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, 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 “significant illegal purpose.” Examples cited include employers accused of assisting undocumented immigrants, providing gender transition care to minors, or engaging in diversity, equity, and inclusion (DEI) work.
If an employer loses eligibility, its employees will remain responsible for their student loans and their past payments will no longer count toward forgiveness.
Who is suing and why
A coalition of 22 state attorneys general filed a lawsuit, arguing that the rule is politically motivated, arbitrary and beyond the Department of Education’s legal authority. Another lawsuit, filed by a group of nonprofits, cities and unions, claims the policy violates the intent of the program and the First Amendment by discouraging public service employment and restricting free speech.
Defense of the government
The Education Department has defended the rule as a common-sense measure to prevent taxpayer dollars from benefiting organizations suspected of illegal or unethical activities. Officials said the regulation aims to ensure accountability and is expected to take effect 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 that this could deter teachers, health care workers and nonprofit employees from serving communities in need.
Supporters of the new rule, however, argue that it strengthens financial accountability and ensures that loan forgiveness only benefits organizations aligned with legal and ethical practices.
What’s next
The lawsuits aim to block the rule before it is implemented. If successful, the changes could be delayed or rolled back entirely. Until a final court ruling is issued, many public servants remain uncertain about their future eligibility for student loan forgiveness.
