The Education Department’s final rule overhauling the Public Service Loan Forgiveness (PSLF) program has triggered immediate lawsuits from states, cities, and nonprofit organizations that say it politicizes eligibility for student debt relief. The rule, published Oct. 30 and set to take effect July 1, 2026, narrows which government and nonprofit employers qualify for loan forgiveness. ACE has published a summary, which can be downloaded here.
Under the new regulation, government and nonprofit employers will no longer qualify for PSLF if the Secretary of Education determines they engage in activities that have a “substantial illegal purpose.” The rule lists examples such as aiding or abetting violations of federal immigration laws, supporting terrorism or engaging in violence to influence federal policy, engaging in certain medical procedures involving minors in violation of law, trafficking children across state lines for emancipation, aiding or abetting illegal discrimination, or repeatedly violating state law.
ED’s impact analysis estimates that fewer than 10 employers will be affected annually, but others warn that the rule’s broad language could allow future administrations to exclude organizations based on ideological preferences rather than legal violations.
ACE and 42 other higher education associations strongly opposed the proposed rule when the department requested comment in August. The associations argued that the changes conflict with congressional intent because the statute creating PSLF (part of the College Cost Reduction and Access Act of 2007) clearly grants eligibility to “government” and “501(c)(3)” employers without additional exclusions.
ACE remains concerned that the new standards give ED broad discretion to disqualify nonprofit employers, including colleges and universities, based on subjective or politicized criteria. Millions of borrowers working for nonprofit institutions could face uncertainty about their eligibility, and institutions themselves may be placed in untenable positions.
Key concerns
- Borrower and employer uncertainty: Once an employer is found to have a “substantial illegal purpose,” payments made after that employer’s disqualification will not count toward the 120-payment requirement.
- Broad discretionary power: The rule allows the Secretary of Education to determine, by a “preponderance of the evidence,” whether an employer is disqualified.
- Potential chilling effect: Although ED projects minimal annual impact, the standard may create uncertainty among qualifying employers and borrowers and expose the program to politicization.
- Conflict with law: The statute establishing PSLF does not authorize exclusions based on ideological activity. ACE and other associations argue that this regulatory approach exceeds statutory authority.
While the final rule aims to align the PSLF program with its statutory purpose of supporting public-service employment and safeguarding taxpayer dollars, ACE and other associations warned that its broad discretion, unclear treatment of nonprofit mission work, and potential for ideological filtering could undermine predictability, fairness, and the program’s original bipartisan intent: ensuring reliable loan-forgiveness benefits for those who choose public-service careers.