A U.S. Department of Education regulation, scheduled to go into effect in July 2026, would give the secretary broad discretion to decide which organizations qualify for the student loan forgiveness program for borrowers entering public service. (Getty Images)
WASHINGTON — A fresh U.S. Department of Education regulation narrowing eligibility for a key student debt relief program for public employees has faced powerful opposition from supporters who say the regulation is an attempt to target organizations whose missions do not align with President Donald Trump’s agenda.
Under the final regulation, which is expected to enter into force in July, employers who participate in them those engaging in “unlawful activities with a substantial illegal purpose” will be excluded from the Public Service Loan Forgiveness program, which aims to encourage college graduates to pursue careers in public service.
The final rule’s language, which focuses on issues such as gender-affirming care and illegal immigration, also raised concerns that it was designed to enforce Trump administration priorities.
At least three lawsuits filed by Democratic attorneys general, cities, labor unions and nonprofit advocacy groups claim the regulation is too vague and exceeds the department’s authority.
The rule would harm not only the institutions that benefit from the program, but also public service workers themselves, Winston Berkman-Breen, legal director at the advocacy group Protect Borrowers, told States Newsroom.
“It’s not just about the macro effect of whether these organizations, including governments, will be able to do their job,” he said. “This rule is going to be really, really detrimental to the individual financial health and security of borrowers and their households, and we’re already kind of witnessing that.”
The organization is representing a coalition of cities, nonprofit advocacy groups and labor unions in one of the lawsuits over the ordinance.
Here’s a closer look at this policy and what it means for borrowers and employers:
What is Public Service Loan Forgiveness?
Congress created the Public Service Loan Forgiveness (PSLF) program in 2007 under the College Cost Reduction and Access Act to encourage people to pursue careers in public service.
PSLF forgives remaining student debt for borrowers after they make 120 qualifying monthly payments while working for a qualifying employer.
How will regulation work?
The department’s final rule–which results from March executive order — is forward-looking only, meaning employees will not lose any credits earned before the July 1, 2026 effective date.
Under this policy, the Secretary of Education may do so define “by a preponderance of the evidence” that the employer engaged in “illegal activity and therefore the organization has a substantial illegal purpose.”
Affected employers can either reapply to qualifying employer status after 10 years or attempt to regain eligibility within a shorter period of time if they implement a “corrective action plan,” which requires approval from the Secretary.
Activities that could disqualify the employer according to departmentswitch on:
- “Aiding” illegal immigration or “illegal discrimination”
- Providing gender-affirming care
- Supporting terrorism or “engaging in violence to obstruct or influence federal government policy.”
- Child Trafficking in Various States ‘For Freedom from Lawful Parents’
- Violation of state law
What is the debate about?
While the administration has characterized the rule as an attempt to punish “criminal activity,” Democratic supporters and officials see it as a way to target organizations that are not aligned with the administration’s goals.
“The grounds for disqualification in the Secretary of Education final regulations clearly demonstrate involvement in activities with which the administration disagrees or that are inconsistent with its agenda,” Berkman-Breen said.
He cited supporting immigrant communities, gender-affirming care, transgender rights, diverse hiring, teaching the correct portrayal of racial history in this country and the right to peaceful protest as examples.
Berkman-Breen said these actions are “very clearly something that administrations in other parts of the government have already attacked in civil society and in states and local communities, but now they are bringing this kind of attack to the public service loan forgiveness program.”
In response to a request for comment, the department released a statement from Education Undersecretary Nicholas Kent, who said it was “unacceptable for the plaintiffs to defend” what he described as “criminal activity.”
“This is common sense reform that will stop taxpayers’ money from subsidizing organizations involved in terrorism, child trafficking and transgender procedures that cause irreparable harm to children,” he said. “The final rule is crystal clear: The Department will enforce it neutrally, without regard to the mission, ideology, or population an employer serves.”
What impact will this have on employers?
Michele Zampini, associate vice president for federal policy and advocacy at the Institute for College Access & Success, said the final rule would divert nonprofits’ ability to focus on their mission and hamper their ability to retain staff and attract fresh ones.
The final rule “will have the effect of putting many nonprofits doing really important work in their communities on the defensive, whether they are on the defensive defensively, trying to avoid conflict with the administration, or whether they are already in some sense of a situation where the administration has targeted them,” she said.
Zampini, whose group aims to enhance affordability, accountability and equity in higher education, added that the program was critical in attracting talent to service-oriented jobs.
“PSLF largely enables people to take lower-paying jobs in exchange for the ability to manage their debt over time,” she said. “If people don’t have the opportunity, or even if they feel like they don’t have the opportunity or are afraid they won’t have the opportunity, it makes it much more difficult to attract people to these roles.”
What legal challenges have arisen against this policy?
The administration already faces several lawsuits over the final rule, with critics calling on federal courts to roll back the policy and declare it “unlawful.”
The contenders include a host of cities, unions and nonprofit advocacy groups that filed a lawsuit in Massachusetts federal court on November 3.
Other lawsuit was filed on the same day in the same federal court by Democratic attorneys general in Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington state, and Wisconsin.
Four non-profit support groups as well filed a lawsuit in the U.S. District Court for the District of Columbia on November 4 against the administration over this provision.
