The Public Service Loan Forgiveness Regulations And Why to Ignore Them
We have been saying for a while that the greatest harm to the nonprofit sector from this administration will not come from the threatened actions themselves but from the fear created by those threats. The many ways that Boards, donors, and leadership will push for a retreat from the programs that are disfavored by the administration because they have heard about these threats, thanks to their amplification by articles and posts like this made in the spirit of keeping organizations informed. Many of the threats to the nonprofit sector have been some combination of social media bile from the president and his collaborators, performative letters from Congresspersons or complaints to the IRS, or rumors of future regulatory action that have no prospect of being legally effective (e.g. “administration going to say environmental work is not charitable now” or “no more international grantmaking” – nonsense, but threats that consumed many hours of organization and legal time this year). They have not been law or even formal regulations, just Executive Orders and a whole lot of junk masquerading as a real legal threat.
It is tempting to call the final Department of Education regulations for the Public Service Loan Forgiveness program – weaponizing a program intended to encourage those crushed by student debt (raises hand) to work for nonprofits instead of making all of their career decisions based on the hope of escape (raises hand again) – more of a real threat than the other stuff. They are regulations after all and, prior to the current incarnation of the Supreme Court, those used to be really important.
Maybe it will be something.
But the premise of this post is that what nonprofits should do in response to these regulations is: nothing. Don’t do anything. Go about your mission and do not think about this again. (And if you’re annoyed with that response and think I’m underselling it – fine, go tell your employees to apply for loan forgiveness now and make sure they understand their rights under the program and are applying when they are ready, but you should have been telling them that anyway).
If you’re a nonprofit and listened to my advice, you should stop here and go about your day. But if you want to know why that’s my advice and what this is all about, let me explain.
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What Is the Public Interest Loan Forgiveness Program?
It is important to start by remembering that the Public Interest Loan Forgiveness Program has spent most of its lifetime as terribly broken. First passed in 2007 under the Bush administration, the program promised forgiveness of loans to anyone who worked for a qualifying organization – with a couple of additions, government agencies or 501(c)(3) organizations – and made 10 years of loan payments, reduced based on income.
During that 10-year period waiting for the first borrowers to be eligible, problems were brewing if you were paying attention. Hardly anyone submitted the forms to document their payment history and status with a qualifying organization. It was unclear what was happening within the agency to track who was going to be eligible and how many payments counted. And, if you went to college in an area when the federal subsidized loans had 6.8-8.25% interest rates, you were very likely tempted to refinancing with a private lender at a lower interest rate when the economy crashed thinking you’ve just solved all of your problems (raises hand one more time), but actually potentially disqualifying yourself from the federal forgiveness program which is limited to loans that remain public. There was not nearly enough education about how this program worked and what would be necessary to get the forgiveness when the time came.
Making this (and everything) so much worse, the president in 2017 when borrowers were becoming eligible was… the same person it is now.
Out of the first 28,000 applications for forgiveness, how many do you think were approved?
· If it were only 20,000, that would have been very disappointing to me when you consider how so many people were relying on this program as their only hope of getting out of debt.
· 10,000 would have been an immense public failure.
· 1,000? Shame on everyone.
The answer: 96 applications were approved. An over 99.5% denial rate.
There was some Congressional action in 2018 that made modest improvements but still led to the vast majority of applications being denied. And the Biden administration did a lot of work on loan forgiveness across board, including more than 100,000 people being approved under this program. But the program is still far from working (millions work for governments or nonprofits and have student loans), and the administration has long tried to get rid of this program is back in power.
The point: let’s remind ourselves that this program was ALWAYS going to be broken under this administration. What the administration is threatening to take away from progressive organization employees with these regulations is something they are already going to fight not to provide.
What Are These Regulations?
The gist is that the regulations exclude from the definition of ‘qualifying organization’ any organization that has a “substantial illegal purpose, as defined in this section”. And you won’t believe it, but the administration is actually only interested in certain kinds of illegality – in particular, things intended to make people doing perfectly legal and urgently important things (protecting immigrants, providing care to trans youth, pursuing diversity, equity, and inclusion, protesting fascism) feel like they might be doing something illegal and should stop lest their employees lose their loan forgiveness.
The list they give us of illegal purposes:
· Aiding or abetting violations of 8 U.S.C. 1325 or other Federal immigration laws.
· Supporting terrorism, including by facilitating funding to, or the operations of, cartels designated as Foreign Terrorist Organizations consistent with 8 U.S.C. 1189, or by engaging in violence for the purpose of obstructing or influencing Federal Government policy.
· Engaging in the chemical and surgical castration or mutilation of children in violation of Federal or State law (specifically defined as “surgical procedures that attempt to transform an individual’s physical appearance to align with an identity that differs from his or her sex or that attempt to alter or remove an individual’s sexual organs to minimize or destroy their natural biological functions”);
· Engaging in the trafficking of children to another State for purposes of emancipation from their lawful parents in violation of Federal or State law.
· Engaging in a pattern of aiding and abetting illegal discrimination.
· Engaging in a pattern of violating State laws as defined herein (the only state laws they care about: Trespassing; (Disorderly conduct; Public nuisance; Vandalism; or Obstruction of highways, i.e., stuff protesters get charged with).
And if you’re labeled as non-qualifying by the Department of Education on one of these bases, then, following the determination, any further payments by employees of that non-qualifying organization do not count towards the 10 years. So, your payments now still count – only your loan payments after the hypothetical date that the Department of Education decides your organization has ‘illegal purposes’ are under threat. And if it’s on this new ‘illegal purposes’ basis, borrowers don’t get to appeal the determination for the organization – there’s a process that the organization needs to go through, which of course includes the opportunity to enter into a settlement agreement where you promise the administration you’ll play by their rules and then they will let you be a qualifying organization for loan forgiveness program purposes (this resonates personally as the majority of my student loans were taken out to benefit a university that is one of the most notoriously pathetic capitulators to the administration and signatories to such agreement). Otherwise you have to wait 10 years to be eligible again.
Despicable, hateful, fascist nonsense as usual. Intended to perpetuate the psy-op that progressive organizations are domestic terrorists or supporting them, that federal and state law is settled on trans care and that supporting the care of trans youth is illegal, that DEI is unlawful discrimination, that providing care to immigrants or protesting ICE stormtrooper operations is illegal ‘aiding or abetting’. None of these things are true, of course, but if they keep saying it enough, they can bend the courts, public, media, and nonprofits to operating as though they are. And they are right about that; we are seeing it all the time.
If you wanted to engage with these regulations as if they had legitimate intentions, you might ask “Why do we need this? If a nonprofit organization actually had illegal purposes, wouldn’t it be disqualified from exemption and not be a qualified organization anyway?” The Department of Education’s comments to the regulations explain: “The IRS has resource constraints that limit its ability to act against organizations under the illegality doctrine and must exercise some degree of prosecutorial discretion. This means that, at least at times, the illegality doctrine will be underenforced.” So, the Department of Education gets to punish organizations for having “illegal purposes” even if they continue to be tax-exempt.
And that’s the trick they are playing here – they know (as we have been saying for a while) that they are not going to deploy the amount of resources in the IRS that would be necessary to engage in a politicized revocation campaign. Revocation is a time-consuming process. And they know that they would lose the vast majority of those revocations on appeal in any legitimate court, and that getting the IRS to cooperate in an unconstitutional campaign like that would not be easy (I have still yet to see a politicized IRS audit or denial in spite of submitting numerous applications that would displease the fascists if they were reviewing them). So they are saying “look, we can collaterally attack these organizations too by labeling them as invalid and punishing their employees – and we can get what we really want, which is getting them to sign some ‘settlement agreement’ to be qualifying again by signing an agreement.” One more way to humiliate progressive organizations into submission and betraying their values.
Before I proceed with my advice, a couple important notes if you are concerned about the above (in spite of the dismissiveness from me that will follow):
· These are just federal regulations – not an act of Congress. Post Loper Bright, these regulations carry far less legal weight than they used to if someone contested a designation in court. These regulations are basically a reflection of the administration’s opinion about how the public service loan forgiveness program should work. They will almost certainly be revoked in the next Democratic administration. And, based on the Biden administration’s actions around this program, very reasonable to expect that administration to undo whatever denials happen here.
· As a result, if your organization ever were labelled a non-qualifying organization under these new regulations. You can and should fight it. Perhaps the regulation as a whole would be set aside. Or at least the determination with respect to your organization. The drafting of the regulations makes it clear their goal is to just get that settlement agreement. They don’t want to go to court, so you should take them there if they try it. (And if this happens to you, please reach out to Defending Equity Initiative – this would a very fun one for the team of volunteers we have assembled over there and something where I’d love to pursue funding so the Initiative could hire lawyers to fight).
Why You Should Do Nothing
I understand (but deeply resent) the logic of the organizations losing federal funding that decided not to fight and instead tweak their activities (or more shamefully, enter into settlement agreements with the administration) so they could keep that federal money. Easy for me to say that it should be ‘mission over everything’, I don’t have to do the layoffs that come with losing real money.
But this? This is nothing. Certainly nothing to pre-emptively go cowering over. If one of your directors or donors raises this as a reason to not do X and Y, tell them they’re wrong and ask them to stand behind the mission. Life is hard, but we really can’t fold this easily over this weak of a stick.
If you’ve read up to this point, I think you will get the gist but let’s recap the obvious reasons:
· The punishment is purely forward-looking – only payments made after disqualification are affected. And no one has been disqualified yet. Nothing has changed. Your full-time employees’ payments still count if you are a qualifying organization. And you should tell them that.
· There is still a First Amendment. Even these regulations mention that they are subject to it. I’m not a constitutional lawyer but I am confident there are going to be many constitutional arguments for setting aside these regulations based on their intentions and broadness, and certainly arguments for invalidating their application in these cases.
· While they have introduced a more streamlined process for punishing progressive organizations than a tax-exemption revocation, there is also still due process (the 5th amendment still hanging around too) and the opportunity to resist in court. Even in our broken court system, the administration continues to lose a lot in court. The actual financial impact of these regulations is so small for them – how much are they going to invest in fighting back? If this happens, please consider just calling their bluff.
· The chances of you sticking to your mission being the reason your employees do not receive loan forgiveness are infinitesimally small – it will almost certainly because the entire program has been and will continue to not actually forgive loans. This will continue until a Democratic administration comes in and fixes it, retroactively repairing whatever denials happen during this period, like it (at least partially) did the last time.
· The Department of Education rivals the IRS and a few other agencies for the top stop on the ‘can we just get rid of this?’ agencies from the perspective of this administration. Are there going to be DOE task forces with adequate funding to wage this campaign and deal with the pushback?
· If you actually had illegal purposes, you would have much bigger problems. Potential revocation of tax-exempt status, for example. But more pressingly, actual criminal prosecution for you or your employees. Why would you do anything that looks like you are conceding that what you are doing is illegal? (Again, it is almost certainly not).
· The last reason and the one that resonates the most with me is “we need to stop making it so easy for them to scare us.” If this is enough to get you to deviate from your mission, what are we even doing here? And what message does it send to everyone else (your employees, other organizations aligned with your mission, your donors) that this is too much for us to stand up to. Cowardice is contagious.
My sincere hope is that all of our progressive nonprofit clients and readers stopped reading when I told them to at the beginning. Hopefully, whoever is left are fellow advisors that might otherwise have talked to people about these regulations as a pretense for ‘time to take close look at your programs and evaluate your risk’. I have done it, we have all done it, but the best thing we can do for our clients now is to support them in carrying out their mission most effectively amidst a lot of pressure from a lot of places to compromise. Do your jobs, but please, not every bark needs to be treated like a bite.
