The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is an effort to provide relief to the individuals, businesses, and certain industries significantly impacted by the COVID-19 pandemic.
Included in the CARES Act is the Education Stabilization Fund, which provides $30.55 billion in support to:
Separate allotments are made within the Education Stabilization Fund to provide additional funds to tribal colleges and designated minority-serving institutions. Additionally, about $349 million is reserved expressly for schools that have been hit particularly hard by the virus, with priority going to small schools that receive less than $500,000 in the larger pool of ED grants, as well as to minority serving institutions that have remaining unmet need.
As a result of this monumental legislation, we know you have questions. Below are frequently asked questions we’ve received in relation to COVID-19 and the CARES Act.
Higher Education are many items to consider when it comes to COVID-19 and its impact on higher education institutions.
For the funds available under the Education Stabilization, what is available for my institution?
Currently, the Department of Education will provide $2.95 billion in grants to states to assist in supporting K-12 and higher education institutions. The allocation will be based upon the population of each state between the ages of 5-24 (60% of the calculation) and the number of primary and secondary school-age children who reside there (40% of the calculation). Once the funds have been received, state governors will decide how to allocate these funds to those schools “most significantly impacted” by the coronavirus.
Under the CARES Act, the Department of Education has also been allocated $14 billion to award grants to colleges and universities. These grants will be distributed to institutions via the Title IV distribution system and will be determined by a formula. The Department of Education has yet to finalize the formula; however, it will be based upon full-time equivalent (FTE) enrollment of Pell Grant recipients at an institution (75% of the calculation) and FTE enrollment of non-Pell students (25% of the calculation).
Excluded from this formula are students who were completing their education exclusively online prior to the coronavirus outbreak. Of those funds received through this formula, institutions must use 50% of their allotment for direct emergency aid to students, including but not limited to “grants to students for food, housing, course materials, technology, health care, and childcare.” The remaining 50% of their allotment is to be used to “cover any costs associated with significant changes to the delivery of instruction due to the coronavirus, so long as such costs do not include payments to contractors for the provision of pre-enrollment recruitment activities; endowments; or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.”
Additional Resources:How to Ensure Grant Compliance in the Wake of COVID-19
I just found out how much my institution will receive under Section 18004(a)(1) of the CARES Act. Has there been any guidance from the Department of Education on how to distribute these funds to students?
In a letter written on April 9, 2020, by the Secretary of Education, it states that the institution has discretion as to how to allocate the emergency aid to students, which may include distributing the funds to all students or only to students who demonstrate significant need.
The only statutory requirements are that these funds are to be used towards those expenses related to the disruption of campus operations due to coronavirus. A listing of those eligible expenses are described in the section above. The Secretary of Education however, did emphasize that each institution should consider prioritizing the funds to go towards those students with the greatest need, but to consider establishing a maximum funding threshold for each student to ensure that the funds are distributed to as many students as possible.
As an institution is trying to decide how to allocate the funds available to students, consider adopting a formal policy on how those funds will be allocated to students and make sure to adhere to that policy. If there are any deviations to that policy, document those deviations within the student file.
My private institution is currently facing short term cash flow needs. I have heard there are SBA loans available to help organizations keep their employees. What are these and how do they work?
At this tumultuous time, many private institutions may be facing reduced contributions and revenues due to economic uncertainty and community mandates requiring residents to shelter-in-place. Many private higher education institutions that have cash-flow needs to pay employees and continue operations may qualify for relief and assistance through one of the SBA loan programs available via the CARES Act.
The CARES Act made modifications to two key types of loans provided by the SBA, making them available to more organizations.
Paycheck Protection Program under 7(a)
The Paycheck Protection Program (PPP) under 7(a) provided $349 billion in federally backed loans to small businesses with fewer than 500 employees (subject to some modifications for affiliations) including 501(c)(3) and (c)(19) organizations. These loans are not available to governmental institutions. The PPP loans are available in amounts up to $10 million or 2.5 times the organization’s average monthly payroll from the prior year.
The PPP loans must be used to cover payroll expenses (not in excess of $100,000 per employee), mortgage or debt obligation interest payments, utilities and rent. The CARES Act defers payments of principal, interest and fees for at least six months on the loans and caps interest at 1%. In addition, organizations may apply to receive loan forgiveness for eight weeks of eligible costs, but the amount forgiven may be reduced if the organization reduces the number of employees compared to the prior year or if employee pay is reduced more than 25% as of the last calendar quarter. The application period for these loans runs from April 3, 2020, to June 30, 2020.
Economic Injury Disaster Loans
The CARES Act modified the existing Economic Injury Disaster Loans (EIDL) by expanding eligibility and waiving certain requirements. These loans are available to all nonprofit organizations (private institutions that are exempt under 501(c) regardless of the number of employees). These loans provide working capital for organizations that cannot meet their ordinary and necessary financial obligations as a result of a disaster. The EIDL loans are not available to governmental institutions.
EIDL loans have an interest rate of 2.75% for nonprofits and include a $10,000 emergency advance payment that can be received within three days of the application. This $10,000 emergency advance payment may be forgiven even if a borrower is denied EIDL funding, thus effectively being treated as a grant. If an organization also receives a loan under the PPP program, the $10,000 advance payment would be considered as part of the forgiveness of that loan. 501(c)(3) or 501(c)(19) organizations that receive a PPP loan may also receive an EIDL loan as long at the loan is not used for the same purpose.
Additional Resources:What You Need to Know About the SBA Loan and Relief Efforts
If I receive funding under one of the SBA loans, is this treated like other federal loans or grants such that the receipt will subject my nonprofit to federal Single Audit requirements?
At this time guidance has not been released that indicates the loans are not subject to the same requirements as other federal loans and grants received. Until guidance is provided, nonprofit organizations should plan and prepare for any loans or grants received to be subject to a potential single audit if total federal funds exceed $750,000 during the year. Single Audit submissions have been extended by six months from their original due dates by a memorandum released by the Office of Management and Budget.
Additional Resources:Single Audit Impact of the CARES Act
Payroll Tax Deferral
Under Section 2302 of the CARES Act, all employers may also defer the deposit and payment of the employer’s portion of Social Security taxes. The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning March 27, 2020, and ending December 31, 2020. This is available to all employers; however, employers that receive a PPP loan may not defer the deposit and payment of the employer’s share of Social Security tax due on or after the date that the PPP loan is forgiven under the CARES Act. The deferred deposits of the employer’s share of Social Security tax must be repaid as follows:
Employee Retention Payroll Tax Credit
The CARES Act also created an Employee Retention Credit, a refundable payroll tax credit of up to $5,000 per employee that is available to all businesses (other than governmental employers) that have closed or partially reduced operations due to COVID-19. While many educational organizations have not closed, they may be experiencing a decrease in revenue. The refundable credit is equal to 50% of qualified wages (up to $10,000) for each employee. For eligible employers with more than 100 employees, “qualified wages” are wages paid to employees unable to work because of COVID-19.
For eligible employers with 100 or fewer employees, “qualified wages” include all wages paid whether the employees are working or not. An organization is eligible for the credit if (a) its operations were fully or partially suspended during the calendar quarter due to government restrictions limiting travel, commerce or group meeting due to COVID-19 or (b) remained open but gross receipts declined by more than 50% compared to the corresponding quarter in 2019. Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes by the amount of the credit. The Employee Retention Credit is not available if the organization has received a loan under the PPP.
Families First Coronavirus Response Act
Institutions with fewer than 500 employees are included in the temporary relief that provides expanded family and medical leave and paid sick leave for coronavirus-related absences. Private institutions can be reimbursed through a refundable tax credit, applied against the employer portion of payroll taxes, at the end of each quarter.
This legislation is heavily tied to existing employment laws with the Department of Labor. Nonprofits may need to consult with experts who specialize in employee benefit issues. While public institutions with fewer than 500 employees are subject to the provisions of the Families First Act, they are not eligible for the payroll tax credit.
Additional Resources:What You Need to Know – Employer Credits for Coronavirus Mandatory Paid Leave
I’ve heard there are additional provisions within the CARES Act that are available to provide additional relief to higher education institutions and their students. What are those provisions?
Subtitle B of Title III of the CARES Act provides guidance for accredited public and other nonprofit higher education institutions. These provisions can be found in Sections 3501 through 3519 and include:
In a letter to college and university presidents dated April 9, 2020, the Secretary of Education stated that all institutions must sign and return the Certificate of Funding and Agreement to acknowledge the terms and conditions of funding in order to draw down any emergency assistance funds.
What You Need to Know About CARES
The CARES Act is a wide sweeping piece of legislation with multiple provisions designed to help organizations across industry deal with the impact of COVID-19. As a higher education institution, it’s important to know how this legislation can help you and how to be prepared to navigate the road ahead.
Have questions about how CARES will impact your higher education institution?
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