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Congress’ Down Payment on Higher Education’s 2021 Needs

The U.S. Capitol stands in the early morning on October 20, 2020, in Washington, D.C.

This week, Congress passed an omnibus appropriations and $900 billion COVID-19 relief package. Nestled among the nearly 5,600-page legislation are important policy changes to higher education and a down payment to address the immediate needs of colleges and students in dealing with the COVID-19 pandemic.

The result includes a host of long-awaited policy improvements such as simplifications to the Federal Application for Financial Student Aid (FAFSA); billions in funding to institutions and students; and the restoration of financial aid eligibility for students in prison. Unfortunately, the package has two major exclusions: 1) It does not extend the payment and collections pause on federal student loans, which is currently set to expire on January 31, 2021; and 2) it lacks funding for state and local governments, creating a risk that additional college money could be hollowed out by state cuts.

Here’s what you need to know about the bill’s changes to higher education.

Policy changes

The legislation grants retiring Sen. Lamar Alexander (R-TN), chairman of the U.S. Senate Committee on Health, Education, Labor, and Pensions, his long-sought goal of simplifying the FAFSA. It would cut the number of questions to a maximum of 36, down from the more than 100 questions used currently. This includes eliminating questions on drug convictions and selective service registration.

The more significant change is a new formula for Pell Grant eligibility. Students from families who earn up to 175 percent of the federal poverty line, or up to 225 percent for single parents, will automatically qualify for a maximum grant. Those who make up to 275 percent of the poverty line, or 325 percent for single parents, are guaranteed at least the minimum award.

The concept known as an expected family contribution will also be replaced with a student aid index. The latter is a more accurate way to describe the output from a FAFSA, as it does not guarantee what a family will pay for college. This index can also be negative, making it easier to identify the lowest-income students and opening the door to future targeted Pell increases.

According to a summary of the bill, these changes would make an estimated additional 1.7 million students eligible for the maximum Pell award and an additional 500,000 students eligible for at least the minimum grant.

While the FAFSA is losing questions, it is importantly gaining one question on applicants’ race and ethnicity. This will help the U.S. Department of Education track loan outcomes, completion, repayment, and default with an equity lens—and is something CAP called for in 2019.

Interestingly, these reforms also grant the department the authority to issue regulations around defining the nontuition parts of the price of college—something that was previously prohibited.

The legislation expands student benefits in other ways, several of which will particularly help address the ongoing effects of mass incarceration of Black individuals. It will restore Pell Grant eligibility for any incarcerated student enrolled in prison education programs. This corrects a measure in the 1994 crime bill that rescinded the Pell Grant from more than 23,000 students at the time and disproportionately harmed the Black community. The omnibus bill also reinstates Pell Grant eligibility to students who were previously convicted of a drug-related offense. Finally, it restores Pell Grant eligibility for students who have been defrauded by their college as well as the limit that only allowed borrowers to receive subsidized loans for up to 150 percent of the scheduled length of their program.

Two other welcome changes have slightly more explicit ties to the pandemic. First, the bill will forgive an estimated $1.3 billion in low-cost federal loans provided to historically Black colleges and universities for repairs, renovations, and construction on their campuses. Second, it counts an applicant receiving unemployment benefits during a national emergency as having no income. This change—first made through guidance in 2009 but not repeated by the Trump administration—helps those who are out of work access Pell Grants.

Finally, the bill contains a host of additional language related to the ongoing student loan servicing competition, which is already on a very tight timeline.

Coronavirus relief

The COVID-19 relief package provides approximately $22.7 billion to higher education—about one-quarter of its $82 billion in total education funding. This amounts to roughly $8 billion more than what Congress granted to higher education in the spring and is significantly less than the $120 billion colleges have said they need due to the ongoing costs of the pandemic. Of the appropriated amount, $20 billion goes directly to public and nonprofit institutions, $1.7 billion to minority-serving institutions, and about $680 million toward student assistance at for-profit colleges.

One of the biggest changes compared with the earlier CARES Act lies in the formula used to distribute funding to colleges. Congress split the difference over arguments about whether it was better to allocate funds based on the total number of students enrolled or a full-time equivalent (FTE) measure that converts part-time students to fractions of full-time attendees. It also responded to concerns from online colleges about their exclusion and placed for-profit colleges in a separate formula pot.

The formula money will be awarded based on three categories of students, each split equally between that measure based on head count and the same indicator based on FTE student enrollment. For example, three-quarters of the money—37.5 percent head count and 37.5 percent FTE—will be awarded based on the number of Pell recipients who were not attending entirely online prior to the pandemic. Another 23 percent will be allocated based on the share of non-Pell recipients who were not attending entirely online prior to the pandemic. Finally, 2 percent of funds will be awarded based upon Pell students who were attending entirely online prior to the start of the crisis. The money allocated to minority-serving institutions has different formulas.

On net, the partial inclusion of head count makes this bill better than the CARES Act was for community colleges. An estimate of this new formula with the same data used to model the earlier formula suggests that public colleges of two years or less will receive about 36 percent of the formula funds, compared with about 30 percent of the formula funds that went to public and private nonprofit colleges in the spring.

Table 1

Institutions will be able to spend a slightly larger share of these funds on themselves instead of the previously required 50-50 split with emergency grant aid. This legislation requires that colleges use at least the same amount they received before toward student aid, which was about $6.2 billion. The bill does not address debates over whether undocumented or international students should be eligible for funds. It does, however, halve the allocation to wealthy colleges that paid the endowment tax and limits those monies to financial aid or health and safety on campus unless waived by the secretary of education.

Finally, the legislation allows college students who are enrolled at least half time and eligible for a Federal Work-Study program or a maximum Pell Grant to receive federal food assistance—granting a form of flexibilities that the Trump administration had denied to more than two dozen states.

Conclusion

The bipartisan package takes some steps forward on much larger reforms in higher education and is a necessary down payment to students and institutions enduring the pandemic. But it is not a cure-all for the crises that remain. Public colleges are in mounting financial peril because of the economic fallout from COVID-19, facing larger costs than relief funding. The outgoing administration has imposed significant harms on students and borrowers that will need to be corrected. Meanwhile, there has yet to be action on progressive reforms such as debt-free college, the $1.5 trillion in current student debt, and the reauthorization of the Higher Education Act. Further work must be done.

Antoinette Flores is the director of Postsecondary Education at the Center for American Progress. Viviann Anguiano is an associate director of Postsecondary Education at the Center.

To find the latest CAP resources on the coronavirus, visit our coronavirus resource page.