Challengers Try To Block Trump Rules That Would Limit Student Loan Forgiveness Under PSLF

The fate of new restrictions proposed by the Trump administration to limit student loan forgiveness under the Public Service Loan Forgiveness (PSLF) program remains uncertain, as multiple legal challenges appear to be coming to a head.

The Education Department published final regulations last fall that would allow it to essentially cut off qualifying employers from being eligible for PSLF if they engage in certain actions that the administration characterizes as having a “substantial illegal purpose.” Individual student loan borrowers would have no recourse if their employer suddenly became ineligible for PSLF. 

The department argues that the restrictions are necessary to constrain excesses associated with the PSLF program, and to ensure that taxpayer money is not subsidizing unlawful activity. Critics contend that the rules are simply illegal and, if implemented, would grant the Education Department enormous powers to pick and choose which employers are eligible for student loan forgiveness based on whether or not it approves of their mission or activities.

The administration is facing multiple legal challenges over these proposed PSLF changes. If they ultimately go into effect, the rules would go live on July 1. But a coalition of challengers, which include a broad array of nonprofit organizations and state and municipal governments, filed summary judgment motions within the last week, arguing that the rules should be blocked by federal courts before they even become effective this July. 

Here’s the latest, and what borrowers should know about the Trump administration’s attempt to restrict student loan forgiveness under PSLF and the latest efforts to stop it.

Trump administration tries to limit student loan forgiveness under PSLF

The proposed new restrictions on student loan forgiveness under PSLF stem from an executive order that President Trump signed nearly a year ago, directing the Education Department to create new rules that would limit relief under the program. Trump argued that the rules were necessary to constrain a program that had become far too generous under his predecessor, President Joe Biden. 

Why the administration says changes are needed

“The prior administration abused the PSLF Program through a waiver process, using taxpayer funds to pay off loans for employees still years away from the statutorily required number of payments,” said President Trump in the executive order signed last March. “Moreover, 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.” The executive order provided no concrete examples or evidence to back up these claims. 

The Education Department then engaged in a series of procedural steps to draft new regulations that would allow the administration to cut off organizations from student loan forgiveness eligibility under the PSLF program. Those regulations were finalized last October.

What the new PSLF rule would actually do 

Under the proposed rules, any otherwise-qualifying nonprofit or public sector employer whose activities have a “substantial illegal purpose” could be cut off from student loan forgiveness eligibility under PSLF. The rules go on to define “substantial illegal purpose” to include certain actions that relate to the provision of certain healthcare services to transgender youth, facilitating the violation of immigration laws or engaging in certain forms of protest or discrimination (which critics have argued is essentially code for diversity, equity or inclusion programs). 

“The regulatory changes outlined in this final rule are designed to strengthen the integrity of the PSLF program by ensuring that only borrowers employed by organizations engaged in lawful activities and legitimate public service remain eligible for loan forgiveness,” said the Education Department in commentary accompanying the publication of the final regulations last fall. “By excluding employers engaged in activities such that they have a substantial illegal purpose, the rule aims to better align PSLF eligibility with the program's statutory intent: to encourage Americans to pursue public service careers that improve their communities. Furthermore, the rule will ensure that the Department is not indirectly subsidizing employers engaged in activities that have a substantial illegal purpose that harm fellow Americans.”

Challengers seek to block student loan forgiveness changes to PSLF rules

A broad coalition of nonprofit groups and Democratic-led city and state governments filed multiple legal challenges shortly after the publication of the rules, arguing that the proposed restrictions on student loan forgiveness would violate the statute Congress passed that created the PSLF program in 2007 and would also violate fundamental freedoms enshrined in the United States Constitution (such as due process and freedom of speech and association). Within the last week, several of these challengers have filed motions for summary judgment – a request to the court to rule in their favor because, they argue, the evidence so clearly supports their position that there would not be any need for a formal trial.

“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 summary judgment motion filed by the National Council of Nonprofits last week. “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. 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.’”

The challengers argue that the proposed restrictions on student loan forgiveness under PSLF are, quite simply, patently unlawful.

Key legal arguments raised in court

“The Rule violates the Administrative Procedure Act for several independent reasons,” reads the motion. “It is contrary to and exceeds the statutory authority granted to the Department under the Higher Education Act, which establishes that all government and 501(c)(3) employers are qualifying employers for purposes of the PSLF program without limitation and confers no authority on the Secretary to disqualify any of them; it is arbitrary and capricious; and it violates the Free Speech Clause of the First Amendment.”

In a separate motion for summary judgment filed in a different legal challenge, the Robert F. Kennedy Center for Justice and Human Rights echoed these same arguments.

“The Rule contradicts the text of the PSLF statute, which provides without qualification that all 501(c)(3) organizations are eligible employers,” said the center in its motion. “The Rule is also arbitrary and capricious, because its reasoning is illogical even on its own terms, and because there is no evidence that the problem the Rule purports to address has ever arisen. Moreover, because the Rule is irremediably vague, offering no intelligible guidance for PSLF-participating employers like Plaintiffs to govern their conduct or for the Department to avoid arbitrary ad-hoc enforcement, it violates the Fifth Amendment’s Due Process Clause. And because the Rule operates to chill speech expressing viewpoints disfavored by the current administration, it violates the First Amendment. This Court should declare the Rule unlawful and vacate it.”

“Since the PSLF Statute was enacted, the PSLF Regulation has rightfully adhered to the mandate set out by Congress, which provides that all government jobs are PSLF-eligible,” said a coalition of city and state governments in a third summary judgment motion filed in yet another legal challenge last week. The proposed rule to restrict student loan forgiveness under PSLF “contravenes the PSLF Statute, which provides no authority for ED to create exceptions to PSLF eligibility. The Rule is thus contrary to law and in excess of Defendants’ authority, in violation of the Administrative Procedure Act (“APA”). The Rule is also arbitrary and capricious in violation of the APA, as there is no rational connection between the Rule itself and the justification that ED provides.”

What comes next for the proposed PSLF rule

Now that the challengers have filed their motions for summary judgment in each of the three separate lawsuits targeting the Trump administration’s student loan forgiveness restrictions for PSLF, the Education Department must be given an opportunity to respond with an opposition. The courts overseeing the challenges will then hold hearings where both sides can make their arguments. The challengers ultimately hope that at least one of these three courts will issue a definitive ruling to block or overturn the PSLF rules nationwide before July 1, when they are set to go into effect.