Updated Guidance on Lost Revenue and Expanding Allowable Costs for Higher Education Institutions

April 6, 2021 | Article

On March 19, 2021, the Department of Education provided additional guidance associated with the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA). This update not only provided information for calculating lost revenue, but it also reversed a previous stance held by the Department to only allow costs incurred on or after December 27, 2020, to be reimbursed under CRRSAA. Under CRRSAA, grantees will now have the ability to charge costs back to March 13, 2020, the date of declaration of the national emergency.

Expanded Flexibility for Pre-Award Costs
On March 10, 2021, the Department posted a notice of interpretation (NOI), which supersedes in part, all previous guidance, agreements, and grant award documents to provide institutions of higher education (IHE) with expanded flexibility to charge pre-award costs back to March 13, 2020. To further provide flexibility to IHEs, the Department also concurrently waived the requirement for prior written approval of pre-award costs. A separate letter will be issued through the G5 system notifying grantees of this change of interpretation.

As a result of this change, grantees are not required to take any action to take advantage of this expanded period of expenditures flexibility, but they are encouraged to maintain a copy of this notice within their HEERF grant files as additional support for auditing purposes. The NOI will become official once it is published in the Federal Register.

Lost Revenue
In addition to expanding allowable costs to include pre-award costs incurred back to March 13, 2020, the Department also posted an FAQ specific to their interpretation of lost revenue. This FAQ included 13 questions and answers, as well as several examples of how to calculate lost revenue. The following details a few of the key questions.

What is and what is not considered lost revenue?
The Department broke down the lost revenue into two categories: academic sources and auxiliary services sources. Sources of lost revenue may include but are not limited to the following listing.

Academic sources included:

  • Tuition, fees, and institutional charges (including unpaid student accounts receivable or other student account debts)
  • Room and board
  • Enrollment declines, including reduced tuition, fees, and institutional charges
  • Supported research
  • Summer terms and camps

Auxiliary services sources were defined to be:

  • Cancelled ancillary events
  • Disruption of food service
  • Dormitory services
  • Childcare services
  • Use of facilities or venues, including external events such as weddings, receptions, or conferences (other than facilities associated with sectarian instruction or religious worship)
  • Bookstore revenue or parking revenue
  • Lease revenue
  • Royalties
  • Other operating revenue

In addition to what could qualify as lost revenue, the Department also defined what was not considered lost revenue. This included capital outlays associated with facilities related to athletics, acquisition of real property, contributions or donations to the institution, marketing or recruitment activities, revenue related to sectarian instruction or religious worship, alcohol sales and investment income.

The lost revenue charged to HEERF needs to be directly tied to the COVID-19 pandemic as specified by CRRSAA section 314(c)(1). This means that any loss in revenue due to items such as a planned dorm remodel, previously planned degree program elimination or other previously planned declines in revenue may not be used for reimbursement.

When may an institution charge lost revenue to its HEERF grant award?
An institution may charge lost revenue to its HEERF grant award at the end of the period that it is using to estimate lost revenue. So, if an institution is using the time period from July 1, 2020, through June 30, 2021, for its lost revenue calculation, it cannot charge its HEERF grant award for the determined amount of lost revenue until on or after the last day of the estimated period, or June 30, 2021. Also, keep in mind that institutions may charge their HEERF grant awards for the estimated lost revenue from March 13, 2020 through the performance period of their HEERF grant.

For reporting on the Schedule of Expenditures of Federal Awards (SEFA), an institution should report the estimated lost revenue and expenditures no earlier than the date of the award or substantial amendment to the award terms. What this means is that those institutions that received HEERF II during their year ended June 30, 2021, but use estimated lost revenue beginning with the period March 13, 2020, would report this estimated lost revenue on the June 30, 2021 SEFA. The reason for this is that HEERF II was awarded during their fiscal year ended June 30, 2021.

How does an institution calculate lost revenue?
While the Department does not specifically call out how to calculate an institution’s lost revenue, they do offer several suggestions on how to calculate lost revenue. This includes a year-over-year comparison, a semester-over-semester comparison, a comparison using a 3- or 5- year combined average revenue as baseline revenue, or a comparison to previously budgeted revenue or projected revenue for the period. Generally, institutions do not need to subtract replacement revenue the institution received in calculating its lost revenue, except as follows: do not include any amounts used as lost revenue for another Federal Program—no double dipping—and do not include any refunds previously provided to students (and reimbursed under another grant) in the institution’s estimate of lost revenue.

Whatever method an institution decides to use, make sure to retain support for the calculation for auditing purposes.

Updated FAQs
Along with the guidance provided above, the Department provided guidance on additional questions, which included, but are not limited to the following:

  • Awarding financial aid grants to non-degree, non-credit, dual enrollment, continuing education students or students who are qualified aliens
  • Disbursing financial aid grants under HEERF to students who have left school
  • Applying CRRSAA funds to student accounts for those account charges posted prior to December 27, 2020

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