U.S. Department of Education Rescinds Time Extensions Granted to Liquidate Remaining COVID-19 Relief Funding

05.05.2025

On Friday, March 28, 2025, the United States Department of Education (“USDOE”) issued a letter (the “Recission Letter”) from USDOE Secretary Linda McMahon (“McMahon”) to all chief state education officers stating that USDOE would no longer honor time extensions that were granted to the states to access federal pandemic relief funding. In response, California’s Attorney General, Rob Bonta, joined 16 other states and the District of Columbia in a lawsuit filed on April 10, 2025, in the Southern District of New York (Case No. 25-cv-2990) against USDOE and McMahon in her official capacity. The lawsuit alleges that USDOE’s action in abruptly rescinding the approved extensions violates the Administrative Procedure Act (“APA”) and seeks declaratory and injunctive relief from the Recission Letter’s enforcement.

The Recission Letter and Resulting Lawsuit

The Recission Letter was received by state education officials at 5:03 p.m. ET on March 28, 2025, and notified the officials that, as of 5:00 p.m. the same day, USDOE had unilaterally rescinded extensions of time that were previously approved by USDOE to access awarded COVID-19 relief funds appropriated by Congress. The previously granted extensions allowed states to access awarded funds that had been timely obligated through March of 2026; however, the Recission Letter declared that the period for accessing funds had already expired. The Recission Letter reasoned that extending COVID-19 grants years after the pandemic was declared over was not consistent with USDOE’s priorities and thus was not a “worthwhile exercise of its discretion.” The Recission Letter also stated that the reliance interests developed by funding recipients were “minimal” and “unreasonable,” and that funding recipients could not rely on USDOE’s original decision because the approvals were a matter of agency discretion.

The lawsuit filed by the states alleges that the Recission Letter has and will continue to cause irreparable damage to state and local education programs and services due to the unilateral recission of the extensions, which schools had relied on to create budgets, hire staff, offer services to students and families, and develop operating plans, among other things. The state plaintiffs allege that the Recission Letter violates the APA as an arbitrary and capricious act by USDOE based on the inadequate justification included therein for the agency’s change in position. The state plaintiffs also allege that the Recission Letter violates the APA as being contrary to law because the relevant regulations and policies do not authorize recission based on the pandemic’s cessation and because Congress specified whether funds should be available following the pandemic in other contexts.

Education-Related Funding Impacted by the Recission Letter

During the COVID-19 pandemic, Congress enacted several laws intended to alleviate the immediate effects of the pandemic on public health and the Nation’s economy, including the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”), American Rescue Plan Act of 2021 (“ARP”), and the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSA). These laws included appropriations that were intended to address the Nation’s needs following the pandemic, including nearly $200 billion appropriated for education systems that suffered due to the loss of in-person instructional time and disproportionate impact of the pandemic on economically and otherwise disadvantaged students, in both public and nonpublic schools.

The appropriations laws enacted by Congress during the COVID-19 pandemic created three important sources of education-related funding that state and local education providers have utilized: (1) the Elementary and Secondary School Emergency Relief (“ESSER”) program; (2) the Homeless Children and Youth (“HCY”) program; and (3) the Emergency Assistance to Nonpublic Schools (“EANS”) program. The grants awarded to states pursuant to these programs were available for obligations incurred through September 30, 2024, and USDOE invited states to request extensions of the funding liquidation period pursuant to federal regulations. (See 2 CFR § 200.344(c).) Each of the states now suing USDOE and McMahon, including California, requested such extensions after the federal government declared the COVID-19 pandemic to have ended in May of 2023. The extensions were granted based on USDOE’s determination that sufficient justification and documentation for the request had been provided.

California’s schools received over $13 billion from these programs and are now projected to lose approximately $200 million due to the recission of the extensions. In early 2024, California’s Department of Education (“CDE”) applied for and was granted extensions through December 31, 2025, to liquidate remaining EANS funds and through March 28, 2026, to liquidate remaining ESSER and HCY funds. The EANS funds are being used by California’s schools to acquire educational technology and supplies, improve school sites, and address pandemic-related learning loss. The ESSER funds are primarily being used to address the pandemic’s impact on public elementary and secondary schools, for example, through purchases of educational technology and adaptive equipment. The HCY funds are used to provide, among other things, instructional support, tutoring and mentoring services, increased school access, and hygiene supplies to children and youth experiencing homelessness. Notably, California typically distributes ESSER and HCY funds in the form of advancements to local educational agencies in accordance with applicable regulations. (See 2 CFR § 200.305.)

Impact on California Schools

Both public and nonpublic schools in California are likely to be affected by USDOE’s sudden recission of the funding extensions, which Attorney General Bonta estimated will deprive California’s schools of approximately $200 million. LEAs received advancements from CDE pursuant to the ESSER and HCY programs and many have obligated funds for projects under those programs. LEAs have entered contracts for facilities improvements and other services for students and may be unable to meet the payment obligations of those contracts without access to the affected funding. This may impact LEAs’ ability to finish projects that were commenced with the rescinded funding and harm the relationship between LEAs and the contractors and vendors they work with, ultimately depriving students and families of programs and services vital to addressing the impacts of the pandemic on education.

With respect to nonpublic schools[1], CDE also obligated EANS funding to vendors through contractual agreements to provide services to nonpublic schools and has relied on invoices received from those vendors when drawing from EANS funding. USDOE’s unexpected recission impedes CDE’s ability to reimburse EANS vendors for costs incurred pursuant to its contractual obligations. The lawsuit against USDOE and McMahon provides that, as of April 10, 2025, three of the ten vendors CDE relies on to provide EANS-related services to nonpublic schools and students have already notified CDE that they will cease all EANS-related services due to non-payment as required by their contracts.

While the outcome of the lawsuit is yet to be seen, if successful, the state plaintiffs seek to have the Recission Letter vacated, declared an unlawful act under the APA, and to have USDOE and McMahon permanently enjoined from enforcing the letter or otherwise revoking existing USDOE funding extension approvals.

AALRR attorneys will continue to monitor executive, administrative, and legislative actions that may impact federal funding sources, USDOE, and its duties to provide updated guidance for educational agencies. If your educational agency has questions about the Recission Letter or the contents of this Alert, please contact the authors of this Alert or your usual AALRR counsel. 

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.

© 2025 Atkinson, Andelson, Loya, Ruud & Romo 

[1] For purposes of the EANS program, an eligible non-public school is an elementary or secondary school that—

• Is non-profit; 

• Is accredited, licensed, or otherwise operates in accordance with State law;

• Was in existence prior to March 13, 2020, the date the President declared the national emergency due to COVID-19; and

• Did not, and will not, apply for and receive a loan under the Small Business Administration’s Paycheck Protection Program (PPP) (15 U.S.C. 636(a)(37)) that is made on or after December 27, 2020.