Government Affairs

Policy Matters | American Rescue Plan Act Passes – Includes Significant Relief Dollars to Higher Education (March 2021)

March 27, 2021

Major Updates 

  • American Rescue Plan Act Passes – Includes Significant Relief Dollars to Higher Education
    The most recent COVID relief bill, one of America’s largest in terms of dollars spent ($1.9 trillion), and Joe Biden’s first major legislation as President, provided a marked increase in funding to colleges and universities compared to previous bills. While falling short of what organizations like UPCEA and others have said is sufficient, the American Rescue Plan Act included $40B to go directly to institutions of higher education. And as we mentioned in last month’s Policy Matters, this is an increase from the $23 billion included in the December COVID relief bill, and almost triple the $14 billion included in the CARES Act last spring. The American Council on Education (ACE) has put together estimates of how much money each institution may receive from this bill.

    A few changes that came through the Senate’s final amendments, which we did not cover in our unpacking of last month, included a change in how student loan forgiveness is counted by the IRS for taxation purposes; and also a change to the 90/10 rule for proprietary institutions. The tax calculation change is an interesting signal which does not authorize any dollars for student loan forgiveness, but does lay the groundwork for it to occur more smoothly for borrowers. The bill now provides for any forgiveness from the federal government to not be calculated as income on borrowers’ tax returns. This change also signals that there is congressional willingness to provide direct loan forgiveness to borrowers in the future. Another significant change was the elimination of the 90/10 loophole for military benefits. For proprietary institutions, there is a 90% to 10% ratio which governs how much of an institution’s incoming dollars can be from federal sources, requiring that at least 10 percent must come from non-Title IV (federal financial aid) dollars. However, up until the recent change, military connected benefits like those from the GI Bill were not actually counted as part of the 90%. Some believe this created a perverse incentive for for-profit institutions to fill the 10%+ of their funding sources by seeking those with military benefits to meet the requirement. The 90/10 funding calculation change allows for a phased approach over the next two years and will include public comment periods.

  • Department of Education Issues $1B to Fully Forgive Loans for Defrauded Students in Borrower Defense to Repayment Decision
    The US Department of Education has announced that it will provide total relief to students whose institutions were engaged in misconduct. The change will provide 72,000 borrowers $1 billion in loan cancellation. “Borrower Defense to Repayment” is a federal law which allows for cancellation of federal student loans for individuals who have attended for-profit institutions that engaged in misconduct. According to the Department, they have tweaked the former Administration’s more restrictive requirements, which included limited disbursement of relief under the rules, and have made to changes to provide:
    • 100 percent discharge of borrowers’ related federal student loans 
    • Reimbursement of any amounts paid on the loans, where appropriate under the regulations 
    • Requests to credit bureaus to remove any related negative credit reporting 
    • Reinstatement of federal student aid eligibility, if applicable

The announcement only applies to former students who have made Borrower Defense to Repayment claims, and the Department has stated it may respond differently to claims that occur in the future. 

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