PPPFA Eases Burdens On Borrowers, But Raises New Challenges For Schools
Earlier this month, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA), a law which attempts to ease many of the loan forgiveness and other requirements imposed under the original Paycheck Protection Program (PPP) enacted this past March.
While the PPPFA relaxes certain requirements for independent schools and other employers to obtain loan forgiveness, the law could significantly extend the time period through which schools must abide by federal-law requirements under the PPP, particularly non-discrimination obligations.
Background: The CARES Act
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. As part of that law, Congress appropriated $349 billion for the creation of the PPP through the U.S. Small Business Administration (SBA).
The PPP allows employers to apply for low-interest (1%) private loans to pay for their payroll and certain other operating costs. The hallmark of the PPP is that the loan may be fully forgiven if the loan recipient meets certain requirements. In general, for a loan to be forgiven, the CARES Act required that at least 75 percent of the loan proceeds be spent on “payroll costs” during the eight weeks following the lender’s disbursement of the loan proceeds.
Concerns about the program arose almost immediately, as many employers were not ready (or allowed) to reopen and therefore found it difficult to spend the requisite payroll amounts within eight weeks to ensure forgiveness of the loan. Even employers that were able to remain open or reopen found it difficult to allocate 75% of the loan proceeds exclusively to payroll, especially with high rent or mortgage payments. Based on such concerns, employers pushed for additional guidance and relief from the original PPP requirements.
Paycheck Protection Program Flexibility Act
With such issues in mind, earlier this month, Congress passed, and President Trump signed into law, the PPPFA, with the primary aim of helping employers achieve the loan forgiveness created by the CARES Act. Among other things, the PPPFA extends the time period employers have to rehire and pay workers, and lowers to 60% the percentage of the loan proceeds that must be spent on payroll costs.
More specifically, the PPPFA provides as follows:
• Eight-Week Loan Forgiveness Period Extended To 24 Weeks. Under the PPPFA, the eight-week “covered period” has been extended to 24 weeks or December 31, 2020, whichever comes earlier. This will provide employers with up to six additional months to restore their payroll levels without incurring any reduction in the loan forgiveness amount.
• Threshold Payroll Expenditure Figure Drops To 60%. Since many employers with significant operating expenses (and no current need for employees’ services) found it difficult to satisfy the 75% threshold, the PPPFA reduces the required amount to be spent on payroll costs from 75% of the loan amount to 60%.
• New December 31, 2020 Deadline For Rehiring Workers. The original PPP reduced the amount of loan proceeds eligible for forgiveness if the employer did not restore its workforce to pre-pandemic levels by June 30, 2020. Under the PPPFA, employers now have until December 31, 2020 to restore their workforces.
• Softening Of Rehire Requirements. The PPPFA creates new exceptions that excuse employers from bringing back workers if they can document that they were unable to rehire them (for example, if an employee rejects an offer to return). The PPPFA states that the amount of loan forgiveness will not be reduced due to a reduction in the number of full-time equivalent employees if a borrower, in good faith, documents (i) its inability to rehire individuals who were employees on February 15, 2020; and (ii) its inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
• Repayment Term Extended From Two To Five Years. Borrowers now have five years to repay their PPP loans, rather than two years as previously granted under the CARES Act. The interest rate remains at 1%. (This, of course, assumes that loan forgiveness is not sought.)
• Payroll Tax Deferment. The new law allows borrowers to delay payment of their payroll taxes for Social Security. Previously, the PPP did not allow deferment of these taxes on the forgivable part of the loan.
Considerations For Independent Schools
As many independent schools are well aware, in receiving a PPP loan, an institution must certify that it will comply with several SBA regulations regarding civil rights/anti-discrimination laws until the loan is fully forgiven or repaid.
In particular, institutions receiving PPP loans are obligated to comply with the following federal laws:
• Title VI of the Civil Rights Act of 1964 (prohibiting discrimination against any individual on the basis of race, color, or national origin);
• Title IX of the Education Amendments of 1972 (“Title IX”) (prohibiting discrimination on the basis of sex in any education program or activity);
• The Age Discrimination Act of 1975 (prohibiting discrimination against any person on the basis of age); and
• Section 504 of the Rehabilitation Act of 1973 (prohibiting discrimination against a qualified individual with a handicap).
If an independent school chooses to take advantage of the longer deadlines set forth in the PPPFA, its obligation to comply with these federal laws will be triggered for a longer period. Such extended compliance periods could have a dramatic impact on independent schools, particularly as it relates to their compliance with Title IX obligations under the SBA’s regulations.
For example, while independent schools may have originally planned to have their loans fully forgiven prior to the start of the 2020-2021 academic year, the lengthened forgiveness period would quite likely extend Title IX compliance into the upcoming school year, if not longer. This could be particularly problematic given that the U.S. Department of Education (DOE) recently announced a dramatic overhaul of its Title IX regulations, which are set to take effect on August 14, 2020.
While it is still unclear whether, and to what extent, an independent school receiving a PPP loan would have to comply with the DOE regulations (as opposed to the separate SBA Title IX regulations, which currently, are not subject to the updates), schools will need to keep the interplay of those regulations in mind if their loans are not fully forgiven or repaid by August 14, 2020.
Importantly, the PPPFA still allows borrowers to seek forgiveness immediately after the eight-week period. Therefore, independent schools may choose to stay within the previously-established deadlines and seek loan forgiveness (and therefore terminate their obligations to comply with the applicable federal civil rights laws) as soon as practicable.
Regardless, independent schools should ensure that they have plans in place for maintaining compliance with these federal guidelines until the loans are fully forgiven or repaid. (On this topic, our education attorneys have been working closely with independent schools in developing and providing compliance packages to meet the PPP’s requirements, as well as separate, interactive Title IX trainings.)
Overall, the PPPFA is clearly a win for independent schools and other employers. The new law provides PPP borrowers with much-needed flexibility to ensure that the maximum amount of loan proceeds can be forgiven. The PPPFA also extends significantly the time period for employers to repay PPP loans, at a very modest interest rate, to the extent loan forgiveness is not desirable or feasible.
At the same time, this extension will have a considerable impact on independent schools, which will face a lengthier period of mandatory compliance with the federal non-discrimination laws if they choose to take advantage of the extended forgiveness/repayment period. Institutions that elect to do so should ensure that they are adequately prepared for such extended compliance.
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Our attorneys have extensive experience advising educational institutions and other employers across the nation on managing the PPP loan process and on how PPP loans impact individual organizations, including with tailored compliance packages and Title IX trainings we have provided for many schools. We would be happy to assist your organization.