PSLF Borrowers at Risk as Department of Ed Reaches Beyond Statute
Note: This blog was originally published on July 7, 2025, and was updated on October 31, 2025 after the Department of Education released its final rule.
On October 30, 2025, the Department of Education released its final rule attacking the Public Service Loan Forgiveness (PSLF) program, which would allow the Department to strip employers – including non-profit organizations, universities, school districts, or state and local governments – of PSLF eligibility based on its own determination 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 working for 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 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 lacking the staff, expertise, and credibility to make such legal determinations, it would be able, if it wanted, to render all employees1During negotiated rulemaking, the Department proposed that any allegedly illegal action that the Secretary identified in a large organization, university, hospital system, or government entity with a single federal Employer Identification Number that resulted in it no longer being a qualifying employer for PSLF would affect every employee. The Department later appeared to understand the obvious unfairness of that proposal and proposed language that, if it wanted, allowed the Department to treat separate and distinct parts of the same organization differently for purposes of removing PSLF eligibility. The final rule maintained that language. However, the Department made clear that it was its decision when to treat different parts of an employer differently, and it would not be used in every instance. of a non-profit organization, state\local government, or institution of higher education no longer eligible for PSLF. In the final rule, the Department acknowledged that the effect of this approach “may mean that certain borrowers that work for organizations that have a substantial illegal purpose will become ineligible for PSLF, even in instances where the borrower is not engaged in illegal activity.”
The Department has selected six areas of employer conduct for which it believes 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.2The Department acknowledged in the final rule that those specific areas of conduct were selected because they were set forth in the President’s Executive Order as ones that “the President has identified as being of greatest concern.” However, when Congress passed the PSLF law, it said that all government employers and all non-profit employers qualify, without including any exceptions.3See 20 U.S.C. § 1087e(m) 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 and in its response to the comments submitted about the proposed rule, the Department dismissed opposition and made clear that it is executing on the President’s directive. Despite receiving nearly 14,000 comments from members of the public, the Department made no significant changes in the final rule related to the many meaningful areas of concern.4The only substantive change was a minor addition to clarify that the Department will determine “whether any illegal activity is so substantial that the organization has a substantial illegal purpose,” which was done to address what some commenters said was a vagueness problem with the term “substantial illegal purpose.” The Department rejected a request during negotiated rulemaking from a representative from a legal assistance organization asking that the rule 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 final version of the PSLF rule, all employees of any of those jurisdictions could be targeted to lose eligibility for 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 of Education.5An employer would have a right to mount a federal court challenge to the Secretary’s decision that its alleged conduct constitute a “substantial illegal purpose.” But the Secretary is given authority to make the initial determination, which is in effect unless set aside by a court. The Department also rejected many other requests for changes made by members of the public in their comments.
There is potential for a far-reaching impact from this rule change for institutions of higher education. The Administration previously has targeted 45 institutions, based upon allegations that they are violating the Civil Rights Act. All employees of any of those institutions could lose PSLF eligibility if this rule is used against them.
In its rule, the Department claims, without any explanation, that it will take action to remove PSLF eligibility less than 10 employers annually. This may be because the Department expects this rule to have a chilling effect on what employers do and who their services help.
The rule will take effect on July 1, 2026. The Department stated that the conduct of an employer before July 1, 2026 will not be applicable. Only actions occurring after the effective date will be considered for potential removal of PSLF eligibility.
The rule is sure to face legal challenges in the months ahead. But the best course of action remains for the Department to match Congressional intent for the program and preserve guaranteed Constitutional freedoms for state and local governments, colleges, and non-profits across the nation.
