan forgiveness programs, ensuring that students are not knocked off track. Finally, the government will temporarily cease garnishing wages, Social Security benefits, and tax refunds for borrowers in default.

Regulatory Relief for Institutions and Students

The CARES Act allows the Department of Education to ease regulations on distance learning and reporting requirements. It also gives the Department and schools flexibility to access and use funds from federal grant programs while responding to the COVID-19 pandemic. This means schools can use federal funds like Supplemental Educational Opportunity Grants as emergency grant aid to students.

Another provision (Sec. 3508) ensures that neither institutions nor students will be required to repay federal financial aid for academic terms where students withdrew due to COVID-19. Importantly, any terms that a student does not complete due to COVID-19 will also not count toward the time limits prescribed for federal subsidized loans and federal Pell Grants (Sec. 3506-7).

Tax Relief for Institutions and Employees

To help retain employees across the economy, the CARES Act allows employers, including higher education institutions, to defer payment of this year’s FICA payroll taxes, and also offers a refundable payroll tax credit of up to $5,000 for wages paid to employees during the COVID-19 crisis.

Moreover, during 2020, the legislation expands the existing tax exclusion for educational assistance to allow an employer to make tax-free payments up to $5,250 per year towards an employee’s student loans.

Next Steps

Congress and the administration deserve credit for their quick response to provide relief for the higher education sector in this time of crisis. While many policies in the CARES Act are common sense aid that will help institutions, students, and borrowers weather the immediate financial turmoil, the economic impact of coronavirus will continue to ripple throughout the higher education system, exacerbating several longer-term issues that remain unresolved.

State governments, many of which were already investing insufficiently in their higher education systems, will likely see large strains on their budgets, as revenues come in far below expectations. Policies that provide more aid to states can reduce the need to slash budgets and provide much needed relief as schools seek to maintain continuity of instruction and services for students, faculty, and staff. Approaches like a federal-state partnership could preempt this problem in advance of the next economic downturn.

Additionally, as experts warn about more school closures, reforms to the school closure process have the potential to mitigate negative impacts for students. BPC commends the bipartisan effort to provide substantial relief, but this is just the first step to addressing the challenges for students and campuses across the country. More will need to be done to ensure critical pathways to education and jobs remain open for all Americans as we mitigate the impact of COVID-19 together.

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