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On July 2, 2025, the Department of Education completed the first phase of its attempt to rewrite the rules of Public Service Loan Forgiveness (PSLF) and allow it to strip employers – including non-profit organizations, universities, school districts, or state and local governments – of PSLF eligibility based on accusations of illegal conduct. PSLF is a nearly two-decade old program created by Congress to encourage more individuals to consider public service by offering loan forgiveness after ten years at a qualified employer. Many current employees of non-profits, educational institutions, and state and local governmental entities may have chosen those jobs, in part, for the PSLF benefits.
The Department currently claims that it can change the definition of a “qualifying employer” to exclude borrowers from obtaining PSLF if any part of their organization engages in a “substantial illegal purpose,” at the sole determination of the Secretary of Education. Despite the Department of Education lacking the staff, expertise, and credibility to make such legal determinations, it would be able to render all employees of affected entities no longer eligible for PSLF.
The Department has selected five areas of employer conduct for which it believes all employees should be punished in this manner. They all relate to types of work that the Administration does not agree with, such as supporting undocumented immigrants and families, providing gender affirming health care, and working to support other marginalized communities. However, when Congress passed the PSLF law, it said that all government employers and all non-profit employers qualify, without including any exceptions. The Department’s claim that it can limit eligibility for any employer based on its alleged conduct conflicts with the PSLF law and has no statutory basis.
During three days of discussions with various stakeholders, the Department repeatedly dismissed pushback and questions, and it made clear that it intends to move forward on what is likely an illegal action. For example, the Department rejected a request from a representative from a legal assistance organization asking that the regulation include language stating that the government’s determination that a state, locality, or university is acting as a “sanctuary” for undocumented immigrants not constitute a “substantial illegal purpose.” And it is clear why the representative felt that issue needed to be raised: in May, the Department of Homeland Security released a list of what it called “sanctuary jurisdictions” that it believed were “defying federal immigration laws.” Under the PSLF regulation proposed by the Department of Education, all employees of any of those jurisdictions could lose eligibility to get PSLF because the Department could determine that they are “aiding and abetting” what the Department of Education (not the Department of Justice or Department of Homeland Security) feels is a violation of immigration laws. Notably, that determination would not be made by a court, but instead by the Secretary of the Department of Education.
There is potential for a far-reaching impact from this rule change for higher education. The Administration previously has targeted 45 institutions of higher education, alleging that they are violating the Civil Rights Act. All employees of any of those institutions could lose PSLF eligibility if this regulation, as it is currently proposed, was used against them.
Importantly, no changes will take effect right away. The next step is for the Department to publish a proposed rule for public comment in the Federal Register, which it will do in the coming months. Any member of the public can make a comment about the effect of that rule during the period permitted by the Department. After it reviews the comments, the Department will likely release a final rule by November 1, 2025 that would take effect on July 1, 2026.
We urge the Department to reverse course and ensure that PSLF eligibility is never subject to a political judgment by the Executive Branch alone. By doing so, the Department can match Congressional intent for the program and preserve guaranteed Constitutional freedoms for state and local governments, colleges, and non-profits across the nation.
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