Two major lawsuits have been filed against the U.S. Department of Education’s new rule that changes eligibility for the Public Service Loan Forgiveness (PSLF) program, which was created to forgive student loans for government and nonprofit workers after ten years of qualifying payments.
Under the revised rule introduced by the Trump administration, an employer — not just an individual borrower — can now be disqualified from the program if it is deemed to have a “substantial illegal purpose.” Examples cited include employers alleged to assist undocumented immigrants, provide gender-transition care to minors, or engage in diversity, equity, and inclusion (DEI) work.
If an employer loses eligibility, its employees will remain responsible for their student loans, and their previous payments will no longer count toward forgiveness.
Who’s Suing and Why
A coalition of 22 state attorneys general filed one lawsuit, arguing that the rule is politically motivated, arbitrary, and exceeds the Education Department’s legal authority. Another lawsuit, brought by a group of nonprofits, cities, and labor unions, claims the policy violates the program’s intent and the First Amendment by discouraging public-service employment and restricting free expression.
Government’s Defense
The Education Department defended the rule as a commonsense measure to prevent taxpayer funds from benefiting organizations suspected of illegal or unethical activity. Officials said the regulation is meant to ensure accountability and is scheduled to take effect on July 1, 2026.
Implications and Reactions
Critics argue that the rule undermines the original purpose of the PSLF program, which was designed to encourage professionals to work in public service through loan forgiveness incentives. They warn it could deter teachers, healthcare workers, and nonprofit employees from serving communities in need.
Supporters of the new rule, however, contend that it reinforces fiscal responsibility and ensures that loan forgiveness benefits only organizations aligned with lawful and ethical practices.
What’s Next
The lawsuits aim to block the rule before its implementation. If successful, the changes could be delayed or overturned entirely. Until a final court decision is made, many public-service workers remain uncertain about their future eligibility for student loan forgiveness.
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