(RNS) – A dispute with the federal government over employee counting and bad timing could cost a small evangelical Christian college more than $7 million.

Gordon College, founded in 1889 north of Boston, is suing the Small Business Administration after it denied a request for forgiveness of a loan made under the Payroll Protection Plan, which was aimed at preserving jobs during pandemic-related closures. While millions of PPP loans have been forgiven, some employers, like Gordon, have violated SBA rules and found themselves faced with debts they refused to repay.

“We had every reason to believe that the debt forgiveness portion of the program would be fulfilled if necessary,” school officials said in a statement to RNS.

Gordon’s lawsuit reveals some of the confusion that surrounded the PPP program. The program was hastily passed in the early days of the pandemic in 2020 and began distributing funds before the rules governing those loans were finalized. More than 11.5 million loans totaling about $793 billion were made under the program.

According to documents filed in a federal court lawsuit, Gordon applied for a PPP loan in mid-April 2020. Under program rules at the time, Gordon claims, the loan would be forgiven if the school continued to pay its employees during the term of the loan and did not lay them off. But there was a catch: The loan program limited its benefits to organizations with fewer than 500 employees.

Gordon employed over 500 people at the time, but that number included student assistants and part-time employees. After consulting with legal counsel, Gordon decided to count employees using the “full-time equivalent” (FTE) model commonly used in academic institutions and submitted a loan application.

According to this model, Gordon employed 495.67 people.

The school’s loan application, submitted on April 15, 2020, was approved a few days later, according to court documents, and the school had the funds on April 23.

Three days later, the SBA explained how to determine the number of employees and asked them to determine the number of employees using the headcount method.

“For example, if a borrower has 200 full-time employees and 50 part-time employees, each working 10 hours per week, the borrower has a total of 250 employees,” the SBA said.

When Gordon applied for forgiveness of his loan in 2022, the SBA denied it, citing these new guidelines. Gordon countered by saying that the staff rule was published after the loan was approved and should not apply. “The SBA has determined that the borrower is ineligible for the PPP loan,” the SBA said in a letter dated April 12, 2022.

Gordon said in his statement that “the entire amount was spent on employee payroll costs in order to keep faculty and staff employed and avoid extensive short-term furloughs or layoffs.”

In an email, the spokesperson said, “This is exactly why Congress created the PPP loan program.”

In 2023, after appeals to overturn the SBA’s decision were denied, Gordon filed suit in federal court, claiming the SBA failed to follow its own rules and alleging that the government agency violated Gordon’s religious freedom, citing a similarly sized secular school whose loans had been forgiven.

Gordon’s case is unusual in that most PPP loans – 97%, according to the SBA – have been forgiven. The SBA declined to comment further, citing ongoing litigation.

According to an RNS analysis of PPP data, 1,370 loans were made to colleges and universities. Of those, all but 21 were forgiven. (Of those 21 loans, nine were repaid.)

In its court filings, Gordon insists that it followed SBA rules and its loan should be forgiven. The school also pointed to guidance the SBA released in early April 2020, when rules for the program were still being developed.

“Borrowers and lenders should rely on the laws, regulations and guidance available at the time of each application,” the SBA said in an April 2, 2020 FAQ cited in Gordon’s lawsuit.

Gordon also included in his filing a list of about two dozen other colleges that had more than 500 employees but had their PPP loans forgiven nonetheless, claiming they also used an FTE approach.

Among them was the University of Dallas, a Catholic college that had its $5.8 million PPP loan forgiven in 2021. The college had reported 1,453 employees on its Form 990, an IRS financial disclosure for nonprofits. A university spokesperson said the school had 424 full-time employees in 2020, a number it used for its PPP loan.

Several other schools on Gordon’s list, including the University of St. Francis in Fort Wayne, Indiana; Houston Christian University; and Vanguard University in Costa Mesa, California – all religiously affiliated schools – either declined to comment or did not respond to requests for comment. This was also the case for Wheaton College, a secular college in Norton, Massachusetts.

Drew University in Madison, New Jersey, a college with Methodist affiliations, reported 471 employees on its PPP loan applications, which a college spokesperson said was an actual headcount. Trevecca Nazarene University, which reported 461 employees, also used an actual headcount, according to a college spokesperson. These colleges reported higher headcounts on their 990 applications, which included student workers and adjunct faculty.

Gordon’s lawsuit also highlights the case of Husson University in Bangor, Maine, which also used an FTE count and had its request for debt forgiveness denied, according to court documents. That decision was reversed during an internal SBA review, in part because the SBA had counted student assistants as part of Husson’s total employee count.

Husson is central to Gordon’s claim that the SBA violated his religious freedom. But last month, U.S. District Judge Beryl Howell of the U.S. District Court for the District of Columbia rejected that argument, saying Gordon had failed to prove discrimination.

“The Establishment Clause is not violated merely by the fact that certain religious groups and organizations benefit from neutral government programs, especially if the plaintiff does not show that he was excluded ‘solely because of his religious status.'”

Even though Gordon has lost his claim to religious freedom, he is confident he will succeed in court.

“We believe our remaining claims provide the court with more than sufficient grounds to overturn the SBA’s denial of debt forgiveness,” Gordon told RNS.