The Department of Education’s Updated Guidance on the Higher Education Emergency Relief Fund (HEERF) Programs for Institutions of Higher Education
Now that Higher Education Emergency Relief Fund (HEERF) III funds are available under the American Rescue Plan (ARP), institutions impacted by the coronavirus pandemic have the opportunity to obtain additional financial support. Institutions need to spend at least 50 percent of the HEERF III funds on student grants, and the other 50 percent can be spent on institutional expenses. The list of eligible expenses is similar to what was released for HEERF II monies last December. Similar to HEERF II, proprietary institutions are only allowed to spend the HEERF III monies on student grants.
While the limitation for how for-profit institutions can spend HEERF III monies is a challenge, back in December 2020, the Department of Education (“the Department”) released guidance allowing HEERF grant programs to be spent under the expanded areas that fell under the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA). The initial guidance limited HEERF I reimbursement for expenses after December 27, 2020 to be eligible for this broadened scope. In March 2021, the Department announced that it will now allow costs incurred after March 13, 2020 to fall under the new requirements. While this is a relatively minor change in the rules, it broadens the instances in which a proprietary institution can spend HEERF I monies.
Clarification on Reimbursement for Lost Revenues with HEERF Grant Monies
The CRRSAA legislation that was passed last December expanded the ability for proprietary institutions to be able to use HEERF monies to defray expenses associated with lost revenues. This was a significant change in the Department’s stance on the matter coupled with the revision to retroactively apply the CRRSAA changes to HEERF I monies dating back to when former President Trump declared a national emergency to respond to COVID-19.
Until now, the guidance from the Department on what was eligible as lost revenue was limited. Fortunately, the Department has issued additional guidance that specifically addresses the lost revenue issue with HEERF I, II and III funds in their latest FAQs.
Key Points from the Lost Revenue FAQ
According to the Department’s guidance, lost revenue is defined as “revenues an institution of higher education otherwise expected but were reduced or eliminated as a result of the coronavirus.” Lost revenue is inherently an estimate. It is crucial for institutions to document how the revenues were lost, how the loss of revenue was caused by the pandemic and the processes involved.
Now that accounting for lost revenue as an eligible COVID-19 related expense has been extended to proprietary institutions, it’s important to distinguish that this only relates to the institutional portion of the HEERF monies. For proprietary institutions, the student portion of HEERF I monies and any HEERF II or HEERF III monies are limited to providing financial aid grants to students. As previously noted, unspent institutional monies under HEERF I can always be shifted towards additional student grants.
Per the Department’s FAQs, lost revenues associated with the COVID-19 pandemic may include, but are not limited to the following:
- Academic sources
- 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
- Cancelled ancillary events o 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
- Parking revenue
- Lease revenue
- Other operating revenue
The list of included revenue sources is fairly broad. While it doesn’t specifically cover the inclusion of clinic and retail revenues that may make up some proprietary institutions’ revenue streams, the belief is that those sources should qualify if that institution can demonstrate a linkage for academic sources (for the clinic revenues), or at the very least auxiliary services (for the clinic and retail revenues). The guidance specifically excludes certain revenue streams as well.
As the Department states in the FAQs, institutions may charge lost revenues from the beginning of the COVID-19 pandemic (March 13, 2020) to the end of its HEERF grant performance period. The institution may charge the lost revenue at the end of the period that is being calculated and should report it at the date the lost revenue cost has been “incurred.”
Determining the Lost Revenue Amount
The biggest challenge institutions are facing is how to determine the lost revenue amount. The law doesn’t specifically detail out how an institution is to go about making the calculation. The Department’s guidance does provide some options:
- A year-over-year comparison using the prior year;
- A semester-over-semester comparison using the prior year semester (fall 2019 compared to fall 2020 or summer term 2019 compared to summer term 2020);
- A comparison using a 3- or 5-year combined average revenue as baseline revenue;
- A comparison to previously budgeted revenue or projected revenue for the period; or
- A comparison with a baseline year of a fiscal year prior to the March 13, 2020 national emergency declaration, such as the fiscal year from July 1, 2018 – June 30, 2019.
The Department’s guidance also stresses that “an institution must adequately document its estimate of lost revenue, including its rationale, calculations, methodology, underlying data, and budgets or projections used to determine the amount of lost revenue.” Keep in mind that any HEERF monies drawn and expended by a proprietary institution can potentially cause the institution to fall under the additional HEERF grant program auditing requirements.
The new laws and the Department’s clarifications may have a direct impact on your institution and how you can use HEERF funding to serve your students. It also has the potential to trigger additional audit requirements. For more guidance on how to make sure your institution is complying with these updates, talk through your specific situation with a Title IV audit expert.