Summarizing HEERF2 Application and Implementation Provisions

By Michael T. Wherry, CPA | January 21, 2021

This article was originally published in the March 2021 issue of Career Education Review and reproduced here with permission.  Article originally posted at

If you’re getting a sense of déjà vu, you’re probably not alone, as more coronavirus relief programs with some familiar names are top of mind for higher education institutions. That does not, however, mean the provisions behind the programs will remain the same.

On January 14, 2021, the U.S. Department of Education (ED) released instructions to access and key provisions to utilize the new round of the Higher Education Emergency Relief Fund, which was included in the recently passed the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA). This round will be referred to as HEERF2 to differentiate it from the HEERF grants distributed through the CARES Act. McClintock & Associates (M&A’s) previous article on the CRRSAA can be found here. With this new guidance ED, has provided the funding allocation tables, instructions to apply for the grant, some guidance on utilization of the grants, and necessary compliance requirements. All of the information ED has released can be found here.

This summary focuses on key provisions related to the utilization and compliance related to the grants, along with M&A’s commentary in italics. ED released Frequently Asked Questions documents, spelling out a number of provisions, located here.


  • The financial aid grants provided to students must be prioritized to students with exceptional need, such as students who receive Pell grants. However, students do not need to be only Pell recipients or students who are eligible for Pell grants.
    • Institutions can consider other factors to define exceptional need (e.g., on-campus housing, dependent students whose parents refuse to take out a PLUS loan, professional judgements for changes in employment / income, Pell recipients which didn’t receive SEOG or similar institutional noncash scholarship)
  • The CRRSAA explicitly provides that financial aid grants to students may be provided to students exclusively enrolled in distance education.
  • ED is allowing the student financial aid grant to be applied to tuition if the institution obtains the student’s written (or electronic) affirmative consent.
    • Institutions should develop this consent document and consider having regulatory counsel review prior to implementation. A signed hard copy with a physical signature will meet the requirements. For electronic consent, we would recommend an email to the student with the document and the student’s email confirmation, typed signature on the document, or a scanned copy of a physical document. M&A is not sure a text message would be sufficient proof of consent.
  • Institutions are restricted from making financial aid grants conditional on a student’s continued or future enrollment, nor can it be conditional on the student to provide affirmative consent to resolve an outstanding account balance.
  • Grants to students under the CRRSAA is not subject to ED’s June 17, 2020, Interim Final Rule (IFR) (85 FR 36494) which restricted eligibility to only students who are or could be eligible to participate in Title IV.
    • Institutions may have an expanded base of student to which financial aid grants can be made using the CRRSAA funding.
  • ED reminded institutions of the cash management regulations under 2 CFR § 200.305(b) which includes timing of the draw down of the funds, maintaining the funds in an interest-bearing account and remitted any interest in excess of $500 to the federal government.
    • We recommend that institutions review these regulations and continue to draw down the funds, as they are expended, into a separate bank account. An institution may want to hold funds drawn down for student financial aid grants in the separate bank account for any uncashed student check.
    • If an institution is adhering to the regulations noted, then any interest earnings should be well below $500 based upon current interest rates.


CARES Act (a)(1) Expanded Uses

The expanded use of funds authority under the CRRSAA also applies to any unspent CARES Act (a)(1) program funds, including the student HEERF grant (CFDA 84.425E) and the institutional HEERF grant (CFDA 84.425F). Institutions may use those unexpended funds for the following reasons below, which are effective as of December 27, 2020. However, ED hasn’t provided any further guidance except what is included in the FAQ Rollup Document issued related to the CARES Act (located here). ED indicated that they are in the process of identifying and clarifying which specific Rollup FAQs may continue to be relied upon with the new CRRSAA and for an institution’s unexpended CARES Act funds.

  • Defraying expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll)
    • The expanded definition specifically includes lost revenue and payroll. Thus, questions remain. Is the lost revenue guidance under 18004(a)(2) and (3) applicable to follow for 18004(a)(1)? The following items would seem to be allowable lost revenue and M&A believes more specific guidance from ED would be beneficial. These are just M&A’s thoughts and considerations and are not included in any statute or ED guidance.
      • Temporarily closed clinic (e.g., cosmetology) – Basis would be a monthly average based upon a 12-month period of time of the applicable month for the past two to three years.
      • Decrease in enrollment due to social distancing requirements – Based upon the number of students being limited
      • Postponement of new starts – Estimate of student who would have started based upon acceptances and similar starts in prior years for the same program
      • Closures of cafeteria and housing – Basis would be a monthly average based upon a 12-month period of time of the applicable month for the past two to three years. (M&A would ensure that lost revenue isn’t claimed for any period in which CARES Act funds were used to cover housing and meal refunds).
      • Implementation of new programs which were delayed in starting due to accrediting body visits – If the program has begun, an estimate could be made of the revenue of the program had started on time. 
  • Carrying out student support activities authorized by the Higher Education Act of 1965, as amended (HEA) that address needs related to coronavirus; and
  • Making financial aid grants to students including by providing such grants to students exclusively enrolled in distance education.
  • Pursuant to section 314(d)(5), an institution that utilizes the expanded use of funds authority under the CRRSAA for its unspent CARES Act funds must ensure at least 50% of the funds it received under CARES Act section 18004(a)(1) (generally, its Student Aid Portion award) is used for financial aid grants to students.
    • From discussions with our clients, most institutions have fully spent their student HEERF portion, so this requirement would be met. Institutions should be careful if a small amount of student HEERF grants are not spent and they plan to utilize any remaining institutional HEERF grants under the expanded definition in the CRRSAA.


Proprietary Institution Specific Provisions

  • Reminder that proprietary institutions are only receiving HEERF2 to be utilized for financial aid grants to students. No institutional HEERF2 grants exist.
  • These institutions must submit a certification and agreement (Red C&A) under the new funding opportunity (CFDA 84.425Q) via In addition, applications must be received within 90 days of the Notice Inviting Applications, which is April 15, 2021.
    • Institutions should ensure the application is assigned to a specific employee so as not to overlook the timing. Currently, institutions are completing the annual HEERF grant reporting, IPEDS, closing the books for a December 31 fiscal year end and preparing for audits, and completing 1098-T.
  • Proprietary institutions may receive a restriction on the CRRSAA section 314(a) award until the CARES Act HEERF reporting obligation is completed.
    • The quarterly HEERF reporting must have been posted to an institution’s website by January 10, 2021 and the annual HEERF reporting requirement must be completed by February 1, 2021.
  • Similar to the CARES Act, the Red C&A indicates the Recipient agrees that Recipient holds these grant funds in trust for students and acts in the nature of a fiduciary for students.
    • Thus, we recommend that institutions continue to utilize the separate HEERF bank accounts which they established.
  • Recipient must, to the greatest extent practicable, continue to pay its employees and contractors during the period of any disruptions or closures related to coronavirus pursuant to section 315 of the CRRSAA.
    • This is similar to the CARES Act and no further guidance is provided by ED. As noted above, the expanded uses of the CRRSAA indicates payroll, and we hope that ED provides a linkage between maintaining employees and appropriate use of the HEERF grants in regard to payroll.
  • A new requirement was added that a proprietary institution must have a compliance audit conducted of its administration of the HEERF grant(s) for any institutional fiscal year during which: (1) the institution expended $500,000 or more in total HEERF grant funds, whether under section 18004(a)(1) of the CARES Act or section 314(a)(4) of the CRRSAA, or (2) was on Federal Student Aid’s Heightened Cash Monitoring (HCM) 1 or 2 list during any point of the institution’s fiscal year in which it expended any HEERF grant funds. This HEERF Audit Guide will be developed by the Office of Inspector General.
    • This provision was added solely to proprietary institutions as the HEERF grants are specifically included in the Compliance Supplement Addendum 2020, which governs nonprofit institutions receiving federal funding. We anticipate the HEERF Audit Guide to be consistent with the Compliance Supplement Addendum 2020.
    • Currently, we believe auditors should be auditing the HEERF grants as part of the financial statement audit, as these audits are subject to Government Auditing Standards but are specifically identified as not being part of the Title IV program. However, the threshold to report a finding is limited to an error which would lead to a material misstatement in the financial statements. Thus, this is a much higher threshold than what we anticipate will exist in the HEERF Audit Guide. While we anticipate that we can leverage some of the work performed in the financial statement audit, it is likely additional time will be incurred to perform all steps required by the HEERF Audit Guide and draft an audit report for submission to ED.
    • ED indicate that the annual student financial aid compliance audit (FSA Audit) can be used to cover the HEERF audit if separately auditing would be duplicative. In our opinion, since the HEERF grants are not Title IV funds and are tied more closely to the financial statement audit, we don’t plan to audit as part of the FSA Audit.
  • In the Red C&A, Question 7, ED indicates that the Secretary does not consider these individual financial aid grants to constitute Federal financial aid under Title IV of the HEA. Question 11 in the HEERF Rollup FAQ specifically notes that the funds received under the CARES Act in 18004(a)(1) paid to an institution are not included in revenue for 90/10 purposes.
    • Since no new institutional HEERF2 grants will be provided to proprietary institutions, no change to this guidance is expected.
    • The question which arises is the usage of the student HEERF2 grants which can be applied to tuition. Utilizing HEERF2 grants to apply or utilizing unused institutional HEERF grant under the expanded CRRSAA guidance for tuition (assuming student consent is received as described above) raises the question as to the proper treatment in the 90/10 calculation. As noted, ED has indicated these funds are not Title IV funds and M&A would concur. Therefore, these funds would not be included in the numerator of the 90/10. However, grants utilized to pay for tuition is a cash basis transaction and would seem to be included in the 90/10 denominator similar to Veterans Administration funding. These are federal funds and would not meet the Presumption Rule categories but would nevertheless be a cash payment for institutional charges.
    • Given the on-going political discussions related to the 90/10 calculation, we advise an institution to discuss the treatment of these funds in their 90/10 calculation with regulatory counsel and their auditor. Depending on the dollar amount, an institution may want to exclude the funds from the 90/10 calculation to be conservative.

As they have over the past year, institutions must educate themselves on the provisions behind the new law and its programs. McClintock & Associates will remain an open resource for those with questions and concerns. Reach out to our experts here.

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