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CARES Act: Guidance for Colleges and Universities


By: Stephen Zaharias, William Reddington, Pierre Chabot, and Kathleen Peahl

April 16, 2020

This is the seventh installment in Wadleigh, Starr & Peters’ whitepaper series on the  “Coronavirus Aid, Relief, and Economic Security Act,” or “CARES Act,” the 880-page legislation recently signed into law that provides emergency financial support to individuals and businesses across the country. This whitepaper will focus on the financial assistance and opportunities that the CARES Act offers for colleges and universities.

This publication is a summary of key portions of the CARES Act as it relates to colleges and universities; it does not include all of the details and specifics found in the many hundreds of pages of legislative text, or seek to predict the contents of the significant regulatory guidance that is soon to come from various agencies. If you have any specific questions, you should consult with counsel. Of course, the attorneys at Wadleigh, Starr & Peters are available to help you navigate, and take advantage of the assistance offered through, the CARES Act. 

Education Stabilization Fund

The CARES Act appropriates nearly $31 billion for the Education Stabilization Fund to prevent, prepare for, and respond to the coronavirus. These funds are available until September 30, 2021.[1] Out of this Fund, approximately $14 billion is allocated to the Higher Education Emergency Relief Fund to assist colleges and universities during the coronavirus crisis.[2]

The CARES Act provides that 90% of the Higher Education Emergency Relief Fund (approximately $12.5 billion) will be distributed directly to institutions of higher education, although 75% of that amount will be allocated to institutions according to the relative share of full-time equivalent enrollment of Federal Pell Grant recipients who were not enrolled exclusively in distance education courses prior to the coronavirus emergency; the remaining 25% will be allocated to institutions according to the relative share of full-time equivalent enrollment of students who were not Federal Pell Grant recipients and were not enrolled exclusively in distance education courses prior to the coronavirus emergency.[3] Given that Pell Grants are limited to those students with demonstrated financial need, the above-mentioned distribution should direct the majority of funds towards institutions with students of more limited means.

The remaining 10% of the Higher Education Emergency Relief Fund (approximately $1.5 billion) is to be allocated to minority-serving institutions and smaller institutions that the Secretary determines have the greatest unmet needs related to the coronavirus.[4] Additionally, some funds are allocated to specific institutions, such as $13 million to Howard University[5] and $7 million to Gallaudet University.[6] Yet other funds are allocated for specific purposes, such as $40 million for student aid administration[7] and $100 million for safe schools and citizenship education.[8]

Funds provided to colleges and universities through the Higher Education Emergency Relief Fund can be used to cover various costs associated with the significant changes to delivery of instruction due to the coronavirus, including costs related to remote learning, as well as to provide emergency financial aid to students for expenses related to the disruption of campus operations.[9] However, an institution of higher education that receives these funds must use at least 50% of them to provide emergency financial aid grants to students for expenses related to the disruption of campus operations due to the coronavirus, including eligible expenses related to a student’s cost of attendance, such as food, housing, course materials, technology, health care and child care.[10] The funds cannot be used for 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.[11]

Note also that, per the CARES Act, any institution of higher education that receives funds under the Education Stabilization Fund, “shall, to the greatest extent practicable, continue to pay its employees and contractors during the period of any disruptions or closures related to coronavirus.”[12] Further, reports to the Secretary describing the use of any funds received will be required, so proper documentation will be critical.[13]

An additional $3 billion has been allocated to be shared among the governors of each state to provide, among other education-related causes, emergency grants to higher education institutions most significantly impacted by the coronavirus.[14] Importantly, once this money is received by a state (and it is yet to be determined how much each state will receive), the governor of that state will have one year to award the funds; any remainder will be returned to the federal government.[15] Thus, we expect this money to move quickly once it reaches each state.

COVID-19 Pandemic Education Relief Act of 2020

Under the subtitle “COVID-19 Pandemic Education Relief Act of 2020,” the CARES Act provides further relief for colleges, universities, and their students. Some key provisions of this subtitle are: Section 3503, which waives the requirement that institutions of higher education match federal funds for certain programs and also allows such institutions to transfer unused work-study funds to provide supplemental grants;[16] Section 3504, which provides that an institution of higher education may award additional Supplemental Educational Opportunity Grants to assist students with unexpected expenses and unmet financial needs as a result of the coronavirus;[17] Section 3505, which permits certain institutions of higher education to continue making federal work study payments (not to exceed one academic year) to students who cannot work because of the coronavirus emergency;[18] Section 3509, which provides that for purposes of determining student loan or Pell Grant eligibility, a college or university may elect to exclude incomplete grades resulting from a student’s withdrawal from the institution as a result of the coronavirus;[19] and Section 3519, which provides various benefits to teachers who could not complete a full academic year of teaching due to the coronavirus by, for example, counting the partial year as a full year toward the Teacher Loan Forgiveness program.[20]

Colleges and universities should be aware of other provisions as well, including Section 3508, which waives an institution’s obligation to return certain funds if a student withdraws from the institution during the payment period or period of enrollment because of the coronavirus.[21] Likewise, if a student withdraws from an institution of higher education because of the coronavirus, that student will not be required to return the unused portion of any Pell Grants or other grant assistance.[22] Further, this section of the CARES Act cancels a student loan borrower’s obligation to repay the portion of the student loan debt pertaining to the semester or equivalent period of school for which the student withdrew due to the coronavirus.[23]

There are several other provisions comprising the COVID-19 Pandemic Education Relief Act of 2020, but the above provisions are some of the most significant. Additionally, please see our prior whitepaper pertaining to individuals for a description of other provisions of the CARES Act that may be beneficial to students and those paying student loans. Further, and as discussed below, there are additional provisions of the CARES Act that may benefit colleges and universities.

Employee Retention Credit

Some colleges and universities may be eligible for a refundable payroll tax credit of up to 50% of wages paid after March 12, 2020 and before January 1, 2021,[24] and up to $10,000 per employee.[25] To be eligible, the college or university must show that it carried on a trade or business during 2020, and (1) in any calendar quarter, the operation was fully or partially suspended due to orders from an appropriate governmental authority as a result of the coronavirus (orders from various state governors – including from Governor Sununu in New Hampshire – that have limited commerce, travel, and/or group meetings due to the coronavirus are likely sufficient to satisfy this requirement), or (2) had a significant decline in gross receipts of at least 50% percent, as compared to the gross receipts of the same quarter in 2019.[26]

For colleges or universities with fewer than 100 employees, wages paid to all employees will be eligible for the tax credit.[27] However, in the case of institutions with more than 100 employees, only wages paid to employees who are not able to provide services due to the coronavirus will be considered qualifying wages.[28] It is likely that the latter rule will apply to most colleges and universities; however, this could provide a much-needed economic incentive to retain employees.

Importantly, if an institution takes advantage of the employee retention credit, it will be ineligible for other opportunities under the CARES Act, such as the Paycheck Protection Program (as discussed below).[29]

Delayed Payment of Employer Payroll Tax

Colleges and universities may also be entitled to a deferral of certain payroll taxes for 2020, spreading the payment out over the following two years.[30] This payroll tax deferment covers payroll taxes owed between March 27, 2020 and January 1, 2021.[31] Eligible employers will have until December 31, 2021 to pay 50% of their 2020 payroll taxes, and until December 31, 2022 to pay the remaining 2020 payroll taxes.[32] Such deferrals are not available to institutions that receive Paycheck Protection loans and obtain forgiveness for the same, highlighting the importance of careful planning and analysis of the most appropriate ways to seek relief for your organization under the CARES Act.[33]

Expansion of Charitable Deductions

Certain provisions of the CARES Act incentivize charitable giving, which will likely benefit many nonprofit colleges and universities. For example, the CARES Act provides that individual taxpayers who do not itemize deductions may take an above-the-line deduction for qualified charitable contributions of up to $300.[34] For individuals who itemize their deductions, the CARES Act lifts the existing cap on contributions, raising it from 60% to 100% of adjusted gross income.[35] There may be additional benefits available to nonprofit colleges and universities, so please see our prior whitepaper dedicated to nonprofits for more details. 

Economic Stabilization Loans

Midsize colleges and universities – those with between 500 to 10,000 employees – may qualify for an Economic Stabilization Loan.[36] Institutions with over 10,000 employees could also qualify for direct loans through the Treasury Department.[37] However, please be aware that, unlike loans through the Paycheck Protection Program (discussed below), there are no provisions in the CARES Act that would make these loans to larger institutions forgivable. Nonetheless, such loans, given their low interest rates, could provide necessary assistance for a college or university during this turbulent economic period. Institutions that would like to know more about these, and other, opportunities should consult Wadleigh’s previous publications on the CARES Act, particularly those whitepapers pertaining to nonprofits and larger business.

Economic Assistance for Smaller Institutions

Smaller colleges and universities – those with 500 or fewer employees – may be eligible for several opportunities that the CARES Act offers small businesses and small nonprofit organizations. For example, these smaller institutions may qualify for a loan though the Paycheck Protection Program.[38] This Program, administered through the Small Business Administration, offers low interest rate loans of up to $10 million per business to help cover payroll costs, rent, utilities, and other operating costs.[39] This Program also offers loan forgiveness up to the entire amount of the loan, if certain requirements are met.[40] Anecdotally, we are hearing that the SBA is going to consider student workers as “employees” for purposes of determining eligibility for the Paycheck Protection Program, and we expect some further guidance from either SBA or Treasury to clarify this issue. Additionally, please note that funds for PPP loans have apparently been exhausted already; thus, unless an application for such a loan has already been accepted and approved, this Program is likely unavailable barring further funding from Congress (which could come to fruition soon). 

Smaller colleges and universities may also be eligible for an Economic Injury Disaster Loan, or an “EIDL,” through the SBA.[41] The CARES Act provides EIDL applicants with a possible advance on the loan of up to $10,000, which does not need to be repaid, even if the EIDL application is eventually denied.[42] Wadleigh’s prior whitepapers discuss the Paycheck Protection and EIDL programs in more depth, and so we direct your attention to those previous publications.

Also included in those other whitepapers are discussions of additional benefits available to small businesses and nonprofits through the CARES Act, which could be of great interest to smaller institutions of higher education. Of course, any questions that you have about your particular institution should be directed to counsel.   

Seek Counsel

This publication is meant to serve as a summary of the more significant aspects of the CARES Act, as it relates to colleges and universities. It is not a comprehensive explanation of the nearly 900-page bill, nor does it account for the regulatory guidance that will come down in the next few weeks. Colleges and universities are urged to seek legal advice if considering any of the assistance that the CARES Act provides. The attorneys at Wadleigh, Starr & Peters, PLLC are here to address any questions or concerns that your organization may have about the assistance that the CARES Act offers.

[1] See Emergency Appropriations for Coronavirus Health Response and Agency Operations, Education Stabilization Fund, at p. 752-69 of the CARES Act.

[2] Id. at p. 754, 760. 

[3] Id. at p. 761. 

[4] Id. at p. 761-62.

[5] Id. at p. 768-69.

[6] Id. at p. 767-68.

[7] Id. at p. 768.

[8] Id. at p. 767.

[9] Id. at p. 763.

[10] Id.

[11] Id.

[12] Id. at p. 765.

[13] Id. at p. 764.

[14] Id. at p. 754-56.

[15] Id. at p. 756.

[16] Sec. 3503.

[17] Sec. 3504.

[18] Sec. 3505.

[19] Sec. 3509.

[20] Sec. 3519.

[21] Sec. 3508(a).

[22] Sec. 3508(b).

[23] Sec. 3508(c).

[24] Sec. 2301(m).

[25] Sec. 2301(a), (b)(1).

[26] Sec. 2301(c)(2)(A)-(B).

[27] Sec. 2301(c)(3)(A)(ii).

[28] Sec. 2301(c)(3)(A)(i).

[29] Sec. 2301(j).

[30] Sec. 2302.

[31] Sec. 2302(d)(2).

[32] Sec. 2302(a)(1)-(d)(3).

[33] Sec. 2302(a)(3).

[34] Sec. 2204.

[35] Sec. 2205(a)(2)(A).

[36] Sec. 4003(c)(3)(D)(i).

[37] Sec. 4003(a).

[38] Sec. 1102.

[39] Sec. 1102. 

[40] Sec. 1106.

[41] Sec. 1110.

[42] Sec. 1110(e)(5).