New Rule To Cut Off Student Loan Forgiveness For Certain Groups Gets Key Court Hearing

New Rule Could Disqualify Employers From Participating In Student Loan Forgiveness Program

The PSLF program was created in 2007 under President George W. Bush, and provides a pathway to student loan forgiveness for borrowers who commit to public service careers. The program requires that borrowers make payments on Direct federal student loans under qualifying repayment plans while working full-time in eligible public service employment, which includes 501(c)(3) nonprofit organizations and domestic public or government entities at the federal, state, local, or tribal level. While the program has experienced problems and controversies over the course of its nearly two-decade existence, millions of borrowers have relied on the promise of student loan forgiveness to guide their career choices.

The new PSLF rules, which the Education Department created in response to an executive order by President Donald Trump last year, could fundamentally change how the program operates. The updated regulations would give Linda McMahon, the Secretary of Education, the unilateral power to disqualify otherwise-eligible PSLF employers from continuing to participate in the program if they engage in activities that have a “substantial illegal purpose.” “Substantial illegal purpose” is then defined to mean actions such as facilitating the violation of immigration laws, engaging in illegal discrimination, or providing certain forms of medical care to transgender youth.

Borrowers wouldn’t lose existing PSLF credit if their employer is disqualified under the new rule, but they wouldn’t be able to get their student loans forgiven if they are no longer working in qualifying employment. Critics have argued that the PSLF restrictions would allow the Education Department to punish certain groups and Democratic-led state and city governments that oppose Trump administration policies, effectively transforming a program designed to incentivize public service work into a tool of political retribution and coercion. The Trump administration rejects these charges, arguing that the rules are necessary to ensure that the student loan forgiveness benefits of the PSLF program are only available to organizations that are engaged in lawful 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 Education Department in a summary accompanying the initial publication of the rules in the Federal Register last year. “By excluding employers that engage in activities with a substantial illegal purpose, the rule aims to better align PSLF eligibility with the program’s statutory intent—to reward public service. Furthermore, it ensures that the Department is not indirectly subsidizing employers who are engaging in activities that have a substantial illegal purpose.”

Challengers Argue Rules To Cut Off Student Loan Forgiveness Under PSLF Are Unlawful

But the Education Department is now facing at least three separate lawsuits over the new regulations. The challengers, which include a broad array of nonprofit groups and Democratic-led state and city governments, argue that the rules are an illegal overreach by the Trump administration, as Congress did not confer any such power on the department to unilaterally disqualify organizations that would otherwise be eligible under the PSLF governing statute.

“Congress made a promise to public-service workers and their employers when it created the Public Service Loan Forgiveness program: that borrowers will have their student loans forgiven in exchange for completing ten years of service to their communities and our country,” said the National Council of Nonprofits in its original motion for summary judgment filed in February. “It recognized the need to have talented and dedicated people occupy this workforce—and also knew that high levels of student-loan debt often prohibited those same people from taking these types of jobs. For nearly two decades, the PSLF program has helped to bridge this gap by promising loan forgiveness to borrowers in public-service jobs.”

“In an affront to this congressional mandate, the Trump-Vance Administration has weaponized the PSLF program to target employers whose missions do not align with the Administration’s on immigration, diversity and inclusion, gender identity, and public protest,” continued the motion. “Under a new rule promulgated by Defendants Secretary of Education Linda McMahon and the Department of Education, the Secretary may selectively disqualify employers on the Secretary’s determination that an employer has engaged in activities with a ‘substantial illegal purpose.’ Through its breadth, ambiguity, and departure from congressional intent, the PSLF Rule threatens the legitimate actions of law-abiding organizations and entities, and itself violates numerous laws.”

The challengers argue that the rules violate the Administrative Procedures Act, a vast statute that governs how federal agencies can create new rules and regulations for existing programs. The lawsuits also argue that the PSLF rule violates fundamental rights enshrined in the U.S. constitution, including the Free Speech Clause of the First Amendment, by targeting certain forms of speech or association.

Key Court Hearing May Determine Fate Of PSLF Rule To Limit Student Loan Forgiveness

The Education Department maintains that the new rule to limit student loan forgiveness under PSFL is lawful.

“The Department promulgated the PSLF Final Rule pursuant to its broad authority to issue regulations governing the programs it administers and in doing so, properly discharged its obligation ‘to encourage borrowers to enter occupations that improve their communities and advance the public good while also guarding against the diversion of Federal benefits to organizations that harm their fellow Americans by engaging in illegal conduct,’” said the department in its March response to the NCN’s summary judgment motion. “The PSLF Final Rule does not target constitutionally protected speech, but instead only clarifies the consequences of engaging in conduct that is already illegal.”

A hearing on the NCN’s summary judgment motion is set take place on Wednesday. NCN is joined by the cities of Albuquerque, Boston, Chicago, and San Francisco, as well as the County of Santa Clara, the Amica Center for Immigrant Rights, the Coalition for Humane Immigrant Rights, Legal Aid DC, the National Association of Social Workers, the National Council of Nonprofits, Oasis Legal Services, the American Federation of Teachers, the American Federation of State, County, and Municipal Employees, and the National Education Association.

“The new PSLF rule would allow the Secretary of Education to disqualify from the PSLF program government and nonprofit employers that disagree with the Trump-Vance Administration’s policies, including organizations working to advance racial equity, immigrant rights, LGBTQ rights, and other issues,” said the group in a statement on Wednesday. “The coalition is asking the courts to strike down the rule and safeguard the PSLF program as Congress intended: a bipartisan promise to those who choose to serve their communities, regardless of politics.”

The coalition is hoping that the court will block the PSLF rule before it is set to go into effect on July 1, but it is unclear if that will happen. The challengers in the other two major legal challenges are also seeking to block the rule before the implementation date. For now, no student loan forgiveness restrictions are in place, and no employers have been cut off from participating in the program. But today’s court hearing may be critical in determining the fate of the planned restrictions.