Client Alert: U.S. Department of Education Releases Guidance on the Higher Education Emergency Relief Fund

Last week, the U.S. Department of Education (“ED”) issued much-anticipated guidance to higher education institutions on the Higher Education Emergency Relief Fund (“HEERF”). For an overview of HEERF I, HEERF II, and HEERF III funds, please visit our previous blog posts.

The new guidance, issued in three documents, addresses accounting and reporting of lost revenue under the Institutional Fund of HEERF and the period of allowable expenses for funds administered through HEERF. The new guidance includes a Notice of Interpretation, Updates to ED’s FAQ on the CRRSAA, and an FAQ on Lost Revenue. Important takeaways are:

• Time period for allowable uses. The allowable time period for which institutions can charge costs and lost revenue to their HEERF grant is from March 13, 2020 to one year in which ED processes the most recent obligation of funds. Previously, ED limited the use of such funds to costs that incurred on or after December 27, 2020. This means that for institutions with HEERF II funds and unspent CARES Act funds under HEERF I, these funds can be used for eligible expenses that incurred before December 27, 2020 through March 13, 2020. For example, ED provides that institutions can apply HEERF II funds to employee benefit costs as payroll costs if the costs are newly associated with COVID-19 and the costs were incurred on or after March 13, 2020. Moreover, institutions can apply HEERF II funds to student account charges that were posted prior to December 27, 2020 (with student consent).
• Sources of lost revenue. ED lists examples of reimbursable and non-reimbursable lost revenue under HEERF. Reimbursable sources include tuition, fees, and institutional charges; room and board; enrollment declines; supported research; summer terms and camps; cancelled ancillary events and external events such as weddings or conferences; disruption to food service and dormitory services; childcare services; bookstore, parking, lease and other operating revenue; and royalties. Non-reimbursable lost revenue includes capital outlays associated with athletic facilities, alcohol sales, marketing or recruitment activities, and other sources consistent with the statutorily prohibited uses of funding under section 314(d)(3) of the CRRSAA. Institutions are also directed to 2 CFR part 200 subpart E, on Cost Principles, and 34 CFR §§ 75.532 and 75.533 for additional information.
• Reporting and calculating lost revenue. ED provides that the date that an institution charges its HEERF grant award for lost revenue is the date in which the lost revenue has been “incurred” for quarterly and annual reporting purposes. Institutions have reasonable flexibility to specify lost revenue, so long as the calculation satisfies the cost principles of 2 CFR part 200 subpart E, on Cost Principles. ED lists a number of calculation methods institutions may use, including a year-over-year comparison with the previous year as previously suggested by the National Association of College and University Business Officers. Particularly helpful at the end of ED’s guidance is a table setting forth calculation examples for HEERF lost revenue.
• Documentation of lost revenue. Institutions are directed to document their rationale in estimating lost revenue, including the calculations, methodology and underlying data used, as well as the institution’s budgets or projections. Institutions must retain for a period of three years from the date of submission of the final expenditure report all institutional records relevant to lost revenue and administering HEERF grant funds.
• Increased expenses and assigning specific expenses once charged to HEERF. Institutions that have increased their expenses due to COVID-19 should charge these expenses as regular, direct cost items to HEERF rather than including them as part of an estimate of lost revenue. Moreover, the incurring of the “cost” of lost revenue does not need to be assigned to any expense that the institution will pay using the amount of reimbursed lost revenue.

For more information or assistance with matters related to COVID-19’s financial impact on institutions, please contact HMBR’s Higher Education Group at 312-946-1800.