For Halloween, today’s policy update is filled with several tricks (i.e., new challenges for nonprofits) but very few treats (i.e., good news for nonprofits). We start with details on the new U.S. Department of Education final rule that could limit some nonprofits’ eligibility to be qualifying employers in the Public Service Loan Forgiveness program. We provide information about two court filings and new bills in Congress seeking to prevent a devastating suspension of SNAP benefits for 1.4 million North Carolinians tomorrow. And we share the latest on the federal government shutdown (it’s still going but might eventually end) and the federal lawsuit involving the IRS enforcement of the Johnson Amendment (it’s back on track).
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Final PSLF Regulations Make Virtually No Changes to Problematic Proposed Rule |
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Under PSLF, student loan borrowers who work in public service jobs – including positions with 501(c)(3) nonprofits – for 10 years while paying off their student loans are eligible to have the remainder of their federal student loans forgiven. PSLF has enabled many young professionals to afford careers in the nonprofit sector.
The final rule excludes employers – potentially including some 501(c)(3) nonprofits – from being eligible employers for PSLF if they are engaged in “substantial illegal purposes.” The final regulations define “substantial illegal purposes” to include: |
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Aiding or abetting violations of federal immigration laws;
- Supporting terrorism;
- Engaging in chemical or surgical castration or mutilation of children;
- Engaging in child trafficking;
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Engaging in a pattern of aiding and abetting illegal discrimination in violation of federal anti-discrimination laws (which could potentially be construed broadly to cover programs and employment practices that provide preferences based on race or proxies for race); and
- Engaging in a pattern of violating certain state laws, including trespassing, disorderly conduct, public nuisance, vandalism, or obstruction of highways.
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Under the final rule, the Secretary of Education will have the authority to determine “by a preponderance of the evidence” that an otherwise eligible nonprofit has engaged in activities that have a substantial illegal purpose with only minimal due process for the nonprofit. Once a nonprofit has been deemed to have engaged in activities that have a substantial illegal purpose, it will remain an ineligible employer for PSLF for at least 10 years. The final rule also requires that nonprofits must certify in their application to be a PSLF-eligible employer that they do not participate in activities that have a substantial illegal purpose, which may be difficult and unclear for staff to determine if the organization provides services in certain mission areas or to particular populations. The Center is deeply concerned that this new rule will affect PSLF eligibility for some nonprofit employees.
Last month, the Center submitted public comments highlighting the importance of PSLF to North Carolina nonprofits, their employees, and their communities and providing 10 suggestions for ways the Department could improve its proposal in the final rule. Unfortunately, the final rule largely ignored or disregarded most of the Center’s suggestions, along with the feedback from most of the other nearly 14,000 public comments.
In case you don’t want to read the full 185-page final rule, here are some highlights on issues that nonprofits have mentioned to the Center as concerns: |
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The Department’s comments in the final rule address many nonprofits’ concerns that organizations providing services to refugees and immigrants could be deemed ineligible employers for PSLF. The Department notes that organizations providing services to, or advocating for, refugees and undocumented immigrants are not engaged in “substantial illegal purposes” unless they “aid and abet in criminal activity.”
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The Department rejected many nonprofits’ concerns that the rule will allow it to declare nonprofits ineligible employers for PSLF for political reasons, notably if they are operating for purposes that are inconsistent with White House priorities. The Department explained that it “would have no basis to remove eligibility from nonprofits engaged in work related to immigrant communities, LGBTQ+ individuals, or racial justice if those organizations are following the law.” However, the Department also noted that it selected the types of activities that would constitute “substantial illegal purposes” based on the direction of an Executive Order (EO 14235) issued by President Trump in March.
- While the Department “rejects the idea that ordinary, lawful assistance such as legal advices, medical care, or humanitarian support could trigger PSLF disqualification”, it suggests that it could determine that nonprofit organizations themselves were engaged in “aiding and abetting” criminal activity if numerous employees aided and abetted in criminal activities at the direction of their employer.
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As the Center recommended in its public comments, the Department made slight modifications to its review process to clarify that it “will weigh the seriousness of offenses and the frequency with which they occurred when determining if an organization . . . has a substantial illegal purpose for PSLF eligibility purposes.”
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In our public comments, the Center noted that the new certification process for PSLF-eligible employers could cause some nonprofits to lose their status as qualifying employers for the purposes of PSLF either because they were unaware of the new certification requirement or because they were uncomfortable certifying that they did not participate in activities with substantial illegal purposes because of concerns that the definitions of such activities are unclear or ambiguous. The Department acknowledged this issue, explaining that it “will reject an individual application if the section about the employer’s certification that it did not engage in substantial illegal activities is omitted or missing. The Department, via the borrower, will provide the employer an opportunity to correct the application and provide the requested information. However, when an employer consistently fails or refuses to provide a certification on multiple applications, the Department may consider disqualifying the employer.” Yet, the Department argued that the “costs associated with employer review and administration” would be “modest”.
- The Department anticipates that the final rule will serve primarily as a deterrent from nonprofits engaging in “substantial illegal purposes.” Somewhat surprisingly, given the broad scope of activities that are covered, the final rule notes that “the Department expects that it will only take action to remove PSLF program eligibility for less than ten employers per year.”
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The final rule takes effect on July 1, 2026 and will only apply to “substantial illegal activities” that take place after that date. This means that nonprofits with employees currently in the PSLF program (or those that might have PSLF-eligible employees in the future) have eight months to review their operations to ensure that they are not engaged in “substantial illegal activities” as defined (quite broadly) in the rule and to make any necessary changes so that they are in compliance by July 1, 2026.
The final rule was published on the Federal Register this morning (making it official). It is likely that it will be challenged in federal court. |
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1.4 Million North Carolinians Could Lose SNAP Benefits Tomorrow |
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On Tuesday, 25 states (including North Carolina) and the District of Columbia filed a lawsuit in a federal court in Massachusetts alleging the the U.S. Department of Agriculture (USDA) violated federal funds by suspending the SNAP program when it has contingency funds available to continue providing SNAP benefits well beyond October 31 and asking the court to require USDA to use these contingency funds to continue to provide SNAP benefits during the federal government shutdown.
- Yesterday, several nonprofits and local governments – including the National Council of Nonprofits and the City of Durham – filed a separate lawsuit in a federal court in Rhode Island seeking to stop USDA from suspending SNAP benefits tomorrow.
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Members of Congress are also seeking to ensure the continuation of SNAP benefits during the government shutdown. This week, both Democrats and Republicans in the U.S. Senate filed bills to provide immediate SNAP funding to prevent a disruption in SNAP benefits tomorrow.
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While it is unlikely that either of the Senate bills will pass both chambers of Congress today, it is quite possible that one or both of the pending lawsuits could force USDA to continue SNAP benefits, at least into next week. |
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U.S. Senators Seek Bipartisan Solution to End Federal Government Shutdown |
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Today marks the 31st day of the federal government shutdown as Congress and the White House remain unable to reach an agreement on appropriations legislation for the current federal fiscal year. Last month, the U.S. House of Representatives approved a “clean” continuing resolution (H.R. 5371) that would extend federal funding through November 21. The bill needs 60 votes to pass the Senate.
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The Senate has rejected the bill 13 times in the past five weeks. However, this week, Senators are reportedly talking about a bipartisan solution to end the government shutdown, perhaps as soon as next week.
During the first month of the government shutdown, most Senate Democrats have opposed the temporary spending bill or a partial spending bill for two reasons: |
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Without congressional action, the enhanced premium tax credits on their Affordable Care Act (ACA) Marketplace health plans are scheduled to end after this year. Translation: The cost of ACA Marketplace health coverage will increase significantly for many North Carolinians in 2026, including for many people who are clients of nonprofits and employees of nonprofits that do not offer employer-provided health coverage. Some congressional leaders have indicated that Congress could consider extending the enhanced tax credits in December. Democrats have expressed concerns that this will be too late since open enrollment for ACA Marketplace plans opens on November 1. However, now that the shutdown will almost certainly continue into November, many Democrats have accepted that significant health care cost increases are inevitable.
- President Trump has twice this year used rescissions to cancel billions of dollars of congressionally-approved funding. Democrats want future appropriations legislation to include assurances that President Trump will not have the authority to rescind other funding approved by Congress.
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If the shutdown continues into November, it is possible that funding could run out for the Supplemental Nutrition Assistance Program (SNAP) and the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) programs.
As noted in the previous item, if the shutdown continues into November (which it almost certainly will), funding will run out for SNAP. Funding also runs out today for other federal programs that are important to many nonprofits and the people they serve, including Head Start and the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) program. Let us know if your nonprofit has been affected by the month-long federal government shutdown.
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IRS Reschedules Oral Arguments in Case Involving Political Endorsements by Churches |
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On Wednesday, a federal court in Texas rescheduled oral arguments for November 25 in a case in which the Internal Revenue Service has requested a consent judgment that would allow two churches to make political endorsements to members of their congregations. Like other 501(c)(3) tax-exempt organizations, churches may not “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” Essentially, the IRS is interpreting the nonpartisanship requirement (sometimes known as the Johnson Amendment) as having a narrow exemption for communications from churches and other houses of worship to their congregations “through [their] customary channels of communication on matters of faith in connection with religious services.”
Originally, the oral arguments had been scheduled for November 7 in the District of Columbia. The oral arguments will now be held in Dallas.
If the court were to issue the consent judgment, it would not be appealable and would limit the exception to the Johnson Amendment to the two churches that are parties to the case. However, Americans United for Separation of Church and State (AU), a left-leaning advocacy group, filed a motion to intervene in the case in July, effectively arguing that it has a legal interest in the case and that none of the parties to the case adequately represent its interest. If the court eventually hears oral arguments, it could consider whether to allow AU to intervene in the case. If the court ultimately grants the motion to intervene, AU would have the right to appeal the consent judgment, which could ultimately lead to a broader appellate court ruling (perhaps ultimately by the U.S. Supreme Court) on whether the nonpartisanship provision in Section 501(c)(3) of the Internal Revenue Code is allowable under the First Amendment. (Spoiler alert: There is a strong chance that an appellate court would strike down the nonpartisanship provision in its entirety, potentially affecting all 501(c)(3) nonprofits.)
As the Center explains in a blog post with more analysis of the case, the IRS’s action could have implications for all 501(c)(3) nonprofits. Several nonprofits have asked the Center what, if anything, they should do in light of the IRS’s recent action. Our main advice is that charitable nonprofits should continue to refrain from engaging in any type of partisan political engagement.
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IRS Stops Processing Nonprofit Applications for Tax Exemption |
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The IRS announced last week that it has limited a variety of its operations during the federal government shutdown. Among other things, the IRS will not be reviewing nonprofits’ applications for tax-exempt status during the government shutdown. Because this will lead to a backlog of Form 1023 applications, this could lead to longer processing times for nonprofits’ seeking tax-exempt status, even after the shutdown ends.
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NC House Committee Investigates Defunding of Legal Services Nonprofits |
Last week, the NC House Oversight and Reform Committee held a hearing to investigate the NC State Bar’s Interest on Lawyers’ Trust Accounts (IOLTA) grant program, which provides grant funding to a variety of legal services programs. Earlier this year, the NC General Assembly passed legislation (S.429) to prevent the NC State Bar from making grants through this program for the FY2025-26 fiscal year, essentially defunding many legal services nonprofits for this year.
During last week’s committee hearing, legislators stressed that many legal services nonprofits provide important support for North Carolinians in need, but expressed concerns that some grant recipients are engaged in diversity, equity, and inclusion (DEI) activities, in partisan political engagement (which is, of course, impermissible for 501(c)(3) nonprofits), and in controversial advocacy activities. NC State Bar staff noted that grants from the NC IOLTA cannot be used for lobbying or political activities but that there aren’t prohibitions on other activities of grantees. It is possible that legislators could consider adding rules to the NC IOLTA grant program prohibiting grantees from engaging in any lobbying or advocacy activities. The Center is working to educate legislators about the legality and legitimacy of nonprofit advocacy activities and to ensure that lawmakers do not add overbroad advocacy limitations as conditions for state grants to nonprofits.
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Reminder: GoFundMe Issues Apology for Betraying Trust of Nonprofits Across the Country |
Recently, the crowdfunding platform GoFundMe created donation pages on its website for 1.4 million nonprofit organizations without their knowledge or consent. Nonprofits, including many organizations in North Carolina, expressed concerns that this action by GoFundMe violated the trust of many nonprofits, created confusion among donors, harmed nonprofits by establishing search engine optimization for GoFundMe’s nonprofit pages at the expense of nonprofits’ own websites, and threatened to give GoFundMe a large portion of donations to nonprofits through GoFundMe fees and “tips” (the default “tip” for GoFundMe was set at 16.5% of the donated amount). The Center also believes that GoFundMe likely infringed on the trademarks of many nonprofits and may have violated the state’s charitable solicitation licensing law by soliciting funds on behalf of North Carolina nonprofits without their signed written consent.
After significant advocacy by the National Council of Nonprofits, the Center, and many other nonprofits, GoFundMe issued an apology to nonprofits last Thursday. In its apology, GoFundMe says that it will:
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- Make nonprofit pages opt-in only moving forward.
- Remove nonprofit pages that have not been claimed and verified.
- Make search engine optimization opt-in rather than the default for nonprofit pages.
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It is unclear how quickly GoFundMe plans to remove nonprofit pages that have not been claimed or verified or how GoFundMe plans to handle nonprofit pages that were claimed by individuals who aren’t actually associated with the nonprofit. In the meantime, nonprofits are encouraged to check the GoFundMe nonprofit pages to see whether one was created for your organization and to ensure that your page (if it exists) wasn’t claimed by someone who is not associatied with your organization. GoFundMe also has posted instructions for how to claim and manage your nonprofit page. If your nonprofit (understandably) doesn’t trust GoFundMe, this resource from Whole Whale has a helpful synopsis of the GoFundMe nonprofit fiasco and steps nonprofits can take to safely remove their pages.
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Don’t Miss 2025 Conference for NC’s Nonprofits |
Join nonprofit leaders, funders, and partners on November 19-20 in RTP at the 2025 Conference for North Carolina’s Nonprofits for compelling stories, practical tools, and honest conversations on how nonprofits across the state are responding to policy changes, advocating for their communities, and protecting the heart of their missions and teams. Check out the full line up and register today.
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