As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, in March 2020, Congress included approximately $14.25 billion to the Higher Education Emergency Relief Fund (HEERF) to provide financial relief for higher education institutions and their students. The intentions of HEERF were to provide funding to institutions, provide emergency aid to students, and to defray costs associated with the changes to the delivery of instruction. Due to the rapid needs of Institutions and Students, the CARES Act was swiftly passed and implemented by Congress, the U.S. Department of Education, and other agencies. As such additional guidance has been evolving over time and thereby creating unintended consequences.
HEERF requires that no less than 50% of the funding must be used for direct emergency aid to students. The emergency aid can be used for, but not limited to, grants to students for food, housing, course materials, technology, health care, and childcare expenses.
The institution retains discretion in determining how to allocate and use the remaining portion of the HEERF funds., The institution needs to ensure funds will be spent only on those expenses that have a clear nexus to the significant changes on the delivery of instruction due to COVID-19. A listing of eligible expenditures includes:
- Refunds to students, or to reimburse itself for refunds made to students on or after March 13, 2020, for room and board, tuition, and other fees.
- Purchased equipment or software, pay for online licensing fees, or internet service to enable students to transition to distance learning.
- Additional emergency financial aid grants to students for qualified expenses consistent with the direct emergency aid to students.
- Fees associated with payments to a third-party service provider for students using distance learning platforms, learning management, online resources, or other support services.
For public institutions, the accounting and financial reporting of the transactions under HEERF are subject to Governmental Accounting Standards Board (GASB) Statement No .33, Accounting and Financial Reporting for Nonexchange Transactions. Based on Statement No. 33, Paragraph 20d, the provider’s offer of resources is contingent upon a specific action of the recipient and that action has occurred. In the case of HEERF funding, the Federal government, the provider, is offering resources to public institutions, the recipient. In exchange, the public institution agrees to promptly distribute at least 50 percent of the funds for the exclusive purpose of providing emergency financial aid grants to students and utilizing the remaining funds towards eligible institution expenditures.
The public institution can recognize revenue when they have met the eligibility requirements for both portions of HEERF. However, public institutions need to understand the eligibility requirements and documents when they are met.
Related to the institutional portion, public institutions will need to access and document that two critical hurdles have been met to recognize revenue:
- A public institution needs to have eligible costs related to the changes in the delivery of instruction due to the COVID-19.
- Those eligible costs cannot exceed distributions to the student for emergency relief.
The second part of the eligibility requirement is based on HEERF Frequently Asked Questions about the Emergency Financial Aid Grants to Students under Section 18004 of the CARES Act, “institutions of higher education should use no less than 50 percent of fund received to provide emergency financial aid grants to the student for expenses related to the disruption of campus operations due to coronavirus.”
Upon meeting the eligibility requirements, the public institution will recognize a non-operating revenue and an operating expense. Public institutions should report cash received in advance of meeting eligibility requirements, as a liability. This reporting is due to funding having an eligibility requirement, not a time requirement. Unexpended student and institutional funds will be reported as a liability, as they are restricted based on eligibility and not time.
The last financial reporting consideration relates to the “scholarship allowance methodology.” Many public institutions use the scholarship allowance methodology promulgated by GASB Statement No. 35, Basic Financial Statements—and Management's Discussion and Analysis—for Public Colleges and Universities and NACUBO Advisory Report 2000-05, Accounting and Reporting Scholarship Discounts and Allowances to Tuition and Other Fee Revenues by Public Institutions of Higher Education to ensure amounts received to satisfy student tuition fees will be reported as revenue only once. The emergency funding received as part of the CARES Act will not be included in the calculation of tuition and fees discount revenue as it is not permitted to be used to offset tuition and fees. This funding should be reported as institutional aid. Additional expenses incurred associated with the delivery of instruction and foregone revenue would be classified as an expense for payments of refunds to students for services not delivered.
If you have any questions, do not hesitate to reach out to our higher education experts.
The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.