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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Rules and Regulations
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will help mitigate the risk of default, fraud, or misuse of PPP loan funds that are intended to benefit small business employees. By removing barriers for applicants with non-financial fraud felonies, this interim final rule balances the need to increase access to the PPP
and remove barriers for people with prior convictions while still ensuring basic guardrails against fraud exist for this emergency program. Preserving the five-year lookback for financial fraudrelated felonies is one of these guardrails.
The consolidated interim final rule implementing updates to the PPP also provided that a PPP loan applicant is ineligible for a PPP loan if the applicant, or any business owned or controlled by the applicant or any of its owners, has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government.
SBA, in consultation with Treasury, has decided to eliminate the restriction in the consolidated interim final rule to the extent it applies to Federal student loans.12 SBA has determined that eliminating consideration of delinquent or defaulted Federal student loans is appropriate to ensure consistency with Congressional intent to provide relief to small businesses and their employees and expand access to the PPP. This change will make PPP loans available to more borrowers with financial need and is consistent with Congresss intent that PPP loans be prioritized for small business concerns owned and controlled by socially and economically disadvantaged individuals as defined in section 8d3c of the Small Business Act.13 According to the Department of Eduction, Black and Brown students rely more heavily on student loan debt than their peers and experience delinquency at disproportionately 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 12 Federal student loans mean programs under Parts B, D and E of the Higher Education Act of 1965, as amended, as well as other programs now administered by the Department. These include loans under the under the William D. Ford Federal Direct Loan program, the Federal Family Education Loan FFEL program, the Federal Perkins Loan program, the Health Education Assistance Loan HEAL program, and the Teacher Education Assistance for College and Higher Education TEACH Grant program if those awards have converted into loans. These delinquencies include loans owed directly to the Department of Education as well as Federal student loans held by institutions of higher education or those guaranteed or insured by the Department of Education and which are held by private lenders or guaranty agencies.
13 See 15 U.S.C. 636a36Piv.

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the loans they need. 14 In addition, this change is consistent with the policy set in section 3513 of the CARES Act and the Department of Educations ongoing actions to provide economic relief to student loan borrowers whose loans are held by the agency by suspending Federal student loan payments and collections during the pandemic and keeping the interest rate at 0 percent.15
At the request of the Department of Education by letter dated February 27, 2021, Treasury also has granted an exemption from the bar in 31 U.S.C.
3720B and 31 CFR 285.13, with respect to PPP borrowers with Federal student loans in delinquent status.
The change in PPP regulations relating to Federal student loans and the Treasury exemption apply to new PPP
applicants as well as those borrowers who have already received a PPP loan.
In this way, PPP borrowers with delinquent or defaulted student loan debts are treated equally, without regard to when they submitted their PPP
application. Although PPP applications previously required applicants to disclose whether they had a delinquent Federal debt, student loan borrowers may have been confused about the status of their loans due to the current suspension on the payment and collection of Federal student loans or uncertain about whether loans not directly serviced or held by the Department of Education constitute Federal debt. This confusion may have led some borrowers to make innocent errors on their PPP application. For these reasons, SBA will apply this change to any First Draw PPP Loan or Second Draw PPP Loan, regardless of when the PPP loan was made.
Part IV.e of the interim final rule titled Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans, published on January 14, 2021
Second Draw Interim Final Rule 86
FR 3712, provides that an applicant is not eligible for a Second Draw PPP Loan if the applicant is excluded from eligibility under the consolidated interim final rule implementing updates to the PPP. The following revisions to Part III.B.2.a. of the consolidated interim final rule implementing updates to the 14 See letter from Department of Education to Department of the Treasury requesting an exemption under 31 CFR 285.13 of the ban on Federal financial assistance to debtors with delinquent Federal student loans, for the PPP
program, dated February 27, 2021.
15 See Department of Education, Coronavirus and Forbearance Info for Students, Borrowers, and Parents, https studentaid.gov/announcementsevents/coronavirus.

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PPP also affect eligibility for Second Draw PPP Loans.
Therefore, subsections B.2.a.iii. and B.2.a.iv of the consolidated interim final rule implementing updates to the PPP
86 FR 3692, 3698 are revised to read as follows:
2. What businesses, organizations, and individuals are ineligible?
a. Could I be ineligible even if I meet the eligibility requirements in section 1?
You are ineligible for a PPP loan if, for example:

iii. An owner of 20 percent or more of the equity of the applicant is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction;
or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation including probation before judgment for a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years; or iv. You, or any business owned or controlled by you or any of your owners, has ever obtained a direct or guaranteed loan from SBA or any other Federal agency other than a Federal student loan made under Parts B, D, and E of the Higher Education Act of 1965, as amended, or other programs now administered by the U.S. Department of Education, which include the William D. Ford Federal Direct Loan program, the Federal Family Education Loan FFEL program, the Federal Perkins Loan program, the Health Education Assistance Loan HEAL program, or the Teacher Education Assistance for College and Higher Education TEACH
program that is currently delinquent or has defaulted within the last seven years and caused a loss to the government;

Subsection B.2.a. is amended to add after subsection B.2.a.ix:
The exclusion of Federal student loans from the restriction on applicants with delinquent or defaulted Federal debt in subsection iv applies to any loan made pursuant to section 7a36
or 7a37 of the Small Business Act, including forgiveness of such a loan, regardless of when the loan was made.
3. Additional Information SBA may provide further guidance, if needed, through SBA notices that will be posted on SBAs website at www.sba.gov. Questions on the
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