According to the Department of Education, approximately $75 billion has been disbursed in higher education emergency relief funds through the passage of CARES, CRRSAA, and ARPA. While about half of these funds went directly to students, colleges and universities used the remaining institutional money to help mitigate pandemic-related losses. These one-time funds were distributed swiftly and significantly reduced the schools' credit risks at a very challenging time. While almost all public and private colleges and universities benefited, this money was particularly important to 'BBB' and noninvestment-grade ratings categories, many of which were strained prior to the pandemic.

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Schools Received Significant Federal Funds Throughout The Pandemic

Beyond aid that was passed on directly to students, schools were awarded almost $40 billion in institutional funds through CARES, CRRSSA, and ARPA, including about $35 billion disbursed to schools based on a formula driven by full-time equivalent (FTE) enrollment and the number of Pell eligible students attending the school. Historically Black Colleges and Universities (HBCUs) received an additional $3 billion and minority serving institutions received about $1 billion more, with the remaining funds going to a few other select schools. Finally, many small schools also benefited from PPP loans with a median loan amount of $3.6 million for S&P Global Ratings rated schools; loans have already been forgiven for the most part. To qualify, employers must have had under 500 employees, which precluded most larger institutions from applying for these loans; we rate 61 schools that received PPP loans. The loans helped many schools retain staff and, for some, offset immediate liquidity concerns.

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In addition to the federal emergency funding, many schools also received state and local grants to help offset losses during the pandemic. After receiving their own meaningful one time funds, when ARPA passed, many states gave additional money to schools. About two-thirds of S&P Global Ratings rated schools reported receiving some extra state or local grants with a median amount of $2.3 million. About 80% of public universities reported receiving additional state or local funds compared with about 57% of private universities.

Timing Of Federal Fund Distribution

Given the variable timing of distribution and usage, some college and universities realized institutional funds in different fiscal years. Most schools we rate realized the majority of CARES funds in fiscal 2020, but some also realized significant portions in fiscal 2021. Similarly, many schools realized CRRSAA funds in fiscal 2021 but some anticipate realizing those, in addition to ARPA funds, in fiscal 2022. In fiscal 2021, we found that most schools we rate realized state and local grants along with forgiven PPP loans. While institutional ARPA funds were greater than CRRSAA, given PPP loans and non-federal grants were mostly realized in fiscal 2021, the amount of extraordinary funding schools received in fiscal 2021 was about the same, on average, as what they anticipate recognizing and receiving in fiscal 2022 and beyond.

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Most schools that we rate will have little to no federal monies available to them in fiscal 2023, which could cause operating pressures as institutions will also need to adjust to a rise in expenses fueled by inflation. Schools that are able to increase tuition and fees with minimal impact to demand will likely be able to manage through, while those that failed to anticipate the impact of operating without federal money and continue to face demand pressures could struggle to generate positive operations.

Impact Of Pandemic Related Emergency Funds

In fiscal 2020, colleges and universities dealt with significant lost auxiliary revenue and higher expenses as schools reduced residence hall density, implemented campus-wide testing, and purchased additional cleaning supplies. CARES funds were instrumental in helping many schools maintain similar operations in fiscal 2020 as they did in fiscal 2019 as median net operating income was almost identical for public universities and just slightly weaker for private universities. In fiscal 2021, schools l were still strained by auxiliary revenue losses, lower net tuition revenue given declining enrollment on average, and an increase in pandemic related expenses. Most schools created budgets that mitigated some of the impact by cutting costs but still anticipated weaker operations. The unanticipated emergency federal funds helped many actually improve operations in fiscal 2021.

On March 11, 2021, Congress passed ARPA which provided aid, not only to higher education but also to states, which helped stabilize the sector amid ongoing risks. While many schools will still feel enrollment losses from fall 2021 for many years to come, the ARPA money helped stabilize many schools, at least for the time being. Since the passage of ARPA, we upgraded more schools than we downgraded and our outlook on the sector was revised to stable in 2022 for the first time in four years.

Notably, many low investment and non-investment grade colleges and universities received additional support based on the federal funding formula and criteria. In both fiscal 2020 and fiscal 2021, federal funds contributed to a higher percentage of adjusted operating revenue for lower rated schools relative to higher rated ones. This is due, in part, to the fact that operating budgets for higher rated schools are larger as they often generate more revenue from non-student items like research and investment income. Also, the formula for dispersing institutional funds tended to benefit lower rated schools more than higher rates schools. In addtion, because there are many smaller schools in the 'BBB' rating category or below, issuers in these categories received a disproportionately high level of PPP loans.

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Which Schools Benefited The Most From The One-time Emergency Funds?

Schools with more Pell eligible students

The formulas for aid distribution of the CARES, CRRSAA, and ARPA were highly dependent on the number of Pell eligible students enrolled at a school. Pell eligible student are undergraduates who display exceptional financial need and have not earned a bachelor's, graduate, or professional degree. In some rare cases, a student enrolled in a postbaccalaureate teacher certification program may be considered. About 75% of the funding distribution was based on the number of a school's Pell eligible students and not total enrollment. While this may have correlated in some cases with a school's overall enrollment, schools with a higher percentage of Pell eligible students likely benefited much more.

Schools that qualified for PPP funds

In almost all cases, PPP loans were forgiven, which boosted operations and balance sheets for many schools. Most of the rated schools (56%) that received PPP loans were rated within the 'BBB' or speculative-grade categories. While the majority of recipients were lower rated, there were some highly selective, small liberal arts schools that requested and received PPP loans as well. Although these schools certainly benefited, the impact was likely smaller given the loan amount compared with overall available resources and the growth in investments over the past year.

Historically Black Colleges and Universities (HBCUs)

Out of the schools we rate that reported receiving federal money, four of the top five schools receiving the highest amount per FTE were HBCUs: Alabama State University, Delaware State University, Hampton University, and Morgan State University. Because of how funding was distributed HBCUs benefited considerably. Many HBCUs that we rate have, in recent years, also experienced enrollment increases and improved fundraising. As a result, in the past two years, we have taken a positive rating action on the majority of these HBCUs; many are better positioned now than prior to the pandemic.

Schools with smaller losses to auxiliary related revenue

For many schools, auxiliary revenue bore the brunt of the pandemic more than any other revenue stream. On average, private universities and public universities derive about 10% of total adjusted operating revenue from auxiliary operations. While almost all schools closed their doors and offered refunds to students in spring 2020, the response was quite mixed for the 2020-2021 school year as some schools did not bring students back on campus, others brought all students back, and some limited the number of students on campus. Those schools that filled more beds likely did not record the same level of auxiliary revenue losses in fiscal 2021 as other institutions did, and no institutional CARES, CRRSAA, and ARPA funding was contingent on de-densifying campus.

Which Schools Benefited Less From One-Time Emergency Federal Relief?

While lower-rated schools received more in federal funds than higher-rated schools, the impact of the pandemic on those higher-rated schools has been less substantial. One reason for lower average federal funding per FTE at the higher rating level is that schools that have over $500,000 per student in their endowment were not eligible for any institutional CRSSAA aid. While the schools were eligible for the other forms of federal funding, in many cases they did not accept that money. Nevertheless, most of these schools are in a better financial position than before the pandemic, given sustained fundraising capabilities and significant investment returns in fiscal 2021. In many cases, they also did not struggle to meet enrollment targets.

What We're Watching

Federal funds have been instrumental in stabilizing the sector. Many of the schools that needed the emergency money the most received it, and those that needed it less were bolstered by large investment returns. However, the impacts of enrollment losses and rising expenses due to inflation will likely continue to pressure the sector. While we anticipate that federal funds will help many schools at least maintain operations in fiscal 2022, there is less certainty about fiscal 2023 and beyond. Many schools will have to increase expenses to maintain and attract high caliber staff and faculty. In addition, capital projects are also becoming more expensive as cost of supplies and labor steadily rises (see Construction Cost Inflation Weighs On U.S. Public Infrastructure Investment, published April 14, 2022 on RatingsDirect). Schools that can raise tuition to offset these increases with little impact on enrollment will likely manage through inflationary pressures but schools with less flexibility will likely see operational pressures without new federal funds to offset costs.