Written By Adam S. Minsky, JD
Updated on November 4, 2025
The Trump administration is facing two new legal challenges just days after the Department of Education took a key step toward implementing sweeping new student loan forgiveness restrictions.
On Friday, the Department of Education published final proposed regulations that would change the definition of a qualifying employer for Public Service Loan Forgiveness (PSLF). The PSLF program is a popular program that gives borrowers a path to student loan forgiveness on their federal student loans if they work for qualifying nonprofit or government organizations for at least 10 years while making payments under approved repayment plans. But the proposed new rules would cut off certain employers from PSLF if they engage in activities that the department determines have a “substantial illegal purpose.”
On Monday, challengers filed two separate lawsuits, both in federal district court in Massachusetts. One lawsuit was filed by a coalition of nonprofit organizations, labor unions, and municipalities. The other was filed by a group of Democratic-led states. The challengers argue that the proposed restrictions on student loan forgiveness under PSLF are unlawful and should be blocked before they even go into effect.
“This administration has, yet again, unlawfully targeted people and communities because he doesn’t like where they work, or what they work on behalf of,” said Skye Perryman, President and CEO of Democracy Forward, one of the organizations leading a legal challenge, in a statement on Monday. “And, yet again, we are taking him to court on behalf of a broad coalition of nonprofit organizations, communities, and unions, representing public servants who work every day in service to their community. Our democracy relies on a government that makes decisions based on the law, not politically-driven retaliation. We are honored to represent this powerful coalition.”
Here's what borrowers should know about the latest legal battle over student loan forgiveness.
New rules would limit student forgiveness under PSLF
The Trump administration’s proposed regulations would allow the Department of Education to cut off certain organizations (including nonprofit groups and state or local governments) from PSLF eligibility if their activities have what the rules characterize as a “substantial illegal purpose.”
“The activities indicative of a substantial illegal purpose include aiding and abetting violations of Federal immigration laws, supporting terrorism or 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 another State 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, and engaging in a pattern of violating State laws,” reads a summary of the regulations included with their formal publication in the federal register last week.
“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,” continues the department’s summary. “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.”
Republican lawmakers, who declined to amend the underlying statute governing PSLF when it passed the “One Big, Beautiful Bill Act” in July, praised the new restrictions on student loan forgiveness.
“As the name suggests, Public Service Loan Forgiveness (PSLF) was intended to help meet workforce needs for employers who serve the public good,” said House Education and Workforce Committee Chairman Tim Walberg (R-MI) in a statement on Friday. “Unfortunately, the open-ended nature of PSLF has forced taxpayers—many of whom never went to college, to foot the bill for employees at radical organizations that violate state and federal laws. Aiding illegal immigration, supporting terrorism, or promoting child abuse through gender transitions is not ‘public service.’ This new rule codifies the Trump administration’s executive order on PSLF preventing taxpayer dollars from paying the student loans of those undermining the rule of law.”
Two lawsuits challenge new restrictions on PSLF
But critics have contended that the regulations would allow the Department of Education to use PSLF as a weapon to punish organizations and Democratic-led cities and states that defy administration priorities. For example, some student loan borrower advocates have argued that the administration could target so-called “sanctuary jurisdictions” that decline to cooperate with immigration enforcement actions, LGBTQ organizations that advocate for or facilitate gender-affirming care, and any organization that promotes diversity and inclusion or engages in political protest. Since the rules would cut off an entire organization from PSLF, every employee who works at an employer that loses PSLF eligibility could be cut off from student loan forgiveness, even if their individual work has nothing to do with the activities in question.
On Monday, challengers filed two lawsuits arguing that the proposed PSLF regulations are unlawful and should be blocked before they even go into effect.
“In an attempt to target organizations and jurisdictions whose missions and policies do not align with its political positions on immigration, race, gender, free speech, and public protest, the Trump-Vance Administration has weaponized the PSLF program in a way that defies how Congress designed it,” says the complaint filed by the coalition of labor unions and nonprofit groups. “Defendants’ new eligibility requirements are unlawful in both method and goal. The Rule violates the Administrative Procedure Act because 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 eligible for the PSLF program without limitation and confers no authority on the Secretary to disqualify any of them; it is arbitrary and capricious; and it contravenes fundamental constitutional principles of free speech and due process.”
“The PSLF Statute provides no grounds for the Department to create exceptions to PSLF eligibility,” says a separate complaint filed by a coalition of Democratic state attorneys general. “The phrase ‘substantial illegal purpose’ does not appear in, nor is it contemplated by, the statute. The so-called ‘illegal’ purposes set forth in the rule are also plainly pretextual” and constitute a “cherry-picked list of this Administration’s most disfavored groups and activities, including support for immigrants, gender affirming care, diversity, equity, and inclusion initiatives, and political protest.”
Next steps in PSLF challenges
Student borrowers should understand that the Trump administration’s proposed PSLF restrictions are not yet in effect, and aren’t scheduled to take effect until next summer. The two legal challenges are essentially pre-emptive suits, with a goal of shutting down the proposed regulations before they are implemented. Republican state leaders used a similar tactic to block several student loan forgiveness initiatives under the Biden administration.
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