Can Private Equity-Backed Education Platforms Seek Assistance From the Higher Education Emergency Relief Fund?

March 31, 2020

McGuireWoods Consulting released recent updates about the coronavirus and its impact on education, including a new $14.25 billion Higher Education Emergency Relief Fund. The question many are asking, however, is who will have access to the relief money.

Private equity, for example, has been active in for-profit education platforms. Seeking answers for these businesses, McGuireWoods private equity partner Akash Sethi recently interviewed McGuireWoods Consulting senior vice president and National Education Team co-lead Scott Frein.

Question: Does the Higher Education Relief Fund extend to for-profit education institutions or only nonprofit/public education?

Scott Frein: Eligibility for the Higher Education Relief Fund (Fund) includes for-profit institutions as well as public, private and nonprofit.

Q: What about online universities or programs?

Scott: Institutions that exclusively deliver their curriculum and programs online are not eligible for the funds. However, if institutions are not exclusively online (i.e., there is some combination of traditional and online learning), then they are eligible.

Q: Has the Department of Education come out with final guidance on the availability of these funds? When do we expect it?

Scott: The CARES Act (Act) cleared Congress last week and was signed by President Trump on March 27. The Fund does not have a detailed timeline under the Act, unlike some of the other the education emergency funds, which directs the Secretary of Education to invite applications not less than 30 days after enactment. We do know the U.S. Department of Education is already working on guidance for the Fund and expect it will be released soon. That guidance will shed light on the process for institutions to actually draw down on the funds.

Q: How are eligibility and funding determined?

Scott: The formula is based on full-time students, Pell recipients and non-Pell recipients. More specifically, institutions will receive funds based on the following: 75 percent for full-time Pell grant recipients not exclusively enrolled in distance education prior to the coronavirus emergency; and 25 percent for full-time non-Pell students not exclusively enrolled in distance education prior to the coronavirus emergency.

Ninety percent ($12.558 billion) of the total Fund will be distributed to higher education institutions using the U.S. Department of Education’s Title IV disbursement system. That total number, along with the number of eligible institutions and using the 75/25 formula above, will determine the actual amount. Early, very unofficial reports suggest the number is $2,668 per Pell student and $276 per non-Pell student. (Note: Please do not give any weight to these numbers; they are only illustrative at this point.)

Q: How can funding be used?

Scott: The Fund can cover any costs associated with significant changes to the delivery of instruction due to the coronavirus, excluding payment to contractors for pre-enrollment recruitment activities, endowments or capital outlays associated with facilities related to athletics, sectarian instruction or religious worship. Of the total funds institutions receive, 50 percent must be provided to students for emergency financial aid and expenses due to the pandemic-related disruption of campus operations (e.g., food, housing, course materials, technology, healthcare and child care).

Q: How are the funds structured?

Scott: The Fund is one-time emergency relief with the goal of ensuring the ongoing functionality of institutions. There is no repayment requirement.

Q: Assuming it qualifies, can a for-profit education platform potentially take advantage of both the Higher Education Relief Fund and the Small Business Administration Loan Program?

Scott: The Act does not directly prohibit an entity from taking advantage of both programs. Businesses may be eligible for the SBA Loan Program in the following cases:

  1. The business does not have more than 500 employees or the maximum number of employees specified in the current SBA size standards, whichever is greater;
  2. The business has more than one location and has more than 500 employees, it does not have more than 500 employees at any one location, and the business’s primary NAICS code starts with “72” (Accommodation and Food Service); or,
  3. The business is a franchisee holding a franchise listed on the SBA’s registry of approved franchise agreements; or,
  4. The business has received financing from a Small Business Investment Corporation.

For more information regarding eligibility of the SBA Loan Program, see the recent McGuireWoods alert “COVID-19 Paycheck Protection Loans for Businesses.”

McGuireWoods is actively tracking final rulemaking by the Department of Education related to the Higher Education Emergency Relief Fund, as well as coronavirus legislation in various states, and will provide updated information as it becomes available.