After months of difficult negotiations that included a pause for the November federal elections, Congress has finally passed two sweeping packages that contain funding for the federal FY21 budget, additional relief related to the ongoing COVID-19 pandemic, and several other higher education and tax provisions relevant to colleges and universities.
Pandemic Relief for Higher Education
An additional $20 billion in aid for colleges and universities has been passed as part of the legislation’s pandemic relief component. While this figure falls short of the $120 billion requested by NACUBO and other higher education associations, it will nonetheless be welcome to campuses across the country.
The bill text indicates that most allocations from this second Higher Education Emergency Relief Fund should be made available for institutions within 30 days after the bill’s passage, and schools that have already submitted approved applications under Section 18004(a) of the CARES Act will not be required to submit new applications for funds.
Allocation of the largest portion of this aid will be fairly similar to the allocation model used in the CARES Act, passed in March 2020. Specifically, the allocation model will be comprised of:
- 37.5 percent 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;
- 37.5 percent of a school’s allocation 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;
- 11.5 percent of a school’s allocation 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;
- 11.5 percent of a school’s allocation 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 percent of a school’s allocation 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 percent of a school’s allocation 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
Similar to the CARES Act, schools will receive both an institutional allocation and an allocation earmarked for emergency grants to students, however these allocations will not feature the same 50 percent split of the CARES Act. Instead, an institution's allocation for emergency grants to students will be equal to however much it was required to spend on emergency grants to students from their CARES Act Section 18004(a)(1) allocation, which may be less than 50 percent. Notably, this aid features less stringent spending guidelines for an institution’s share and may be used generally 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).” However, institutions that were required to pay the net investment income excise tax as passed in the Tax Cuts and Jobs Act of 2017 will only receive half of their total allocation and may only use those funds for emergency grants to students, or for sanitation, personal protective equipment, or other expenses associated with the general health and safety of the campus if such expenses relate to the ongoing pandemic. Also notable is the specification that even students “exclusively enrolled in distance education” are eligible to receive emergency grants from these funds.
The CARES Act prohibition on utilizing any of these funds on “pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship” remains in place for this aid.
The bill also contains an additional $1.7 billion in funds that are earmarked for Historically Black Colleges and Universities (HBCUs), tribal colleges, and other minority-serving institutions. It also contains several smaller pots of aid earmarked for competitive grants that will be open to schools with “the greatest unmet needs related to coronavirus.”
An additional emergency education fund of just over $4 billion for governors has also been created in the package that, like the CARES Act, will give each governor fairly wide discretion to allocate funds to K-12 and postsecondary institutions in their state. Similarly, provisions requiring state maintenance of support, and continued institutional payment to employees “to the greatest extent practicable” , as was contained in CARES, are again featured in the legislative text.
The bill also contains $7 billion to increase and expand broadband access for students and families, particularly those in rural areas.
Notably for student loan borrowers, the bill does not include any extension of the federal government’s pause on monthly payments and interest accrual for federal student loans as was initially passed in the CARES Act and renewed several times by the Trump administration. Currently, the payment pause is set to expire at the end of January 2021.
Employer-Related Pandemic Relief
While this package is significantly smaller than the CARES Act, it does contain several additional pandemic relief items relevant for employers.
The bill makes $284 billion available for new Paycheck Protection Program (PPP) loans, and it also makes clear that loan recipients will be permitted to utilize tax deductions for normal business expenses even if the expenses were paid for by forgiven PPP loans.
Also contained in the bill is an expansion of the employee retention tax credit (ERTC) through July 1, 2021. This expansion will allow certain public entities, including public colleges and universities, to claim the credit, and among other provisions will:
- Increase the credit rate from 50 percent to 70 percent of qualified wages
- Increase the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter
- Remove the 30-day wage limitation
Several ERTC changes are also included that are retroactive to the effective date of the CARES Act that:
- Clarifies the determination of gross receipts for certain tax-exempt organizations;
- Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance; and
- Provides that employers who receive PPP loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.
The package further extends through March 21, 2021, the option for employers to utilize the tax benefit first provided by the Families First Coronavirus Response Act for providing employees with expanded paid sick and family leave, but it unfortunately does not expand the credit to public college and university employers. The related mandatory requirement for eligible employers to provide this leave has been removed; employers may now opt into continuing to offer the expanded leave and taking the related credit for the next three months.
Finally, the package continues the expanded allowance under IRC Section 127 for employers to provide $5,250 on a tax-free basis to their employees for student loan repayment benefits through 2025 that was first created by the CARES Act. The pre-existing provisions under Section 127 that allow employers to provide $5,250 on a tax-free basis to their employees for current tuition expenses remains unchanged by this expansion.
Other Higher Education Provisions
A number of higher education policy provisions, unrelated to the pandemic, were also passed as part of the bill. Ongoing bipartisan efforts to reinstate Pell Grants for incarcerated students were finally successful, as the decades-long prohibition on banning this aid for prison education programs has been repealed. The bill also repeals the restriction on federal financial aid for college students who have been convicted of a drug crime, and increases the maximum Pell Grant award by $150, bringing it to $6,495 for the 2021-22 award year. Pell Grant recipients who have mounted successful borrower defense claims against their institutions will also see their Pell eligibility reinstated under the legislation.
Efforts to simplify the Free Application for Federal Student Aid (FAFSA), championed by retiring Sen. Lamar Alexander (R-TN), were included in the bill and will greatly reduce the form questions from 108 to 36. Also included was a simplification of the Pell Grant-eligibility formula that will make an estimated 500,000 additional students eligible for the aid, and will significantly increase the number of students who are eligible for the maximum award.
The bill also makes changes to the Lifetime Learning credit for students by capping the qualified tuition deduction at $4,000 for individuals whose adjusted gross income does not exceed $65,000 and at $2,000 for individuals whose adjust gross income does not exceed $80,000. After 2020, the qualified deduction will be repealed entirely and replaced by increasing the phase-out limits on the Lifetime Learning credit from $58,000 to $80,000.
Finally, the package offers further additional financial relief to HBCUs by forgiving more than $1.3 billion in federal loans that were utilized for capital building and repair projects.
Other Tax Provisions
The Internal Revenue Code Section 179D deduction on energy-efficient commercial construction has been made permanent as part of the package. The deduction became law on a temporary basis in 2005, and Congress has extended it numerous times since then. NACUBO has long advocated that 179D, which allows public colleges and universities a tax deduction of up to $1.80 per square foot for energy-efficient construction, be extended on a multi-year term or made permanent.
The bill also extends the above-the-line charitable deduction for non-itemizing taxpayers as created in the CARES Act through 2021, which NACUBO advocated for, and similarly extends the increased limit on deductible charitable contributions for those taxpayers who do itemize.
Federal funding for the government’s FY21 budget, needed to prevent a federal government shutdown, was also passed as part of this two-bill package.
The Department of Education is set to receive a slight funding increase from FY20 to just over $73 billion for FY21. Of particular note is the $1.9 billion earmarked for student loan servicing and further work on the Office of Federal Student Aid’s NextGen initiative. The Funds for the Improvement of Postsecondary Education (FIPSE) program will receive $5 million, and ED’s Centers of Excellence for student veterans will receive a $7 million infusion. ED’s relatively new open textbook pilot program also will receive $7 million. The Federal Supplemental Educational Opportunity Grant and Federal Work Study programs will each receive slight funding increases and will be allocated $880 million and $1.2 billion, respectively. Finally, HBCUs and other minority-serving institutions are set to receive tens of millions in additional funds, spread across several programs.
Education for rural students also is prioritized in the bill, with $10 million in competitive grants available to higher education institutions and other nonprofits that demonstrate innovative approaches to improving enrollment and completion rates among rural students.
Funding for research also generally fared well this year with NASA, the National Science Foundation, the National Institutes of Health, and the Department of Energy all will receive slight funding increases. Research activities at the Departments of Defense and Agriculture are also set to receive small increases over FY20 funding levels.