How Biden’s American Rescue Plan Affects College Students

• The latest COVID-19 relief bill sends over $40 billion to colleges and universities.
• Half of each college's share must be distributed directly to students as emergency grants.
• Beyond financial aid, the bill opens the door to future student debt cancellation.

The $1.9 trillion American Rescue Plan that President Joe Biden signed into law in March includes the largest ever one-time investment in the U.S. education system. The supersized relief bill makes $170.3 billion available to all educational agencies, with nearly $40 billion going to colleges and their students.

Colleges and universities can use some of the money allotted from the American Rescue Plan's Higher Education Emergency Relief Fund III (HEERF III) for institutional expenses related to the pandemic, including lost revenue, reimbursements, safety measures, technology, and teacher and staff training.

These emergency grants don't have to be repaid and may be used by students for anything related to college attendance costs, such as tuition, food, housing, technology, healthcare, and childcare expenses.

Student Loan Debt and Free Community College Addressed

The American Rescue Plan stipulates that any federal student loan that is forgiven from December 31, 2020, to January 2, 2026 — two years into the next presidency — will not count as income and will therefore be tax-free.

Any canceled federal debt has until now been considered taxable income. While the new loophole is expected to only affect a limited number of borrowers on long-term repayment plans, some see the move as a possible first step toward broad student debt cancellation. So far, the Biden administration has not yet pursued forgiveness outright.

Any federal student loan that is forgiven from December 31, 2020, to January 2, 2026, will not count as income and will therefore be tax-free.

Two years of free community college is also under consideration through a $109 billion proposal in the American Families Plan, another part of the Biden administration's "Build Back Better" initiative.

Free community college could affect as many as 5.5 million students if all U.S. states, territories, and tribal communities take part in the plan. The proposal would also provide up to about $1,400 in added assistance to low-income students by increasing Pell Grants.

How Much Money Can Colleges Expect to Receive?

Estimates from the American Council on Education of how much money each college will receive out of the $40 billion range from tens of thousands of dollars to almost $200 million, based on the size of the school and the number of Pell Grant recipients it enrolls.

Arizona State University, which tops the council's list, could get an estimated $198 million, while the private, nonprofit School of Architecture at Taliesin in Scottsdale could receive about $18,000, the smallest allocation in that state.

The relief bill also includes $3 billion in funding for historically Black colleges and universities, tribal colleges and universities, Hispanic-serving institutions, and other schools that support underserved demographics.

Restrictions on How HEERF Funds Can Be Used

The American Rescue Plan specifies that public and private nonprofit colleges must spend at least as much on emergency financial-aid grants for students as they did last year with CARES Act funds.

For schools getting HEERF money for the first time, at least 50% must fund student grants.

For schools getting HEERF money for the first time, at least 50% must fund student grants. For-profit schools, by contrast, are required to dedicate 100% of their allotments to these grants.

While emergency grants have no eligibility requirements and are available to both online and campus-based students, institutions have been directed to prioritize students with exceptional financial need, including Pell Grant recipients, students experiencing homelessness, and students in foster care.

As for the institutional expenses share of the funding, schools are required to use a portion of new funding to help mitigate the spread of COVID-19 on college campuses and to reach out to students to see whether aid needs to be adjusted due to changes in their financial situations.

Feature Image: FatCamera / E+ / Getty Images