On February 17, 2009, President Obama signed into law the $787 billion American Recovery and Reinvestment Act. The Recovery Act designates substantial funds to benefit higher education institutions, researchers, and students. The Recovery Act aims to disburse funds quickly, and all funds must be obligated by September 30, 2010, unless otherwise specified. This update summarizes certain aspects of the legislation that are pertinent to higher education.  

State Fiscal Relief and Facility Construction  

Under the Recovery Act’s State Fiscal Stabilization Fund (SFSF), approximately $48.32 billion is appropriated to state governments to support education and to reduce budget shortfalls. Nearly $39.5 billion of this amount will be distributed through existing state funding formulae to public elementary, secondary, and postsecondary education institutions. Public higher education institutions may use these funds for general expenditures and to modernize, renovate, or repair existing structures that are used primarily for instruction, research, or student housing.  

The SFSF divides the remaining approximately $8.2 billion among state governments to support various government services, including but not limited to modernization, renovation, and repair of education facilities at eligible public and independent nonprofit higher education institutions.  

The U.S. Department of Education will distribute SFSF funds to states in two batches. In April 2009, the department will distribute 67 percent of each state’s allocation based on a state’s initial application. The department will distribute the remaining portion of a state’s allocation after receipt of a more detailed application that must address, for example, plans for education reform and implementation of the Recovery Act’s recordkeeping and reporting requirements. The department aims to start awarding the second allocations on July 1, 2009.  

The House stimulus bill’s SFSF provisions did not address funding for facilities improvements at higher education institutions but would have separately targeted $6 billion to modernize, renovate, or repair facilities used for instruction, research, and student housing at eligible public and independent nonprofit higher education institutions. That separate funding provision was not included in the Recovery Act.

Research and Development  

The Recovery Act designates approximately $18 billion to support research and development. The National Institutes of Health will receive $10 billion, $8.7 billion of which is earmarked for competitive biomedical research grants. Another $3 billion is designated for the National Science Foundation (NSF), $2.5 billion of which must be used, among other purposes, for competitive grants to repair, renovate, and replace obsolete science and engineering facilities, and to broaden access to shared research resources at universities and centers.  

Federal Student Financial Aid  

The Recovery Act appropriates $15.84 billion to increase the maximum discretionary Pell Grant by $500 to $4,860, and to cover the Pell Grant shortfall. The Recovery Act also appropriates $200 million to the federal work study program. The department recently announced that the Recovery Act’s Pell Grant and work study funding will be used for the 2009-10 academic year and that such funds will be available beginning July 1, 2009.  

The Recovery Act omits provisions in the House stimulus bill that would have increased annual federal student loan limits and would have changed temporarily the index used for lender subsidies under the federal student loan program. It also omits provisions in the Senate stimulus bill that would have funded the Perkins Loan program.  

Tax Provisions  

The Recovery Act contains several tax provisions that benefit college students. For example, for 2009 and 2010, the Recovery Act replaces the existing Hope Tax Credit with a $2,500, 40 percent refundable “American Opportunity Tax Credit,” and it expands eligible education expenses for purposes of the credit to include textbooks.  

Job Training  

The Recovery Act provides more than $3 billion to support job training programs under the Workforce Investment Act, including job training programs at community colleges and other public and private providers of job training services. This total includes $1.25 billion for dislocated workers, $1.2 billion for youth activities, $500 million for adult employment and training activities, and $750 million for a competitive grant program for worker training and placement in high growth and emerging industry sectors, including projects that prepare workers for careers in energy efficiency and health care sector. Local workforce investment boards are authorized to award contracts to higher education institutions or other eligible providers if the board determines that such contracts would facilitate the training of multiple individuals in high-demand occupations.  

Health Information Technology  

The Recovery Act promulgates the Health Information Technology for Economic and Clinical Health Act, which is designed to promote and improve health information technology. The HITECH Act creates two new programs relevant to higher education institutions:  

  • National Institute of Standards and Technology (NIST), in consultation with NSF, must establish a program to assist higher education institutions in establishing multidisciplinary Centers for Health Care Information Enterprise Integration, the purpose of which is to use cutting-edge research to develop health information technologies and to generate innovative approaches to integrating health care information systems.  
  • U.S. Department of Health and Human Services and NSF are directed to provide assistance to higher education institutions to establish or expand medical health informatics education programs, including certification, undergraduate, and masters degree programs, for both health care and information technology students.  

Statewide Data Systems  

The Recovery Act appropriates to the Education Department $250 million to make competitive grants primarily to state education agencies under section 208 of the Educational Technical Assistance Act. The purpose of the grants is to aid states in developing statewide data systems that include postsecondary and workforce information. Of the total amount appropriated, up to $5 million may be awarded to public or private institutions to improve data coordination. The department recently announced that funds will be available in fall 2009.  


Two Recovery Act provisions related to tax-exempt bond financing are pertinent to public higher education institutions and higher education institutions that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. The Recovery Act:  

  • Enhances bank ability to invest in tax-exempt bonds. Specifically, a Recovery Act provision allows banks to invest up to two percent of their assets in tax-exempt bonds without losing any portion of their regular interest deductions. In addition, requirements for bonds to be "bank qualified" and therefore not subject to the automatic interest deduction disallowance rule for financial institution holders are modified by, among other measures, increasing from $10 million to $30 million the annual issuance limitation on issuers of bank qualified bonds and, in the case of pooled financings, looking through to the individual borrowers in applying these limits. These amendments apply only to obligations issued in 2009 and 2010.  
  • Allows issuers of governmental purpose bonds, including public higher education institutions, to treat any bond (other than a private activity bond) that would qualify for tax exemption under Section 103 of the Internal Revenue Code as a taxable bond with a tax credit equal to 35 percent of the interest on the bond, with the tax credit payable in cash to the issuer of the bonds. These new “Build American Bonds” will allow issuers to reach a broader class of investors through the taxable bond market. The relevant provision applies to bonds issued after the Recovery Act’s enactment date but before January 1, 2011.  


Higher education institutions may also be interested in two new broadband stimulus funding programs.  

  • One program, the $4.7 billion Broadband Technology Opportunities Program (BTOP) administered by the National Telecommunications and Information Administration (NTIA) at the Department of Commerce, is intended to create jobs and economic opportunities, along with educational, healthcare, and public safety benefits, by improving the affordability, subscribership, and speed of broadband access in “unserved” and “underserved” areas. One of the specific purposes of the BTOP is to “provide broadband education, awareness, training, access, equipment, and support to … schools, libraries, medical and healthcare providers, community colleges and other institutions of higher education, and other community support organizations and entities to facilitate greater use of broadband service by or through these organizations.” BTOP grants will be awarded based on competitive proposals, with at least one grant issued in each state or territory, and all grants must be awarded by September 30, 2010. Eligible grantees may include state and local governments, non-profit entities, and telecommunications providers and vendors. At least $200 million in BTOP grants must be made for the purpose of expanding public computer center capacity, including at community colleges and public libraries.
  • In addition, the Department of Agriculture will be administering a $2.5 billion “Distance Learning, Telemedicine and Broadband Program.” This program will provide grants, loans, and loan guarantees for broadband infrastructure primarily in rural areas without sufficient access to high speed broadband service to facilitate rural economic development, distance learning, and telemedicine.