Higher Education and the PPP: How Loans Impact Your Composite Score

Please note: This blog is current to the date of its publication, Thursday, July 30. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.


Many schools applied for and received funds under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief and Economic Security (CARES) Act. As we’ve explored heavily in previous blogs, PPP funds are subject to forgiveness based on payroll and other expenses for a specified period of time.

Several of SST’s higher education clients have been seeking additional guidance regarding how the PPP forgiveness process will impact their school’s financial statements and composite score, so our experts have outlined a few of their key insights below.

Schools operating on a calendar year will likely receive both funding and forgiveness within the same year (2020). The proceeds of the loan will initially be recorded as a liability. When forgiveness is approved, the amount of the forgiveness will reduce the liability and be recorded as revenue. If 100% of the loan is forgiven, then no liability remains on the books at year-end, and revenue is recorded to offset the related expenses.

Schools operating on a fiscal year may have received the proceeds of the loan but not the forgiveness as of year-end. For example, a school with a June 30, 2020 fiscal year-end will likely have received PPP funding but will not receive forgiveness until a later date. In this scenario, the liability recorded for the proceeds remains on the books at year-end and could have a negative effect on the composite score.

The good news is that the U.S. Department of Education published the following on May 15, 2020.

“The Department is aware that institutions receiving loans from the Small Business Administration through the PPP under §1102 of the CARES Act have an opportunity to have up to the full amount of the loan principal forgiven by meeting certain employment requirements. Therefore, as long as an estimate of the amount of forgiveness of PPP loan funds the institution expects to earn, or the actual amount of loan forgiveness provided, is identified on an institution’s audited financial statements for the year in which the loan was received and attested to by the institution’s auditor, the Department will exclude that portion of the PPP loan from total liabilities and increase the institution’s equity or net assets by that amount in calculating the institution’s composite score.”

Therefore, any school that has not received forgiveness for its PPP loan as of fiscal year-end will still benefit from the future anticipated forgiveness in calculating the composite score.

Whether the loan is still outstanding at year-end or has been fully forgiven, the school should be prepared to provide the forgiveness application and all supporting documentation to its auditor.

Finally, the school should review its audit report carefully before it’s issued to ensure that the anticipated forgiveness is clearly disclosed and that the auditor has provided an attestation as to its accuracy. The experts at SST are equipped and ready to assist in this process – contact us today for more.

Thanks to SST Partner Eileen Keller for the content of this post. Click here to learn more about Eileen.