Last updated on May 15, 2026
Plaintiffs say new eligibility limits violate federal law and threaten the workforce that Congress meant to protect
Two coordinated lawsuits filed Nov. 3, 2025 in federal court in Massachusetts have launched a sweeping challenge to the U.S. Department of Education’s new Public Service Loan Forgiveness Rule. Filed separately by 23 states and the District of Columbia and by a coalition of cities, counties, nonprofits, and labor unions, the cases argue that the Trump administration’s regulation unlawfully rewrites a program Congress designed to reward public service with predictable, statutory student-loan relief.
Congress established Public Service Loan Forgiveness (PSLF) in 2007. The statute, 20 U.S.C. § 1087e(m), guarantees that borrowers who make 120 monthly payments while working full-time for a qualifying government or nonprofit employer “shall have the remaining balance of their loans canceled.” The Education Department’s new PSLF rule, published Oct. 31 2025, limits eligibility for employees of organizations that the Secretary of Education deems to have a “substantial illegal purpose.” That phrase encompasses activities such as aiding or abetting illegal immigration, supporting terrorism or violence, providing what the rule calls “child abuse” through gender-affirming care, engaging in unlawful discrimination, or repeatedly violating state tort law.
The regulation implements the March 7 Executive Order 14235. A White House fact sheet described the measure as ending “taxpayer-funded student loan forgiveness for anti-American activists.” The Department said the rule “restores the taxpayer-funded Public Service Loan Forgiveness Program to its intended purpose of benefitting Americans working in public service.” The regulation is scheduled to take effect July 1 2026.
Congressional design and statutory stakes
According to two recent Congressional Research Service reports, PSLF is part of a long lineage of service-contingent forgiveness programs dating back to the 1958 National Defense Education Act, which first tied loan cancellation to public teaching. By 2024, CRS identified more than 40 federal programs providing loan forgiveness or repayment benefits for public-service work; PSLF is one of only a few that operate as statutory entitlements, not discretionary grants. Because PSLF’s benefits are written into loan contracts and funded through mandatory appropriations, Congress, and not the Executive Branch, controls the terms.
That distinction sits at the heart of the lawsuits. Both complaints claim the Department exceeded its statutory authority under the Higher Education Act and violated the Administrative Procedure Act by creating restrictions Congress never authorized. The States v. Department of Education filing asserts that the Secretary “may not substitute his own judgment for Congress’s clear command that qualifying borrowers’ loans shall be canceled.” The Cities and Nonprofits suit calls the rule “arbitrary and capricious” and “a political loyalty test disguised as regulation.”
State attorneys general across the country have joined the challenge. California Attorney General Rob Bonta warned that the regulation threatens “organizations engaged in important and legal activities, such as providing legal services to immigrants, providing gender-affirming care to minors, … or engaging in diversity, equity and inclusion initiatives.” Oregon Attorney General Dan Rayfield invoked the consequences to less wealthy public workers. “Oregonians who dedicate their careers to public service – teachers, nurses, firefighters, and countless others – shouldn’t lose their benefits because of who they work for or what their community stands for,” he said. And Colorado Attorney General Phil Weiser called the rule “a punishment for people who choose careers serving their communities” and said it “undermines the very goal Congress had in creating PSLF.”
Opposition extends to Capitol Hill. Sen. Tim Kaine, Sen. Kirsten Gillibrand, and Sen. Cory Booker led 29 senators in a Sept. 17 letter to Education Secretary Linda McMahon, warning that the rule “creates a political litmus test for eligibility under a statute that Congress intended to be content-neutral.” They argued it violates borrowers’ due-process and First Amendment rights. In the House, Representatives Joe Courtney and Mark DeSaulnier reintroduced legislation to codify PSLF’s original eligibility standards and “prevent future ideological interference by any administration.”
Broader impacts and shifting beneficiaries
Public-service employers warn the rule will destabilize local workforces. The Cities and Nonprofits complaint argues it “will chill protected speech, drain talent from desperately needed jobs helping vulnerable communities, and saddle remaining workers with an insurmountable debt load.” Experts interviewed by GovExec said the regulation could eliminate forgiveness for thousands of nonprofit employees and “raise equity questions about who is deemed worthy of public-service benefits.”
The Conversation reported that while the rule bars employees of groups deemed to have an illegal purpose, it simultaneously restores eligibility for law-enforcement, national-security, and military personnel who lost access under temporary Biden-era waivers. Administration officials frame the move as a recalibration—ending benefits for those engaged in “anti-American” conduct while resuming them for those “serving the nation in high-risk capacities.” Education-policy scholars quoted in the story called the policy “a politicization of public service” that risks turning PSLF into “an ideological instrument rather than a workforce incentive.”
Independent research organizations echoed those concerns. TICAS called the “illegal-purpose” clause “a dangerous step backward,” warning it allows viewpoint-based exclusion of lawful nonprofits. The National Council of Nonprofits described the regulation as “unlawful, discriminatory, and harmful to nonprofit capacity,” adding that it “erodes the public-service pipeline at a moment when nonprofits struggle to hire and retain qualified staff.”
Supporters of the rule maintain that it protects taxpayers and ensures accountability. In the Final Rule notice, the Department wrote that the change “ensures taxpayer dollars support genuine public service, not activities that undermine law and order.” Officials say borrowers will keep credit for months earned before disqualification and that decisions will rest on “objective criteria such as final court judgments.” Critics counter that the rule’s vagueness makes it ripe for selective enforcement.
Legal remedies and the path forward
Both suits seek declaratory judgments that the rule is unlawful, a vacatur (judicial nullification) of the regulation, and injunctions blocking enforcement. Because the rule takes effect July 1 2026, courts could decide before any borrower is harmed, potentially accelerating review. Each lawsuit also requests attorneys’ fees and costs under the Administrative Procedure Act.
The dispute surfaces amid renewed congressional debate over the future of PSLF. According to StudentAid.gov and a White House fact sheet, more than 1.1 million borrowers have received roughly $85 billion in forgiveness since 2021. House Democrats have framed the new lawsuits as defending that progress against what they call “attacks from the Trump administration on the nation’s commitment to public service.”
If the plaintiffs prevail, the court could reinstate the previous eligibility framework that included all government and 501(c)(3) employers without regard to mission or viewpoint. If the Department prevails, the Secretary would gain unprecedented discretion to define what counts as legitimate public service. Either outcome will shape not only student-loan policy but also the boundary between Congress’s mandates and executive reinterpretation.
For the teachers, firefighters, health-care workers, and nonprofit staff whose careers hinge on that promise, the verdict will determine whether Congress’s words – “shall cancel” – still carry the force they once did.
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