Federal Pandemic Relief and College Costs

by | Aug 25, 2021 | FAFSA

Federal laws were enacted in 2020 and 2021 to aid Americans adversely affected by the pandemic and to stimulate economic growth. Among their many provisions, these new laws took steps to alleviate the financial hardship suffered by colleges and students. One of the new laws , the FAFSA Simplification Act of 2020, adopts measures that will make the Federal student aid process simpler and fairer.

Although private colleges received some of the pandemic relief funds, public colleges were the main beneficiaries. Public colleges educate 14.6 of 19.7 million American undergraduates, or 74%. As a result, hardships affecting public colleges were a given a higher priority than those affecting private colleges. Among students, those from low-income families who attend public colleges were the prime beneficiaries of pandemic relief.

The three Federal laws that were enacted to address health care issues related to Covid-19, mitigate its impact, and strengthen the economy were the following:

  • The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted March 27, 2020,
  • The Consolidated Appropriations (Omnibus) Act of 2021, enacted December 27, 2020, and
  • The American Rescue Plan (ARP) Act of 2021, enacted on March 11, 2021.

The CARES Act

The CARES Act included the following provisions that affected colleges and students:

  • The Act created the Higher Education Emergency Relief Fund (HEERF) and endowed it with $14 billion to assist certain colleges and to provide cash grants to college students to cover expenses caused by the pandemic. These were defined as course materials, digital technology devices and services, food, housing, and child-care. Colleges were authorized to determine which students were eligible to receive grants and the amounts of the grants.
  • The HEERF was divided into three parts: 1.) $12.5 billion in formula-based funds, at least half of which were to be paid as grants to students, 2.) $1 billion for colleges that serve minorities, including Historically Black Colleges and Universities (HBCU’s) and Minority Serving Institutions (MSI’s), and 3.) $350 million in supplemental funds for colleges in financial crisis.
  • Payments of student loan principal and interest by an employer to an employee were not considered taxable income to the employee if they were paid between March 27, 2020, and December 31, 2020, up to a maximum of $5,250 per employee.
  • For students in Federal work-study programs, the Act paid their college to continue to pay wages to them even if the student was unable to fulfill their work-study obligations due to the pandemic.
  • The Act afforded colleges additional flexibility regarding the requirements for Federal financial aid during the pandemic.
  • The Act suspended payments and the accrual of interest on Federal student loans from the date of its enactment through September 30, 2020.

The Consolidated Appropriations Act of 2021

This was the annual legislative package known as the Omnibus Act that included the budget for all non-Defense Federal spending for the next fiscal year. The Omnibus Act for 2021 included emergency spending to address the impact of COVID-19 on colleges and students. It included within it the FAFSA Simplification Act of 2020.

Appropriated Funds

The parts of the Omnibus Act affecting colleges and students have no set expiration dates. They’re ongoing until the funds are depleted, or Congress acts to terminate or modify them. Overall, the Act provided $23 billion to colleges and students and $4 billion to state governors for education. Funds were appropriated as follows:

  • $20 billion (89% of total) to the HEERF,
  • $1.7 billion (7.5%) to HBCU’s and MCI’s,
  • $113.5 million (.5%) dedicated to grants to those colleges most severely impacted by the pandemic,
  • $680.9 million (3%) in emergency aid for students at for-profit colleges, and
  • $4 billion to governors to use at their discretion for education in their state.

Key measures affecting the HEERF, the largest pool of funds, included:

  • Colleges were required to use the same percentage of funding for direct student aid as they did under the CARES Act.
  • The formula for allocating funds to colleges relied on measures of a college’s enrollment including the number of Pell and non-Pell students, full-time enrollment, and the number and percentage of students who were taking classes exclusively online prior to the pandemic.
  • Student emergency funding was usable for anything considered by a college to be a college-related cost.
  • Funds allotted to a college were also usable to cover its own extraordinary expenses and to replace lost revenue.
  • The Omnibus Act did not define which students were eligible for emergency aid, so existing guidance restricted emergency aid only to students who were eligible to receive it under Federal Title IV.
  • The Omnibus Act imposed limitations on colleges that did not pay the Federal endowment tax in 2019. These colleges received only 50% of their HEERF allocation, and those funds were only to be used for student emergency aid and costs to resist the spread of COVID-19 on campuses.

The FAFSA Simplification Act of 2020

The FAFSA Simplification Act of 2020 is part of the Omnibus Act for 2021. It was signed into law on December 27, 2020. The intent of the FAFSA Simplification Act is to make it easier to complete the FAFSA and to make the allocation of funds fairer.

Revising the FAFSA is a complex undertaking. It will take time to establish new rules and modify administrative processes. The changes in the Act won’t go into effect until July 1, 2023.

The revised FAFSA will be an improvement over the current one in many respects. However, it introduces one change that runs counter to the interests of many families. It ends the ability of families to divide their Expected Family Contribution (EFC) by the number of children in college simultaneously.

The changes to the FAFSA under the new law include the following:

  • No longer divides the EFC by the number of family members in college.
  • Continues to prohibit college admissions and financial aid consultants from charging a fee to help families complete the FAFSA.
  • Increases the Income Protection Allowance (IPA) for dependent students from the current $6,970 to $9,410, a 35% increase. Since student income that exceeds the IPA is assessed as an asset at 50% of its value, this increase will reduce the existing disincentive for students to seek employment.
  • Increases the independent unmarried student IPA from the current $10,840 to $14,630, an increase of 35%.
  • Eliminates the term EFC and replaces it with Student Aid Index (SAI). In the past, many parents mistakenly believed that the EFC was the amount that they themselves would need to pay to a college, but the real figure was often significantly higher. Parents were unable to determine in advance the actual cost of their student’s education at a college. They didn’t know this until their child was accepted by colleges in the spring of senior year. This mistiming caused mistakes to be made when scrambling for funds late in the game.
  • Introduces the term Cost of Attendance (COA). Under the revised rules, COA includes tuition and fees, housing and meals, books and other course materials, transportation, personal expenses, loan fees, and costs associated with obtaining professional licenses. The Act stipulates that the itemized COA must be disclosed on every college’s website. This will help families trying to determine in advance the full cost of attending a college.
  • Expands eligibility for Pell Grants to previously incarcerated students.
  • Simplifies the process of identifying the neediest students by adopting a new method of calculating SAI.
  • Increases the amount of the parent IPA that is shielded from the SAI. For a 3-person family, this will increase by 20% to $29,040.
  • Changes the rules regarding financial reporting by divorced and separated parents. It eliminates the current standard, which is “The parent you lived with more during the past 12 months”. Under the revised rule, “The parent who provided more financial support” will be the one required to report income and assets on the FAFSA. This closes a loophole used inappropriately by some divorced and separated parents.
  • Excludes the request for “Other untaxed income not reported.” Such income as worker’s compensation and veteran’s educational benefits will no longer need to be reported as untaxed student income.
  • Excludes the request for “Money received or paid on your behalf.” No longer will a distribution from a grandparent-owned Section 529 account or a cash gift from a relative need to be reported as untaxed student income.
  • Renames the term Simplified Needs Test to the Applicants Exempt from Asset Reporting. It also makes qualification easier by raising the Adjusted Gross Income cutoff from $50,000 to $60,000.
  • Prohibits colleges and financial aid administrators from establishing a policy that denies students the right to appeal financial aid decisions.
  • Expands the authority of college financial aid administrators to exercise professional judgement. They may consider a broader range of family circumstances such as natural disasters, national emergencies, recessions, and substantial losses in business, investments, or real estate.
  • Reduces administrative barriers for homeless and foster youth in accessing Federal financial aid.
  • Expands the definition of “Independent Student” to include students who are unable to contact their parents as well as those for whom contact with their parents would place them at risk.
  • Removes the suspension of Federal student aid eligibility for individuals convicted of drug-related offenses.
  • Makes it easier for the Department of Education and the IRS to share tax data so student aid applications can be processed faster.
  • Forgives $1.3 billion in Federal loans that were made to HBCU’s for repairs, renovations, and construction.

The American Rescue Plan (ARP) Act of 2021

In 2020, Congress enacted the two laws above, which appropriated a total of $34 billion in relief to colleges and students via the HEERF. These funds enabled colleges and students to partially cover the costs that they had incurred. The ARP Act took another step toward this goal by appropriating additional funds to the HEERF. The ARP Act added $40 billion to the HEERF, bringing the total for the three pandemic-related Acts to $74 billion. The Act also gave colleges additional funding to implement public health protocols, deploy effective distance learning systems, and provide emergency aid to students in need.

Aspects of the ARP Act as it affects colleges and students are noted below:

Federal Student Loan Debt Cancellation and Taxes

  • For years, an oft-considered topic of Federal public policy has been the possibility of cancelling student loan debt. Cancelled debt is ordinarily considered income to the debtor, so a key part of this issue has been whether debt relief would be treated as income to students. To do so would undermine the purpose of loan cancellation as a benefit to student borrowers and to the American economy at large. In view of this stumbling block, the ARP Act exempted student borrowers from taxation if their debt were to be cancelled. However, the ARP Act itself does not cancel debt. The exemption will last until 2026, so the Act lays the groundwork for the possible cancellation of all or some of the $1.5 trillion in student loan debt now held by 45 million Americans.
  • Although it would affect only current students and alumni, the potential for loan cancellation is of interest to students still in high school because it may portend a future policy of tuition subsidization designed to limit Federal student debt before it gets burdensome.

Assisting States in Restoring Public College Funding

  • States have been forced to cut over $2 billion in funding for public colleges in the current fiscal year. This is about 3.8% of the amount that states were planning to allocate before the pandemic.
  • Tuition revenue at public colleges has fallen in recent years. Enrollment at state colleges has declined by 4% and by 10% at community colleges. To absorb state budget cuts and the decline in tuition revenue simultaneously, some public colleges have been forced to declare a fiscal emergency. Public colleges have terminated over 300,000 employees. They have closed academic programs and laid off tenured faculty. Prospective college applicants now in high school should stay informed of the impact of budget cuts to the colleges to which they plan to apply.
  • Part of the funds added to the HEERF was to enable colleges to pay up to $1,700 to students who were impacted by the pandemic, using their own criteria to determine eligibility and amounts. These funds were still being disbursed to students by colleges in August 2021. Students should check with their college’s financial aid office to see if they are eligible for a grant.