In August, the Department of Education released its most recent Negotiated Rulemaking proceedings, which revealed an effort to (re)define public service so as to block certain borrowers from qualifying for Public Service Loan Forgiveness. When the Neg. Reg. itinerary was announced this spring, one of the most concerning proposals was “Refining definitions of a qualifying employer for the purposes of determining eligibility for the Public Service Loan Forgiveness program.” While the actual verbiage seems sufficiently banal, many speculated that this could be an effort to wield PSLF for political purposes. Now that we have the newest Neg. Regs., we know that’s true.
The latest Negotiated Rulemaking proceedings use broad language to define who might be disqualified from PSLF. They state, “The proposed regulations would prevent taxpayer-funded PSLF benefits from being improperly provided to individuals who are employed by organizations that engage in activities that have a substantial illegal purpose.” While that seems like it should make sense—people shouldn’t get PSLF for working for criminal organizations, right?—one has to wonder why the Department of Education is determining who is illegal and who’s not.
The Dept. of Ed. purports to be rectifying the fact that the Higher Education Act does not define what “public service” is, merely what a “public service job” is. To fill in the gaps, Ed. is making use of the IRS’s “illegality doctrine.” In short, the Illegality Doctrine says that an organization largely engaged in illegal activity shouldn’t be able to qualify for non-profit status. The irony here, however, is that the Department is going around the IRS—who awards non-profit status—to determine which non-profits it deems have a “substantial illegal purpose,” and thus disqualify their employees from PSLF. In other words, with this new definition of qualifying employment, the Dept. of Ed. would hold the power to disqualify particular unpopular employers from PSLF rather than question their non-profit status, or have the Department of Justice investigate their “illegality.”
Legal gordian knots aside, it’s likely that these proposed regulations will still be implemented. Navigate’s partners at the PSLF Coalition, however, have sent a letter to the Department of Education expressing our revulsion at these regulations and our belief that they are ill-begotten, and we suspect that we won’t be the only ones. We and our colleagues believe that the Department has no authority to redefine who qualifies for PSLF. While the HEA may not define “public service,” it does a pretty good definition of defining “public service job” as “U.S.-based government organizations at any level (federal, state, local, or tribal) – this includes the U.S. military; Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code; Other not-for-profit organizations that devote a majority of their full-time equivalent employees to providing certain qualifying public services.” Especially for 501(c)(3) non-profits, which includes most hospitals and universities, the law leaves no avenue for the government to cherrypick which organizations qualify. If and when the Department of Education is foolish enough to enact these regulations, we expect swift and far-reaching legal challenges, probably even from state attorneys general.
The courts, however, will take time. If you’re worried that your employer may be deemed ineligible for PSLF, give us a call. We’ll help you explore alternative strategies, including having a back-up plan for if that happens, to get you through the meantime. .
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