On March 10, 2021, Congress passed the Biden Administration’s American Rescue Plan Act of 2021 (ARPA). Building on previous Congressional relief bills – the CARES Act and the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) – the ARPA commits significant resources to colleges and universities. In fact, the ARPA directs more money to institutions, in overall totals, than either of the CARES Act or the CRRSAA.
Direct Grants to Institutions
First, the ARPA commits nearly $40 billion dollars in funding to higher education through the existing Higher Education Emergency Relief Fund (HEERF). Importantly, such ARPA funds are provided in accordance with the same terms and conditions of Section 314 of CRRSAA. Public and private non-profit institutions will receive 91% of the $40 billion in the form of direct grants. Another 7.5% is aimed at minority serving institutions, while 1% is directed to for-profit institutions and 0.5% is reserved for the Fund for the Improvement of Postsecondary Education (FIPSE). The funds will remain available through September 30, 2023. All institutions that receive grants will be required to spend at least 50% of their allocation on emergency financial aid grants provided directly to students. Like the previous relief bills, the ARPA also instructs institutions to spend at least a portion of the grant funds on implementing “evidence-based practices to monitor and suppress coronavirus in accordance with public health guidelines” and conducting “direct outreach to financial aid applicants about the opportunity to receive a financial aid adjustment due to the recent unemployment of a family member or independent student.”
As with previous relief bills, institutions should closely follow and document their compliance with the terms of the ARPA and any additional guidance that the U.S. Department of Education publishes.
Changes to 90/10
Next, after surviving a parliamentary challenge, the ARPA (at Section 2013) modifies a provision in the Higher Education Act (HEA) known as the “90/10 Rule.” In short, the Rule requires for-profit institutions to obtain at least 10% of their revenue from sources other than title IV funds, i.e., student loans.
Until now, funding from non-title IV sources, such as GI Bill education benefits, were treated as private sources of funding for purposes of complying with the Rule. Advocates had long desired closing, what they call, the “90/10 loophole.” Instead of modifying the funding equation – to 85/15 as some House Democrats and Sen. Dick Durbin (D-IL) have proposed – the original House Bill amended what counts towards the 90% from “title IV” funds to “Federal Education assistance funds,” a term that goes undefined in the HEA or the ARPA.
The Senate, during its all-night “vote-a-rama,” included an “Effective Date” provision that was absent from the House version. The final bill delays the implementation of Section 2013 to an institution’s fiscal years beginning on or after January 1, 2023 and directed the Department of Education to commence negotiated rulemaking on the 90/10 changes no earlier than October 1, 2021.
So, let’s get ready to negotiate? Yes. Eventually. The Department has not announced its negotiated rulemaking priorities yet and keep in mind that President Biden directed a review of the title IX regulations as well (See here). Multiple negotiated rulemakings and notice-and-comment rulemakings going on at the same time is not likely, so Secretary Cardona will need to prioritize. While it is hard to predict what rulemaking will come first, we can say, with confidence, that the Biden Education Department is set to be very active on the rulemaking front over the next few years.
Student Loan Forgiveness on the Horizon?
Interestingly, provisions of the 2016 Student Loan Tax Relief Act were incorporated into Section 9675 of the ARPA. Traditionally, any student loan forgiveness was treated as income and would be included in an individual’s annual income and, therefore, subject to tax. The ARPA changes that treatment making any student loan forgiveness from 2021 through 2025 income tax free. The provision includes private loans, not just federally backed title IV loans. (Notably, loan discharges as a result successful borrower defense claims after 2016 are non-taxable. See the IRS decision here).
Does this mean that Congress is readying a $50,000 student loan relief package? Or is the White House preparing to grant $10,000 loan relief through Executive Order? Hard to say. In the short term, Section 9675 will help borrowers on income-driven repayment plans and in the public service loan forgiveness program. So far, only a few borrowers have qualified for loan forgiveness under these programs, but by January 1, 2026, many more likely will.
For more information on this topic and others, please contact, Jonathan Helwink, Katherine D. Brodie, any of the attorneys in the Higher Education Group or the attorney in the firm with whom you are regularly in contact.
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