New Student Loan Forgiveness Rules Restricting PSLF Get Closer to Reality

The Trump administration cleared another major hurdle this month to create new regulations that could cut off student loan forgiveness for public servants.Nonprofit groups and student loan borrower advocacy organizations are sounding the alarms that the proposed changes could impact millions of borrowers.  The new rules, which target the Public Service Loan Forgiveness (PSLF) program, would penalize any nonprofit organization or government entity that engages in what the administration deems to be “substantial illegal activity.” But several organizations are arguing that this will essentially serve as a pretext for the Department of Education (ED) to penalize groups (or even entire state governments) whose mission or activities run afoul of Trump administration policy goals.And the harm this would cause to nonprofit organizations, if implemented, could be substantial.“Charitable nonprofits rely on the Public Service Loan Forgiveness program to attract and retain the skilled workforce needed to meet everyday challenges,” said Diane Yentel, President and CEO of the National Council of Nonprofits, in a statement on Thursday. “From food banks and services for veterans to afterschool programs and senior care, nonprofits are woven into the fabric of every community.

Preserving the current definition of qualifying employer without additional limitations best serves nonprofit employees, public service graduates, and the communities that depend on them.” Here's where things are with the proposed PSLF regulatory changes, and what student loan borrowers should know.New PSLF rules would restrict student loan forgiveness Earlier this month, the Department of Education concluded a series of negotiated rulemaking sessions to change the student loan forgiveness rules for PSLF.The rulemaking sessions are intended to implement President Trump’s March executive order calling for restrictions on PSLF for organizations whose activities have a “substantial illegal purpose.” “Instead of alleviating worker shortages in necessary occupations, the PSLF Program has misdirected tax dollars into activist organizations that not only fail to serve the public interest, but actually harm our national security and American values, sometimes through criminal means,” said Trump in the order.“The PSLF Program also creates perverse incentives that can increase the cost of tuition, can load students in low-need majors with unsustainable debt, and may push students into organizations that hide under the umbrella of a non-profit designation and degrade our national interest, thus requiring additional Federal funding to correct the negative societal effects caused by these organizations’ federally subsidized wrongdoing.” Under the proposed regulations, entire organizations would be cut off from PSLF for activities that include: “Aiding or abetting violations of 8 U.S.C.

1325 or other Federal immigration laws;” “Child abuse,” which the department specifically appears to define as providing gender-affirming care to transgender youth, or facilitating the relocation of transgender youth to states where they can receive medical care; “Engaging in a pattern of aiding and abetting illegal discrimination,” which some organizations have suggested could be a mechanism to target organizations with DEI programs; and “Engaging in a pattern of violating State tort laws, including laws against trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways.” Because entire nonprofit organizations — and even entire state governments — could be cut off from student loan forgiveness under PSLF, even if just a few individuals are engaged in activities covered by the rules, millions of borrowers could be impacted.Borrowers would have little recourse, as the proposed regulations provide no right of appeal by individual student loan borrowers.Their only option would be to leave their employment and start working for a different qualifying organization.Negotiated rulemaking for PSLF rules ends without consensus Legal and advocacy groups have argued that making wholesale changes to student loan forgiveness eligibility under PSLF through the rulemaking process, without congressional input, is illegal.  “The law does not empower the Secretary of Education to opine on the supposed illegality of a public service employer’s mission—an unprecedented exercise of executive power that extends far beyond the Higher Education Act,” said Student Borrower Protection Center (SBPC) Executive Director Mike Pierce in a statement in June.

“This proposal empowers Secretary McMahon to block all government workers with student debt, including first responders, social workers, and teachers, from receiving Public Service Loan Forgiveness in retaliation if she decides that a local or state government policy conflicts with her extreme, right-wing views on immigration, civil rights, or free speech.” To implement the proposed changes to PSLF regulations, the department must go through a process called negotiated rulemaking.This involves a series of public hearings where a committee of key stakeholders debates the proposed changes and tries to reach consensus.There must also be periods at several points during the process where the public is given an opportunity to submit comments.  Earlier this month, the department concluded three days of negotiated rulemaking regarding the proposed PSLF regulatory changes.Student loan borrower advocacy groups were highly critical of the department for excluding key constituencies from seats on the rulemaking committee, including veterans, borrowers with disabilities, and civil rights or legal services organizations.

The department instead opted to combine civil rights, consumer protection, and legal aid groups into a single seat on the committee.  “Why didn’t ED include anyone who would be most affected by these policy changes to negotiate—not a single public service worker, civil rights advocate, first responder, social worker, or teacher?” asked one participant during the hearings.  Ultimately, the negotiated rulemaking committee could not reach a consensus on approving the new PSLF regulations.The one seat on the committee dedicated to consumer protection voted against the proposal.“With no consensus, federal law allows the Trump Administration to unilaterally decide the next steps on their proposal,” said the SBPC in a summary of the negotiated rulemaking session.That means that the Department of Education can go full speed ahead with its plan to cut off entire organizations from PSLF eligibility.

What comes next for proposed changes to PSLF For now, there are no immediate changes to student loan forgiveness eligibility under PSLF.“We are reviewing the recent Executive Order regarding the Public Service Loan Forgiveness (PSLF) Program,” says a banner message on the Department of Education’s PSLF website.“There are no changes to PSLF currently, and borrowers do not need to take any action.  The next phase in the negotiated rulemaking process is a period of public comment once the department publishes proposed final regulations.Most observers expect the final proposed regulations to largely mirror the initial draft rules that were released in advance of the rulemaking hearings held earlier this month.

“The public may soon have the opportunity to formally comment on the proposed PSLF changes,” said the National Council of Nonprofits in its statement.“NCN urges nonprofit employees, leaders, and advocates to participate in the comment process and stand up for the public service workforce.” The regulations limiting student loan forgiveness under PSLF could be finalized by this fall.If the department stays on track with this timing, the rule updates would likely go into effect on July 1, 2026.Observers widely expect there to be legal challenges.