On March 11, President Biden signed into law H.R. 1319, the American Rescue Plan Act of 2021 (ARP or the Act). The ARP builds on previous COVID-19 response bills—the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA)—and provides significant additional funding under the Education Stabilization Fund for the Elementary and Secondary School Emergency Relief (ESSER) and Higher Education Emergency Relief (HEERF) funds.
The ARP also makes higher-education policy changes long sought by Democrats, including, most notably, tightening the contentious 90-10 Rule to further limit for-profit colleges' ability to receive federal revenue and eliminating the tax burden student loan borrowers would face if any of their debt is discharged by 2026.
The Act provides an additional $122.8 billion through September 30, 2023 to fund ESSER. ESSER grants made under the ARP will be allocated to states in the same proportion as each state received under part A of title I of the Elementary and Secondary Education Act (ESEA) in the most recent fiscal year. Within 60 days of receiving an ESSER grant, states must subgrant at least 90 percent of funds received to Local Education Agencies (LEAs)—including charter schools that qualify as LEAs—proportional to the amount of funds the LEAs received under part A of title I of the ESEA in the most recent fiscal year.
Uses of Funds
LEAs and states must reserve at least 20 percent and 5 percent of their respective ESSER funds to address learning loss through the implementation of evidence-based interventions. These interventions may include programs like summer learning or summer enrichment, extended day, comprehensive afterschool, or extended school year programs. LEAs and states must also ensure such interventions respond to students' academic, social, and emotional needs and address the disproportionate impact on specific student populations, including each major racial and ethnic group, economically disadvantaged students, children with disabilities, genders, migrants, students experiencing homelessness, and children and youth in foster care. Remaining funds can be used for any activity authorized by the ESEA, the Individuals with Disabilities Education Act (IDEA), the Adult Education and Family Literacy Act (AEFLA), the Perkins Vocational and Technical Education Act, and CRRSAA.
States are also required to use at least 1 percent of their state-level ESSER funds for evidence-based summer enrichment programs and 1 percent for evidence-based comprehensive afterschool programs.
An amendment adopted in the Senate requires LEAs that receive ESSER funds to develop a plan "for the safe return to in-person instruction and continuity of services." The plan must be made publicly available no later than 30 days after receipt of funds and a public comment period.
Assistance to Non-Public Schools
The ARP provides $2.75 billion through September 30, 2023 for the Emergency Assistance for Non-Public Schools (EANS) program, which is part of the Governor's Emergency Education Relief (GEER) Fund. These dollars are on top of the $2.75 billion provided under CRRSAA in December 2020 and provide services or assistance to non-public schools that enroll a significant percentage of low-income students and are most impacted by COVID-19.
Other K-12 Funding and Policy
The ARP includes $800 billion for grants to states for the identification and provision of wraparound services for children and youth experiencing homelessness to enable them to attend school and participate fully in school activities. It also provides over $3 billion of additional funding in fiscal year 2021 for IDEA, a program that supporters in both parties argue has long been underfunded.
The Act also includes "maintenance of effort" and "maintenance of equity" provisions that are intended to protect against K-12 education cuts at the state and local levels and ensure higher-poverty school districts and schools do not shoulder a disproportionate amount of any state or local education cuts that do occur. Civil rights advocates, progressive think tanks, and other Democratic constituencies have been calling for "maintenance of equity" requirements since the passage of the CARES Act.
The ARP provides an additional $39.6 billion through September 30, 2023 to fund HEERF, which provides financial support to struggling institutions of higher education (institutions) and college students. HEERF was initially funded with $14 billion under the CARES Act and continued under CRRSAA with $22 billion more. The HEERF's terms and conditions are similar to what was in CRRSAA, with a handful of notable exceptions.
The HEERF formula allocates funding to institutions through four distinct funding streams: grants to (1) nonprofit institutions; (2) historically black colleges and universities (HBCUs) and minority serving institutions (MSIs); (3) nonprofit institutions with unmet needs related to coronavirus; and (4) for-profit institutions.
Approximately $36 billion is devoted to public and private nonprofit colleges and universities, and roughly $396 million is devoted to for-profits. Both streams are allocated to schools based on the relative share of Pell Grant students enrolled at the institutions, the same formula that was in the CRRSA.
HBCUs and MSIs will receive nearly $3 billion, which will be distributed primarily to institutions based on their relative share of funding appropriated through certain HBCU and MSI programs authorized by the Higher Education Act (HEA). A portion of these funds, though, is also allocated based on Pell student populations and endowment size.
The ARP provides $198 million more to the Supplemental Aid to Institutions of Higher Education (SAIHE) program. The SAIHE program provides grants to public and private nonprofit institutions that the secretary of education determines, after allocating other funds available under HEERF, to have the greatest unmet needs related to coronavirus, including institutions with large populations of graduate students and institutions that did not otherwise receive an allocation under CRRSSA. For-profit institutions are not eligible for funding through the SAIHE program. The SAIHE application for CRRSSA funds is currently being developed by the U.S. Education Department, and it is expected that the first round of applications will be due by April 26, 2021.
Uses of Funds
Nonprofit institutions receiving HEERF funds are required to dedicate at least half of their funding for emergency financial aid grants to students, which may be used for any component of a student's costs of attendance and to help mitigate hunger, homelessness, and other hardships facing students because of the pandemic. Nonprofits are also required to use a portion of their HEERF funds to implement evidence-based practices to monitor and suppress coronavirus in accordance with public health guidelines and conduct direct outreach to financial aid applicants regarding the opportunity to receive a financial aid adjustment to mitigate the negative impacts of the pandemic, such as the recent unemployment of a family member. Nonprofit institutions may also use their funds to defray institutional expenses associated with coronavirus (including lost revenue, reimbursements for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff training, and payroll).
For-profit institutions do not have the same flexibility as nonprofits for using HEERF funds and must use 100 percent of HEERF funds for emergency financial aid grants to students.
Like the CARES Act and CRRSAA, HEERF funds may not be used by institutions, regardless of their profit status, for pre-enrollment recruitment activities; marketing or recruitment; endowments; capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship; senior administrator or executive salaries, benefits, bonuses, contracts, or incentives; stock buybacks, shareholder dividends, capital distributions, or stock options; or any other cash or other benefit for a senior administrator or executives.
Higher-Education Policy Changes
The ARP also accomplishes two long-standing Democratic policy objectives by making student loan forgiveness more favorable for borrowers and tightening current restrictions on for-profit institutions.
Tax-Free Student Loan Discharges
The ARP makes debt forgiveness for student loan borrowers tax-free through the end of 2025. Previously, student loan borrowers enrolled in a federal income-driven repayment plan could have any remaining student loan balances forgiven after making 20 or 25 years of repayment, depending on the repayment plan. However, any such debt relief would be subject to taxation, partially eroding the benefits to borrowers. Only a narrow band of borrowers—those enrolled in the Public Service Loan Forgiveness program or determined to be permanently disabled—could receive tax-free debt forgiveness. Now, all student loan debt discharges occurring before January 1, 2026, regardless of the borrower's repayment plan or whether the loan is federal or private, will not be considered taxable income.
The ARP also tightens the 90-10 Rule, which prohibits for-profit colleges from getting more than 10 percent of their total revenue from federal funding. Because the current 90-10 Rule considers only federal student aid and loans under Title IV of the HEA as federal funding, military and veterans' education benefits, such as the GI Bill and Department of Defense Tuition Assistance, do not count toward the 10 percent threshold. The ARP eliminates this exception for military and veterans' education benefits. The new 90-10 Rule will not be implemented immediately. A compromise amendment in the Senate was adopted that will delay rulemaking on the updated 90-10 provisions until at least October 2021 and implementation and penalties until January 2023.
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