A new Trump administration rule that threatens to bump some nonprofit and public sector workers off an accelerated path to student loan forgiveness faces two challenges as it inches closer to going into effect.
Democrats in Congress and a pending lawsuit stand as potential roadblocks to the rule, which penalizes public employers and nonprofit organizations who engage in “illegal” activities. If enforced aggressively, the rule could upend some borrowers’ plans for paying off their student loans. It could also make staffing more difficult for any employers found to be in violation. There’s also a chance it could go almost entirely unenforced, sitting on the books like a “Beware of Dog” sign in front of a house with no pets.
The next few months may determine whether it can be used at all.
Here’s a look at the new PSLF rule, the challenges against it and how it may affect you.
[Read: Best Private Student Loans.]
How Does PSLF Work?
Signed into law by President George W. Bush in 2007, PSLF provides an incentive for graduates to work in government or at nonprofit organizations. The program cancels remaining student loan debt for borrowers after 10 years of public-service work and qualifying monthly loan payments. Those eligible include government workers from the federal, state or local level as well as employees of nonprofit groups.
It can be a huge financial windfall for borrowers, especially those with sizable student loan balances. The government typically doesn’t forgive federal student loans for private-sector workers until after 20 or 25 years of payments.
More than 1.2 million borrowers have had their loan balances forgiven since the program launched, with the average forgiven debt reaching nearly $75,000, according to an analysis by the Brookings Institution.
[Read: Best Student Loans for Graduate School]
Rule Cracks Down on ‘Illegal’ Activities
In October 2025, the Department of Education finalized a rule that would disqualify employers from PSLF if those organizations were deemed to be engaged in activities with “a substantial illegal purpose.” The rule states that those activities could include violating federal immigration laws, supporting terrorism or providing gender-affirming care to minors. The education secretary would be responsible for defining what acts qualify as “substantial illegal purpose.”
If an employer is disqualified from the program, that organization’s employees will no longer receive PSLF credit for monthly loan payments they make. Any past progress a borrower had made toward forgiveness while with the employer would remain intact, however. That sets up a scenario where a public or nonprofit worker seeking PSLF forgiveness would need to switch jobs to remain on track.
The punishment to employers can be harsh. Disqualified organizations would have to wait 10 years before they can reapply for inclusion in the program. Employers can avoid the 10-year ban if they agree to enter a “corrective action plan” when they’re first notified of potential violations. That plan isn’t available once the administration has formally disqualified the organization.
The rule is set to go into effect on July 1.
Administration officials say the rule change was needed to prevent taxpayer money from subsidizing borrowers at organizations that aren’t actually providing a public good.
“The Public Service Loan Forgiveness program was meant to support Americans who dedicate their careers to public service, not to subsidize organizations that violate the law,” Department of Education Undersecretary Nicholas Kent said when the rule was finalized. “With this new rule, the Trump administration is refocusing the PSLF program to ensure federal benefits go to our nation’s teachers, first responders and civil servants who tirelessly serve their communities.”
Critics have blasted the rule as overly vague and agenda-driven, saying they fear it will be wielded as a political tool to punish them for participating in work the administration dislikes. They also say it could be used to intimidate organizations against conducting work out of concern that those actions could result in disqualification. Numerous groups teamed up to sue the administration days after the rule was finalized.
“The Trump-Vance administration is telling a generation of dedicated public servants that their work only counts if it aligns with a MAGA political agenda,” said Persis Yu, deputy executive director and managing counsel at the advocacy group Protect Borrowers in announcing the lawsuit. “This betrays the nonpartisan promise of PSLF and the core principles of our nation. They are silencing dissent and trying to dismantle the very institutions that hold power accountable.”
[Read: Best Student Loan Refinance Lenders.]
What Is Considered ‘Illegal’?
The Department of Education lays out what actions fall under “substantial illegal purpose,” which it says includes:
— Aiding or abetting violations of federal immigration laws
— Supporting terrorism
— Engaging in the chemical and surgical castration or mutilation of children in violation of federal or state law
— Engaging in the trafficking of children to another state for purposes of emancipation from their lawful parents in violation of federal or state law
— Engaging in a pattern of aiding and abetting illegal discrimination
— Engaging in a pattern of violating state laws
Challenges to the Rule
If you’re worried about the rule’s potential impact to your PSLF progress, there are two challenges to watch in the coming months.
Democratic lawmakers in April announced a joint resolution to overturn the rule under the Congressional Review Act. The effort, led by U.S. Sen. Tim Kaine and Rep. Joe Courtney, would require a simple majority vote of disapproval from each chamber and then need to be signed by President Donald Trump. If Trump were to veto it, the resolution would go back to the legislature, where it would need a two-third majority to override the veto.
“This new rule by President Trump and Secretary of Education McMahon would pick and choose which public servants are eligible for forgiveness based on the Trump administration’s ideological agenda, which clearly goes against Congressional intent,” Courtney said in a statement announcing the resolution.
Perhaps the more potent challenge comes in the courtroom, where lawsuits brought by a coalition of local governments, nonprofits and trade groups are likely to get a ruling before July 1. The next key hearing is expected to take place in early May.
A sizable and diverse mix of opponents has lined up against the rule, largely because such a wide range of employers and workers could potentially end up in its crosshairs. For example, if the administration isn’t satisfied with a city’s immigration enforcement, could it simply bar every city worker from earning credit toward forgiveness?
It’s unclear how aggressively the Trump administration would actually apply the rule. And in fact, in court documents defending itself against the lawsuits, the Department of Education dismissed critics’ concerns as unfounded, saying “their allegations rest on speculative fears of future enforcement and unreasonable misinterpretations of the challenged regulation.”
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Will You Be Disqualified From Public Service Loan Forgiveness Thanks to ‘Illegal’ Activities? originally appeared on usnews.com
