Yesterday, the U.S. Department of Education (“Department”) announced that more than $6 billion in Higher Education Emergency Relief Fund (“HEERF”) aid for postsecondary institutions is now available. These funds were authorized by the CARES Act signed into law by President Trump last month and represent the second half of the total allocation of funds to each eligible institution, known as “Recipient’s Institutional Costs.” The first half of the allocation was announced by the Department on April 10 and was designated entirely for use as emergency grants to students. We discussed the first allocation in an April 13 Client Alert.

Yesterday’s announcement included a letter from Secretary DeVos to institutional presidents regarding the new funding allocation. The Secretary noted that the Department’s first priority is assisting students. To that end, only those institutions that have entered into the Funding Certification and Agreement for Emergency Financial Aid Grants to Students (“First Funding Certification”) associated with the first half of the total allocation dedicated to student grants will be able to submit a new Funding Certification and Agreement for the Institutional Portion of the HEERF funds (“Second Funding Certification”) to receive funds for Recipient’s Institutional Costs.

The Secretary advised institutions that they may use these funds “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus.” She encouraged each institution “to use the portion of your award for Recipient’s Institutional Costs to expand your remote learning programs, build your IT capacity to support such programs, and train faculty and staff to operate effectively in a remote learning environment.”

The Second Funding Certification, however, clarifies and further restricts the use of Recipient’s Institutional Costs funds, consistent with Section 18004(c) of the CARES Act. Institutions may not use these funds to cover costs for “payment to contractors for the provision of pre-enrollment recruitment activities, including marketing and advertising; endowments; or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.” Funds may be spent “only on those costs for which Recipient has a reasoned basis for concluding such costs have a clear nexus to significant changes to the delivery of instruction due to the coronavirus [emphasis added].” The Department makes clear that a Recipient may use these funds “to reimburse itself for costs related to refunds made to students for housing, food, or other services that Recipient could no longer provide, or for hardware, software, or internet connectivity that Recipient may have purchased on behalf of students or provided to students.” Any costs for which these funds are used must have been incurred on or after March 13, 2020.

Similar to the First Funding Certification and as mandated by Section 18006 of the CARES Act, the Second Funding Certification requires the institution to agree that “to the greatest extent practicable, Recipient will pay all of its employees and contractors during the period of any disruptions or closures related to the coronavirus.” The Second Funding Certification makes clear, however, that costs for which these funds are used cannot include “senior administrator and/or executive salaries, benefits, bonuses, contract, incentives; stock buybacks, shareholder dividends, capital distributions, and stock options; and any other case or other benefit for a senior administrator or executive.”

The Secretary also encouraged institutions to consider devoting as much of the Recipient’s Institutional Costs funds as possible for use as additional emergency funding for students. The Second Funding Certification makes clear that any Recipient’s Institutional Costs funds that the institution chooses to provide to students are subject to the same terms and conditions as stipulated in the First Funding Certification.

The Second Funding Certification must be uploaded to the grants.gov website, as was the First Funding Certification. The funding opportunity number for the Recipient’s Institutional Costs funds is ED-GRANTS-042120-004.

Any institution that applies for these funds agrees to provide quarterly reports to the Secretary regarding the use of these funds (see 2 CFR 200.327-200.329). Each institution must be careful to maintain detailed and complete records to:

(1) demonstrate that these funds were used for only for the purposes outlined in Section 18004(c) of the CARES Act as described above;
(2) document the institution’s internal controls to ensure the proper use of these funds;
(3) account for funds used by the institution to reimburse itself for refunds made to students for food, housing and other services that the institution could not provide; and
(4) document its efforts “to the greatest extent practicable” to use these funds within one year of signing the Second Funding Certification.

These records must be produced to the Department on reasonable demand and will be subject to review by the Department, its Office of Inspector General, and any other authorized federal entity. Each institution also should recognize that these records may be scrutinized by media, students, and accreditors and other regulators. The institution therefore should devise a centralized process for gathering and storing complete records and supporting documentation that will ensure the accessibility of the records for years to come, regardless of staff turnover, technology updates, or changes of ownership or control.

Institutions are strongly advised to take their responsibilities for safeguarding and using the Recipient’s Institutional Costs funds seriously. Failure to use these funds in accordance with the CARES Act and the mandates of the Second Funding Certification or to document the proper usage of the funds subjects an institution to significant challenges and liabilities. Such penalties could include liability under the False Claims Act and potential debarment from the federal government procurement system, among others.

Maynard is a full-service firm with attorneys experienced in all regulatory and operational aspects of higher education, including federal and state oversight, accreditation, employee and benefits issues, and real estate concerns. We invite institutions to review the resources our attorneys have assembled to help our clients deal with the challenges created by the COVID-19 emergency.

Roger Swartzwelder advises regionally and nationally accredited institutions of higher education regarding legal, administrative, regulatory, and accreditation matters.

This Client Alert is for information purposes only and should not be construed as legal advice.
The information in this Client Alert is not intended to create and does not create an attorney-client relationship.

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