The U.S. Department of Education (ED) released updated guidance regarding interruptions of study related to the coronavirus (COVID-19) late in the day on May 15. The update covers a wide range of topics, which are summarized here. While the announcement provided some new answers, we have included follow up questions for many of them.
Audit Deadline Extensions
Financial Statement and Compliance Audit Due Dates: According to the electronic announcement, “The Secretary is exercising her authority under Section 2 of the HEROES Act to extend the financial statement and compliance audit deadlines by six months.” Our interpretation is that the extension applies for schools beginning with December 31, 2019 fiscal year ends through and including June 30, 2020 fiscal year ends.
- Which fiscal year ends are included under this directive?
- Will other entities (accreditors and states) follow suit and extend their deadlines?
- What is the impact on tax returns that will be due, even on extension, prior to the newly extended financial statement due date?
- It appears that if an institution takes advantage of the six-month delay and submits their annual audited financial statements to ED after June 30, 2020, this impacts their determination pre-implementation qualified long-term debt in the composite score calculation under the new Borrower Defense to Repayment regulations, which take effect on July 1, 2020. This won’t impact the current year’s composite score ratio but could impact the ratio in future years. See M&A’s recent Q&A guidance on the composite score ratio changes, which take effect on July 1, 2020.
Return of Title IV Funds (R2T4)
Qualification for R2T4 Relief – The announcement clarifies that for institutions required to move students from ground-based instruction to distance learning or were required to close campus housing or other facilities, all withdrawals by ground-based students can be considered to be related to COVID-19. For institutions that did not undergo changes to educational delivery or for students who were 100% online prior to the changes to the delivery of education, a written attestation from the student (via text or email is acceptable) is required to explain why the withdrawal was the result of the COVID-19 emergency.
- Can institutions obtain written attestation from students for future periods of enrollment to document withdrawals due to COVID-19 emergency?
Refund of Title IV Funds due to R2T4: The announcement clarifies that institutions are not required to return any Title IV funds due to a student’s withdrawal for any students who attended a payment period or period of enrollment that begins on or includes March 13, 2020. The guidance specifies this includes students for whom the institution has already completed the R2T4 calculation and returned funds. In these instances, the institution should re-disburse Title IV funds to those students, including posting to the students’ ledgers, making required adjustments in COD and requesting necessary funds from G5.
- What does the new guidance mean for students who withdrew from payment periods or periods of enrollment that do not include March 13, 2020?
- Are all payment periods that do not include March 13, 2020, excluded from this “blanket” relief?
- Do their refunds need to be paid back to Title IV?
- Can the institution obtain an attestation on a student-by-student basis that their withdrawal for this later term was cause by COVID-19, which would enable the institution to apply the R2T4 relief?
Tuition Refund Policies: ED provided some guidance related to the treatment of tuition refund requirements, in that an institution may choose to amend tuition refund policies to all students in a given program if such changes are documented and disclosed to students. However, ED indicated that institutions need to realize that these policies may fall under state law and, potentially, a student might have a right of enforceability.
- This policy would have to be applied to all students in a given program and not on an ad-hoc basis based upon a student’s credit balance.
- We highly recommend that an institution check with legal counsel as to the ability to exercise this option under their applicable state laws.
Post-Withdrawal Disbursement Treatment: According to the electronic announcement, “If an affected student withdraws prior to some or all her Title IV aid having been disbursed (a situation that normally would result in a post-withdrawal disbursement), the institution should proceed with making any remaining disbursement for the payment period”. The guidance then indicates schools should perform the R2T4 calculation to determine the amount of Title IV funds that otherwise would have been returned and follow same process as other drops.
- Does this mean that all Title IV that would otherwise be treated as aid that could have been disbursed in the R2T4 calculation should be disbursed to the student’s ledger card?
- Are schools prepared to process what could be a large new batch of credit balances to be sent to students after posting this Title IV aid?
- If an institution has an authorization to return a Title IV credit balance to the FDL program, should an institution no longer follow this authorization?
Reporting Requirements: ED is requiring institutions to report specifics for each student for whom it was not required to return Title IV funds under the waiver exception, including students who were previously refunded and then updated as part of this guidance. Reporting requirements will include:
- Identifying information for each student for whom R2T4 was waived under the CARES ACT
- Payment period “begin” and “end” dates for the period the students did not complete
- Total amount of Title IV grant or loans (excluding Federal Work Study) that each student received for the payment period in which she withdrew
- Total amount of Title IV grant or loans not returned to ED as result of CARES Act provisions
ED is developing the process institutions will use to fulfill the reporting requirements. Patience is requested, as it will take time to develop solutions to handle relief from Pell lifetime eligibility requirements, SULA, etc.
- If the payment period for a student has been extended, which dates get reported, the original or the extended dates?
Broad Approval Extended: ED provided flexibility for the use of distance education through payment periods that begin through December 31, 2020. Accreditation requirements for offering programs where at least 50% is offered through distance education is waived for payment periods that begin through December 31, 2020.
Leaves of Absence (LOA)
Flexibility Surrounding LOAs: Section 3508 of the CARES Act waives the requirement for term-based programs that requires students to resume training at the same point he or she began the LOA. Institutions may adopt an LOA approval process on a temporary basis to accommodate this new flexibility. The requests must be submitted in writing and include the reason for the student’s request. Further, schools offering a program which can’t be offered via distance education may decide to suspend the program, place all students on LOA and solicit LOA requests from the students.
- Is an email with request for LOA acceptable or is a signature required?
- If an institution is required to temporarily suspend a program because it can’t be offered via distance education, how should it treat students who don’t respond with an LOA request?
Verification of High School (or Equivalent) Completion Status
V4 or V5 Verification Groups Requirements: Given that applicants may not be able to obtain documentation of their high school completion status, institutions can accept a signed and dated statement from the applicant attesting to high school completion or the equivalent. This guidance is in place until December 31, 2020, for both the 2019-2020 and 2020-2021 award years. Institutions with policies that require students to submit an official transcript to verify Title IV eligibility may also accept a signed and dated statement from the student.
- Is an email acceptable attestation or is a signature required?
- Will state authorizing agencies or accrediting bodies follow and update their policies to allow the same?
Paycheck Protection Program (PPP)
Loan Forgiveness for Composite Score Calculation: If the institution’s auditor attests to the amount of loan forgiveness to be received, then ED will exclude that portion of the PPP loan from total liabilities and increase the institution’s net equity or net assets by the same amount when calculating the composite score, even if the forgiveness is not included in the audited financial statements.
- Are the PPP proceeds treated as revenue for composite score purposes?
- Will ED update the new composite score ratio Supplement Schedule which will be required for all audit reports submitted after June 30, 2020?
- As a caveat, this relief is only for the ED composite score ratio and doesn’t impact the actual financial statements. We are still awaiting guidance from the accounting regulatory bodies as to the recognition and reporting of the PPP loan in the financial statements.
FWS Student Workers Impact on PPP Loan Forgiveness: Student worker services provided as part of the Federal Work-Study Program should be excluded when determining PPP loan eligibility amounts and forgiveness. These students should not be included in the employee count, nor should their wages be included when determining loan eligibility or loan forgiveness.
- How do schools correct their PPP loan applications if FWS students were originally included?
Satisfactory Academic Progress (SAP)
Pace Measurement – Students are not required to file a SAP appeal for an institution to exclude credits unable to be completed due to COVID-19. However, an institution must have reasonably determined that the student’s failure to complete was due to COVID-19. If an institution temporarily ceases operations, attempted credits for all affected students may be excluded.
- Can all students who failed to complete credits for a payment period on or overlapping March 13, 2020, be considered due to COVID-19, similar to the withdrawal determinations?
- Is an email with explanation of circumstances due to COVID-19 acceptable?
- What if a student completes some credits, but not all of them?
- What relief, if any, is being provided in calculating a student’s SAP Grade Point Average?
As we all continue to get through this difficult situation, we will endeavor to find answers to these open questions as quickly as possible. For more information on COVID-19 disruptions and other issues related to the crisis, reach out to McClintock & Associates, or visit our COVID-19 updates page.