Latest relief bill includes $40B for higher ed, sets stage for debt forgiveness

The $1.9 trillion stimulus package President Joe Biden signed into law this week provides $40 billion for higher education, eliminates taxes on student debt forgiveness, and closes a regulatory loophole that may encourage for-profit schools to target student-veterans. Building on the $14 billion higher education received in the CARES Act and the $22.7 billion provided in December 2020, The American Rescue Plan delivers the largest aid package yet for colleges, universities, and their students, Inside Higher Ed reports.

While calling the new plan “a win,” Ted Mitchell, president of the American Council on Education president cautioned that “this emergency is not over for either higher education or the country as a whole. There remain many pressing problems, including students and families struggling to cope with lost jobs or reduced wages and colleges and universities battered by steep declines in revenues and soaring new expenses.”

Aid split between students grants, institutional needs

Federal officials will distribute the $40 billion to public and private nonprofit colleges and universities using the same formula used for the December 2020 relief package. Much like before, institutions must direct half of their allocation for emergency grants to help students manage pandemic-related living and technology expenses.

In addition, institutions receiving relief funds must pursue evidence-based approaches to slowing the spread of COVID-19 and take steps to ensure low-income students are receiving needed aid. Higher Ed Dive notes that federal officials are encouraging colleges and universities to use the flexibility they have to adjust students’ financial aid calculations to better reflect their current financial circumstances.

Laying foundation for student debt forgiveness

Also included in the stimulus package is a provision that ensures borrowers would not incur additional taxes in the event of debt forgiveness on student loans originated by the government and private lenders. President Biden has signaled his support for debt forgiveness of up to $10,000 per borrower, although some lawmakers and advocates are pursuing a higher number.

Without the new measure, which expires in five years, any student debt forgiveness would have saddled borrowers with additional tax bills, blunting the relief and its economic benefit. The change now “clears the way” for student debt cancellation, Sen. Elizabeth Warren (D-Mass.) said in a statement, pushing for a $50,000 threshold instead to “provide a massive stimulus to our economy, help narrow the racial wealth gap, and lift this impossible burden off of tens of millions of families.”

Limiting for-profit schools’ incentive to defraud veterans, service members

The American Rescue Plan also tightens up a loophole in federal student aid regulations thought to open a door for predatory practices by some for-profit institutions. Specifically, the bill outlines changes to the so-called 90/10 rule, which says that for-profit colleges can derive no more than 90 percent of their operating revenue from federal student aid.

Currently, military and veterans’ education benefits do not count as federal student aid, creating an incentive for some for-profit colleges to target and take advantage of military-connected students. The new legislation counts military education benefits toward the 90 percent threshold, although the change will not take effect until fiscal year 2023.

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