The Higher Education Emergency Relief Fund (HEERF III)

Nelia Kruger, CPA, MSA

12 July 2021

The Higher Education Emergency Relief Fund III (HEERF III) was authorized by the American Rescue Plan (ARP), Public Law 117-2, signed into law on March 11, 2021, providing $39.6 billion in support to institutions of higher education to serve students and ensure learning continues during the COVID-19 pandemic.

ARP funds are in addition to funds authorized by the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA), also known as HEERF II, Public Law 116-260 and the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, also known as HEERF I, Public Law 116-136. Emergency funds available to institutions and their students under all emergency funds total $76.2 billion across the nation.

As announced by U.S. Secretary of Education Miguel Cardona, “These funds are critical to ensuring that all of our nation’s students – particularly those disproportionately impacted by the COVID-19 pandemic – have the opportunity to enroll, continue their education, graduate, and pursue their careers. With this action, thousands of institutions will be able to provide direct relief to students who need it most, so we can make sure that we not only recover from the pandemic, but also build back even stronger than before.”


HEERF III shares many of the attributes of the HEERF II program with a few key exceptions, both listed below:

Areas with no major changes:
– Allocation formula – identical to HEERF II and consisting of:

1) 75% from headcount and FTE enrollment of Pell Grant recipients who were not enrolled exclusively in distance education courses prior to the qualifying emergency

2) 23% from headcount and FTE enrollment of non-Pell recipients who were not enrolled exclusively in distance education courses prior to the qualifying emergency

3) 2% from headcount and FTE enrollment of Pell recipients who were exclusively enrolled in distance education course prior to the qualifying emergency

– Required student spending – a portion of the funding must be spent on student grants, prioritizing students with exceptional need, while the remainder is for institutional spending for covered expenditures

– Student portion allowable uses – cover any component of student’s cost of attendance and emergency costs that arise due to coronavirus, such as: tuition; food; housing; health care (including mental); childcare

– Institutional portion allowable uses – may make additional financial aid grants to students or defray expenses associated with coronavirus including:

1) Lost revenue
2) Reimbursement for expenses already incurred
3) Technology costs associated with a transition to distance education
4) Faculty and staff trainings
5) Payroll

– Institutional portion unallowable uses:

1) Payments for recruitment contractors
2) Marketing
3) Recruiting
4) Endowment expenses
5) Capital outlays associated with athletics-related facilities, secretarial instruction or religious workshop, senior administrator or
6) Executive salaries, benefits, bonuses, contracts, incentives or any other cash or benefit for a senior administrator or executive

– Performance period – institutions will have one year from the date of their grant award notification to spend all of the HEERF III funding. If there were any unspent HEERF I or HEERF II funds at the date of the grant award notification, the period of performance would also be extended to match the HEERF III period of performance

– Indirect cost rate – institutions may use their current on-campus negotiated indirect rate or the 10% de minimis rate if no negotiated rate is available. The indirect cost rate is only available for the institutional portion of the awards

– Reporting – institutions are required to post the Quarterly Institutional Public Reporting Form and Quarterly Student Public Reporting Form for HEERF III funds to their websites by the tenth day following the end of each calendar quarter. The Department of Education (ED) acknowledged that, because it never affirmatively established HEERF II reporting requirements, it is extending the deadline by which institutions must submit retroactive reports for HEERF II to the end of the second calendar quarter, which is June 30, 2021. HEERF II and III funds will also be subject to the annual reporting requirement in early 2022.

Areas with significant changes:
– Student/Institutional split – the minimum amount for student grants is calculated as the sum of 50% of the funds allocated according to the first and second factors from above and 100% of the funds allocated according to the third factor from above. Institutions should verify their required student portion using the ED’s Allocation Table

– New required uses of grant funds – if the institutional portion is not used entirely for emergency financial grants to students, a portion of funds must be used to: (a) implement evidence-based practices to monitor and suppress coronavirus in accordance with public health guidelines; and (b) conduct direct outreach to financial aid applicants about the opportunity to receive a financial aid adjustment due to the recent unemployment of a family member or independent student, or other circumstances, described in section 479A of the HEA

– Eliminated the CRRSAA requirement for institutions paying the endowment excise tax – eliminated the previous requirement under the CRRSAA that institutions that paid or would be required to pay the endowment excise tax in tax year 2019 would have their total (a)(1) allocation reduced by 50%
One of the clearest ways to see the differences between HEERF I, HEERF II and HEERF III is by using the National Association of Student Financial Aid Admissions’ (NASFAA) Comparison Chart.

ED has also provided several resources to assist institutions with all aspects of HEERF III on their ARP Homepage. For ease, we have listed the three most used ED resources we have seen with our clients:

– HEERF III Frequently Asked Questions (FAQs)
– Lost Revenue for HEERF I, II and III FAQs
– Reporting and Data College Information


Whether an institution follows Financial Accounting Standards Board (FASB) standards or Governmental Accounting Standards Board (GASB) standards, the recording of revenues and expenses are conceptually similar. The reason that HEERF I, II and III even need accounting considerations is due to the minimum student emergency aid spending requirements that each funding source requires. HEERF I had a 50% split between the student and institutional portions. HEERF II had an absolute minimum amount of student funding equal to the amount of student funds allocated with HEERF I. HEERF III varied from HEERF I and II but in most cases, there was some difference between student and institutional funds awarded.

Under Accounting Standards Update 2018-08, grants are conditional when both a “right of return” and a “barrier to entitlement” exist. In the simplest terms, in order for an institution to be completely allowed to the institutional portion of HEERF, they must meet the minimum student portion of spending by the end of the period of performance. In many cases, the period of performance can span several fiscal years. ED clarified that for federal purposes, there is no need to maintain proportionate spending between the student and institutional spending. Unfortunately, the fact that spending can be limited based on future actions of the institution, means that a barrier exists that affects revenue recognition. This interpretation is in line with the FASB Staff Q&A document released in June 2019. The HEERF program grants and each HEERF tranche (I, II, or III) is administered in two funding streams. The institutional portion revenue is at risk, and subject to a right of return, to the extent of non-compliance with student aid spending.

What this may look like on financial statements is the revenue recognition of the entire student portion spent in addition to a proportionate amount of the institutional portion spent. Any proportionate institutional expenses greater than the student amount recorded would be unearned grant revenue and would remain on the institution’s statement of financial position. The revenue recognition would occur at a later time when additional student portion spending is completed, related to the particular tranche in question.

HEERF funding is considered a voluntary nonexchange transaction under GASB Statement No. 33. Such transactions occur when governments give or receive something of value and do not directly receive or give something of equal value in return, such as certain taxes, grants, contributions, or donations. In cases like these, revenue cannot be recognized until all applicable eligibility requirements are met. Using similar information from the FASB world, student aid disbursements are classified as an eligibility criteria requirement for recognition of institutional funds. Until student funds are used, any institutional funds drawn and applied to eligible uses would be unearned revenue. This is consistent with paragraph 15 of Statement No. 33 in that revenue is unearned by recipients until allowable costs have been incurred and any other eligibility requirements have been met.

Presentation on the statement of net position would be similar to FASB.


HEERF funds are subject to Uniform Guidance requirements and eligible recipients must undergo a Single Audit and report federal expenditures on their SEFA, if total federal expenditures are greater than $750k. Due to the uniqueness of HEERF funding, it can sometimes be difficult to comprehend certain key concepts:

– Revenue reporting versus expense reporting – some of the most common federal grant funding is provided using a cost reimbursement methodology. Many institutions’ grant revenues equal grant expenses which in turn often equals expenses reported on the SEFA. This may not necessarily be the case every time when reporting HEERF funding which can cause some confusion at institutions. For example, if an institution spent HEERF I of $300k of institutional and only $200k of student, the SEFA would report $500k of expenses and the financial statements would report $500k of expenses, $400k of grant revenues and $100k of unearned grant revenue.

– Timing of funding use – It is possible that allowable expenses incurred during previous reporting periods are now eligible for reimbursement under a subsequent HEERF award. For example, HEERF II can be used for expenses dating back to March 13, 2020, which would capture expenses in a previous fiscal year. Rather than move prior year expenses, an institution can choose to “transfer” the grant funds to “reimburse” for the prior year expenses. Normally, “transfers” of grant funds are almost never allowed as a charge against federal grants. Additionally, recoupment of lost revenues behaves in a similar manner since there is no current year expenses to offset grant revenue. When previously incurred expenses and lost revenue are determined, the institution would record, for financial statement purposes, only grant revenue since the transfer would be eliminated otherwise and the SEFA would report the amount of the previously reported expenses and lost revenues (an amount equal to the grant revenue recorded in these transactions).

The information and intricacies of HEERF can be overwhelming as more information is released by ED and other sources. Having the right information on hand, understanding the various regulations, communication and teamwork are key. If your institution needs help navigating HEERF I, II or III funding, contact your auditor for help or O’Connor & Drew, P.C.

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