Colleges Roiled by Pandemic Costs Find Federal Loan Aid Elusive

(Bloomberg) --

U.S. colleges, their finances upended by the coronavirus pandemic, are now struggling with how to get help from the government.

Many small schools seeking financial relief from a federal loan program created for businesses with fewer than 500 workers have been stymied because officials in Washington haven't made clear what constitutes an employee.

At issue is whether students who work on campus in part-time jobs should be counted. With no direction from Washington, officials at Knox College in central Illinois abandoned plans to apply.

“This is an existential threat for the college and many colleges,” said Karrie Heartlein, director of government and community relations at Knox, which has about 1,200 students.

Higher education is being hit by an unprecedented financial crisis as the virus forced schools to clear students from campus and make refunds for room and board. Universities have had to cut staff, freeze pay and delay expansion plans.

Small colleges, with modest enrollments and endowments, are particularly vulnerable and their financial crunch can resound in adjacent communities.

Under the federal Paycheck Protection Program created to help small businesses contend with economic losses from the outbreak, enterprises with fewer than 500 employees can qualify for loans of as much as $10 million. The loans become grants if used for payroll and other approved expenses for two months to keep workers employed.

The program has proved popular. The initial $349 billion in funding ran out in 13 days and was relaunched Monday with another $320 billion approved by Congress. Colleges, however, have struggled to tap into the money because it's unclear whether part-time students who work on campus should be counted as employees.

Even some 40 members of Congress who wrote to the Treasury Department and the Small Business Administration couldn't get an answer.

“Many of our smaller colleges were already struggling with enrollment challenges before this crisis, and are now experiencing major revenue losses as a result of COVID-19,” Republican Senator Joni Ernst of Iowa said in a statement. She was among those who contacted the agencies.

Treasury and SBA officials didn't respond to a request for comment.

At Knox, in Galesburg, Illinois, officials said the school calculated it could receive a $5.7 million loan if it had qualified, but it held back applying because it lacked clarity on how to count some employees. The school has an average of 472 non-student employees and that number doubles when counting student workers.

Knox could use the cash. Even before the pandemic hit, the school's $45 million budget had a $3 million deficit. Its finances worsened this year when it returned $3 million to students for room and board. The school had a $170 million endowment as of June 2019.

Its situation also has consequences for Galesburg as Knox is one of the city's largest employers and the school has already had to furlough 50 workers.

Despite being unclear about how to count employees, Covenant College, in northern Georgia, applied and got about $3.2 million. President Derek Halvorson said he will hold off using the money for now because of the ambiguity about student workers. The school, which is waiting for clarification from Treasury, has about 300 full and part-time employees and about 250 students who work on campus.

“People's jobs and livelihoods hang in the balance,” said Halvorson. “We will have to furlough employees and we may also have to lay employees off if we can't use the money.”