School Closed sign on a locked fence outside of a school

Follow the Money: Understanding the Pandemic’s Impact on Education Funding

With the school year quickly coming to a close as we celebrate unconventional graduation ceremonies, it is clear this semester has been an unprecedented and emotional challenge for students, teachers, administrators, and parents. But rather than marking an end, this may just be the beginning. 

For those of us leading education businesses, a new buying cycle has begun. In addition to the usual pressure that brings, this year we are scrambling to understand where and how the money will flow for education spending. Schools are considering a range of scenarios for how education will be delivered this fall and beyond, while state legislatures are looking at deep budget cuts as the scope of revenue shortfalls comes into focus. 

Amid all this uncertainty, we are advising clients to dig deep to understand possible funding sources. In general, it’s important to remember in the K12 market that typically just about 8 percent of public funding comes from federal monies. About 47.1 percent of funding comes from state sources – usually based about 90 percent on sales and income taxes – and localities contribute 44.9 percent, typically from more stable property taxes. Therefore, understanding the situation in each state you’re targeting will be crucial. 

On the federal side, however, there is a range of education funding available through the CARES (Coronavirus Aid, Relief, and Economic Security) Act stimulus package, which we’ll walk through below. And don’t forget to consider existing “use it or lose it” federal money which can impact your business, such as U.S. DOE waivers under ESSA (in particular, look at local education agencies’ ability to carry over ESEA funds for the next federal year).

Funding Under the CARES Act

The U.S. Department of Education is tasked with allocating funding under the $30.75 billion Education Stabilization Fund (ESF). The ESF consists of four specific grants:

  • Governor’s Emergency Education Relief Fund: $3 billion to help PreK, K-12 and Higher Education meet operational expenses and salaries. The allocation is based on a state’s overall percentage of children between 5-24, and the number of elementary- and secondary-school age children counted under Title 1 in 2019. Each state is developing its own process for distribution of the funds.
  • Elementary and Secondary School Emergency Relief (ESSER) Fund: $13.2 billion in grants for state educational agencies (SEAs) to award in turn to local education agencies (LEAs), including charter schools that are LEAs. The grants cover 12 areas of approved expenditures, including  “educational technology (including hardware, software, and connectivity) for students who are served by LEA that aids in regular and substantive educational interaction between students and their classroom instructors” and “planning and implementing activities related to summer learning and supplemental after school programs, including online learning during the summer months.” ESSER funds are allocated based on state percentages of Title I funds, and then by individual district percentage of state Title I funds. FAQs are available here
  • Higher Education Emergency Relief (HEER) Fund: $14.2 billion distributed directly to institutions. Half of the funding must be used for student grants, including student technology purchases, while institutional funds are to be used for expansion of remote learning programs, building IT capacity, and training faculty and staff to implement remote learning environments. Institutions with the highest number of full-time Pell Grant recipients and highest relative share of full-time student enrollment receive $12.56 billion of the funds; $1.4 billion in additional funds goes to institutions including HBCUs, MSIs (minority-serving institutions), TCCUs (Tribally Controlled Colleges and Universities), and institutions that received less than $500,000 from the initial HEER funding, known as the Strengthening Institutions Program.
  • Education Stabilization Fund: $307.5 million, consisting of two grant programs targeted to states with “the highest coronavirus burden” in two areas:
    • $180 million for the Rethink K-12 Education Models (REM) Grant State Education Agencies (SEAs) competition, which includes microgrants for families; funding for statewide virtual learning programs to expand student access to a full range of subjects; and grants for new, field-initiated models for remote education.
    • $127.5 million for the Reimagining Workforce Preparation (RWP) Grant, which supports the creation of “new educational opportunities and pathways that help citizens return to work, small businesses recover, and new entrepreneurs thrive,” including “short-term post-secondary programs that are responsive to the needs of individuals to more rapidly adapt and evolve to ever changing workplace and community needs.”

As education models adapt to the unparalleled circumstances of this pandemic, education companies must stay focused. With thoughtful planning and hard work, we can also adapt and find new opportunities to support students and schools in this new normal. If you’d like to discuss further where you may fit in this arena, drop us a line at  info@arccd.com.

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