The Trump administration is actively pursuing changes to a widely utilized student loan forgiveness program, aiming to impose restrictions that could significantly impact eligibility for many borrowers.
On Monday, the Education Department unveiled a proposed rule that seeks to limit participation in the Public Service Loan Forgiveness program by disqualifying employers involved in activities deemed to have a “substantial illegal purpose.” According to a press release from the department, this initiative is intended to safeguard taxpayers’ interests while refining the program’s focus on genuine public service roles that truly benefit the community.
However, advocates representing borrowers and various professions associated with public service argue that these changes serve more as a punitive measure against groups the administration opposes.
“This is a blatant attempt to weaponize student debt to achieve their political objectives,” states Persis Yu, deputy executive director at the Student Borrower Protection Center. She emphasizes that the criteria for disqualifying an organization are “specifically tied to activities that we know the administration has been hostile toward.”
The Public Service Loan Forgiveness program was established by Congress in 2007 to incentivize borrowers to pursue careers in government or nonprofit sectors. In exchange for committing to these often lower-paying jobs that fulfill critical societal needs, borrowers can qualify to have their federal student loans forgiven after making 120 qualifying monthly payments while employed by an eligible employer. To date, the program has benefited over one million borrowers.
The proposed restrictions originate from an executive order issued by President Donald Trump in March and are currently progressing through a process known as negotiated rulemaking, which has included two public hearings and three committee sessions to discuss potential changes. This process will soon transition into a public comment period.
Here’s essential information that borrowers should consider.
Proposed Changes Aim to Clarify Employer Qualifications for Public Service Loan Forgiveness
The Public Service Loan Forgiveness program evaluates eligibility based on the employer rather than the employee’s specific job duties. Previously, any job within a government entity or a 501(c)(3)</b) organization was deemed a qualifying employer. The new rule intends to redefine this by excluding any organization or government body involved in "substantial illegal activities."
The term “substantial illegal activities” is narrowly defined within the rule itself, outlining specific areas of unlawful behavior that the administration is targeting. These include aiding violations of immigration laws, providing gender-affirming medical care to minors, supporting foreign terrorism, violating federal discrimination laws, and “engaging in violence for the purpose of obstructing or influencing federal government policy.”
Yu contends that the activities listed indicate that the proposed rule is more about enforcing the administration’s political objectives rather than protecting public interests.
“They’re targeting public service workers who assist vulnerable populations, including transgender youth and those involved in immigration justice issues,” says Yu. “This administration has already taken action against cities with sanctuary policies, and this rule serves as another mechanism to suppress public service workers, their employers, and local governments.”
The administration claims that it anticipates fewer than 10 employers per year would be impacted and estimates that around 10% of borrowers pursuing PSLF could be affected if their employer becomes ineligible. However, the rule does not explicitly cap the scope of its impact.
Critics highlight that, as currently drafted, every employee at an affected organization would lose eligibility for forgiveness, rather than just those involved in the specified illegal activities. This presents significant complications for large employers like cities, hospitals, or universities, whose employees may have diverse job roles.
Legal Challenges Are Highly Anticipated Against the New Regulations
The public comment period is open until September 17, following which the administration will finalize the rule, which is set to take effect next summer.
However, numerous experts predict that the rule will face significant legal challenges. The Public Service Loan Forgiveness program is codified in statute, and the law clearly defines “qualifying employer” to include any government entity and any organization recognized under 501(c)(3) status by the IRS.
“While Congress sometimes drafts laws with ambiguous language, the guidelines for PSLF are quite clear regarding what constitutes a qualified employer,” states Ben Cecil, senior education policy advisor at ThirdWay, who referred to the rule as “ripe for litigation.”
If the rule faces litigation in court, it may be entirely invalidated if a judge determines that the regulations conflict with federal law. Alternatively, its implementation could be postponed while the legal battle unfolds. A previous regulation known as “gainful employment” underwent a similar rulemaking process and faced numerous legal challenges for over a decade across various presidential administrations.
New Regulations Will Not Be Retroactive, Yet Current Borrowers Will Feel Their Impact
It is crucial for borrowers to recognize that these changes will not be applied retroactively, according to Betsy Mayotte, president of the Institute of Student Loan Advisors. The administration aims to complete the rule this fall, intending for it to take effect on July 1, 2026. Any credits earned toward forgiveness prior to this date will remain unaffected, as will any actions taken by employers before then.
Nevertheless, current borrowers who are on track to complete the necessary 120 payments for forgiveness will be subject to the new regulations, which may lead to delays or interruptions in their progress toward forgiveness if they continue working for an employer that is deemed ineligible by the administration.
The rule acknowledges that these changes “may delay or prevent forgiveness for a subset of borrowers,” although it asserts that “the overall design of the regulations — including advance notice, transparency around determinations, and employer recertification pathways — helps mitigate unexpected harm.” The administration also indicates that affected borrowers have the option to pursue PSLF by switching to a different qualifying employer.
Determining Employer Eligibility Will Fall to the Education Department
If there are no successful legal challenges, and the rule is implemented as proposed, the Education Department will oversee the process of determining employer eligibility, which includes notifying borrowers about any changes to their employer’s status and managing appeals.
Employers can be disqualified through various means, such as court rulings, guilty pleas, or settlements. The rule empowers the secretary of education to utilize a standard known as “preponderance of evidence” to ascertain whether an employer has engaged in substantial illegal activities.
This aspect raises concerns for Mayotte, who participated in the negotiating committee and opposed the rule. She believes that the secretary of education should not wield the authority to determine legal violations related to discrimination, protests, or gender-affirming care, stating that this responsibility is “not in the secretary’s wheelhouse.”
Organizations do have the ability to appeal disqualifications, though the specifics of this process are not clearly defined. Furthermore, the rule stipulates that borrowers cannot request the department to reconsider a decision concerning their employer.
Lastly, the Education Department will manage the process through which employers can regain their status as qualifying employers, which may occur 10 years after the secretary identifies illegal activities or after the approval of a corrective action plan.
Borrowers Should Avoid Hasty Decisions Amid Proposed Changes
Mayotte refers to the proposed rule as a “worrisome precedent,” but she urges borrowers not to make drastic changes to their repayment strategies based on a rule that has yet to be finalized. One borrower she spoke to was contemplating abandoning the PSLF program and withdrawing from retirement savings to pay off her loans. It is vital for borrowers to understand that no changes to the program have been officially enacted yet.
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