Student Loans
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The new Interim Final Rule issued by the SBA on March 3, 2021, reverses the prior rules by indicating that independent contractors and employers who were otherwise eligible to receive PPP loans may do so regardless of whether the borrower or a 20% or more owner is in default under Federal Student Loans.
Before this pronouncement, any trade or business owned 20% or more by a delinquent student loan borrower could be determined ineligible for PPP loan assistance.
The Interim Final Rule sites a Department of Education report which indicates that “Black and Brown students rely more heavily on student loan debt than their peers and experience delinquency at disproportionally high rates. As a result prohibiting delinquent student loan borrowers from obtaining PPP loans is more likely to exclude business owners of color from access to the loans they need.”
Minorities, however, are not the only group that experiences student loan difficulties. According to a study conducted by the Center for Responsible Learning, roughly 15% of individuals with student loan debt are either behind on their payments or in collection. This number doubles to nearly 30% for individuals who are self-employed.
The Interim Final Rule indicates that the change is consistent with the policy set forth in Section 3513 of the CARES Act and the Department of Education’s ongoing actions to provide economic relief to student loan borrowers whose loans are held by the agency. Additionally, the rule notes that this change to student loan debt shall apply both to new PPP applicants and those who have already received a PPP loan.
As a result of the above rule, an owner of 20% or more of the equity of a PPP borrower who is delinquent on a federal student loan may remain an owner and will not cause the borrower to receive a PPP loan.
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Beyond extending loan availability to borrowers and business owners with loan debt, the recent rule also allows business owners with non-fraud-related felony convictions to qualify for assistance.
I will keep you posted as further changes and interpretations of the PPP and other associated laws occur.