How Worried Should Student Loan Borrowers Be About PSLF?

A key federal student loan forgiveness program that has benefited hundreds of thousands of borrowers is facing some serious threats.But how worried should you be? Public Service Loan Forgiveness (PSLF) is a popular program that offers debt relief to borrowers who devote 10 years to working for certain nonprofit or government organizations while making qualifying payments on their student loans.The student loan forgiveness program was created under President George W.Bush in 2007 to incentivize Americans to take jobs that often require advanced degrees but pay much less than similar private sector jobs — think public school teachers, nurses, prosecutors, charity workers and civil servants.   While PSLF was troubled by complicated eligibility rules and poor oversight for years, leading to low approval rates, improvements made during the Biden-Harris administration led to more than a million borrowers getting approved for student loan forgiveness under the program.

But now, PSLF faces some serious headwinds.While congressional Republicans left PSLF untouched in the recent reconciliation legislation referred to as the “One Big, Beautiful Bill,” the Trump administration and lawmakers are eyeing potential changes that, if enacted, could be significant.Here’s a breakdown.  Trump administration releases new rules to limit student loan forgiveness under PSLF Last week, the Department of Education published proposed regulations that could severely restrict student loan forgiveness under the PSLF program.The new rules represent the culmination of the department’s efforts to implement President Trump’s PSLF executive order issued in March, calling for new limitations on the program.

Under the proposed regulations, the department would be able to block student loan forgiveness under PSLF for entire organizations or government entities that engage in activities that have a “substantial illegal purpose.” That term is defined as:  “Aiding or abetting violations of… Federal immigration laws;” “Supporting terrorism… or by engaging in violence for the purpose of obstructing or influencing Federal Government policy;” “Engaging in the chemical and surgical castration or mutilation of children in violation of Federal or State law;” “Engaging in the trafficking of children to states for purposes of emancipation from their lawful parents in violation of Federal or State law; “Engaging in a pattern of aiding and abetting illegal discrimination;” or “Engaging in a pattern of violating State laws.” The Trump administration has characterized the proposed new rules as ensuring that taxpayers are protected from effectively subsidizing illegal activities.“To prevent taxpayer-funded PSLF benefits from being improperly provided to individuals who are employed by organizations that are engaged in activities that are unlawful, the Secretary proposes to exclude any organization that engages in activities that have a substantial illegal purpose from being a qualifying employer for the purposes of the PSLF program,” said the department in an executive summary included with the publication of the new rules.“By limiting PSLF eligibility to borrowers employed by organizations that do not engage in unlawful conduct, the rule reinforces appropriate stewardship of federal funds.” Importantly, individual student loan borrowers would have no recourse or right to appeal if their employer is deemed by the Department of Education to suddenly be ineligible for PSLF under the new rules.The department acknowledged that these borrowers would ultimately need to find new employment if they want to continue pursuing student loan forgiveness under the program.

Critics have argued that the new regulations are unlawful, and would allow the Department of Education to illegally weaponize PSLF by targeting organizations and state or city governments that engage in activity that is not actually illegal, but simply does not align with Trump administration priorities.For example, some advocacy organizations have suggested that the department could cut off Democratic-led state or municipal governments for not adequately cooperating with immigration enforcement, despite multiple court rulings affirming their position that they have no legal obligation to do so.The department could also go after major academic institutions for supporting diversity or inclusion efforts, despite the fact that such efforts are not illegal, notwithstanding a recent Supreme Court ruling limiting affirmative action initiatives in higher education admissions.  “The administration is continuing its attacks on education, deliberately targeting advocacy organizations whose work doesn’t align with its ideological agenda,” said Kristin McGuire, President and CEO of Young Invincibles, in a statement last week.“By using a distorted and overly broad definition of ‘illegal activities,’ the Trump administration is exploiting the student loan system to attack political opponents.

This is an illegal move by the administration; eligibility for Public Service Loan Forgiveness (PSLF) is defined by law, not political ideology.”  Lawmakers propose legislation to repeal student loan forgiveness under PSLF Several student loan borrower advocacy organizations have characterized the proposed new PSLF regulations as patently unlawful.Congress passed a law to create PSLF, and in that statute, Congress established that a qualifying employer for PSLF is any 501(c)(3) nonprofit organization or domestic government entity.The statue does not allow the Department of Education to carve out exceptions to this eligibility, critics argue, and only Congress can change the law.Most observers expect the new regulations to face legal challenges.

But Republican lawmakers in Congress may also consider legislation to repeal PSLF.A memorandum by the Economic Policy and Innovation Center circulating among some Republican congressional offices is calling on GOP lawmakers to pass a second reconciliation bill that would, among other things, repeal PSLF.“Reconciliation 2.0 can continue the work of ushering in America’s Golden Age,” reads the memo.“This policy agenda can protect life and American values, make America healthy again, reduce the cost of living and create American jobs, and support DOGE and codify President Trump’s executive actions.

All of these policy changes require legislative action.Some of the policies that could be included in Reconciliation 2.0 include… Eliminate public sector student loan forgiveness.” However, it is unclear if there will be any appetite within the Republican caucus to try to pass a second reconciliation bill, given how fraught the process was the first time and the looming midterm elections that are just over a year away.Furthermore, it is unclear that a full repeal of PSLF would have the support of most Republican lawmakers; given their slim majorities in the House and the Senate, they would need nearly all GOP senators and congresspeople on board.And finally, Republican lawmakers may simply not be able to pass a PSLF repeal through the budget reconciliation process under Senate rules, which could make it impossible to enact.  What student loan borrowers should know about PSLF threats Ultimately, none of these proposed changes are in effect yet.

PSLF remains an active, legal student loan forgiveness program, and the Department of Education is required by law to discharge the student debt for borrowers who make 120 qualifying PSLF payments, the equivalent of 10 years.  The proposed new regulations are certainly a potential threat to the future of the PSLF program.However, the new rules would not go into effect until July 2026.And given the scope of the proposed limitations, there will almost certainly be immediate legal challenges.The main near-term threat for borrowers on track for PSLF is likely an extended period of uncertainty as these lawsuits make their way through the court system.  A full repeal of student loan forgiveness under PSLF via Congress seems much less likely to happen, at least for now.

There are just too many hurdles that would have to be cleared for such a repeal to be enacted.Republican lawmakers must have the political will to pursue a second reconciliation bill as the midterm elections go into full swing; they must include a PSLF repeal in that bill; and the elimination of student loan forgiveness under PSLF must comply with Senate reconciliation rules and garner nearly universal support from the Republican caucuses in both chambers of Congress.That’s a tall order, and at least at this juncture, does not seem particularly likely to happen.Ultimately, student loan borrowers on track for PSLF have good reasons to be concerned.

But panic is probably premature, as is writing off student loan forgiveness under the program.Instead, borrowers should buckle up for some turbulence and uncertainty, and do what they should be doing even if these threats did not exist: understand how PSLF works, stay on top of your obligations under the program, keep good records, and advocate for yourself as needed.