Final Rules Restricting Public Service Loan Forgiveness Released by Trump Administration

The Department of Education unveiled final regulations on Thursday that, once implemented, may impose significant restrictions on the Public Service Loan Forgiveness (PSLF) program. The regulations are expected to be published in the federal registrar on Friday.

The regulations represent the culmination of the Trump administration’s efforts to limit student loan forgiveness under PSLF. The PSLF program offers loan forgiveness to borrowers who make qualifying monthly payments on Direct federal student loans while working full-time for eligible nonprofit or government employers for at least 10 years. PSLF was created on a bipartisan basis in 2007, but has since become a target of conservatives as a wasteful program that leaves taxpayers on the hook. Advocacy groups have argued that the new rules are illegal and have threatened to sue the administration. 

Here's what borrowers should know about the new PSLF rules, and how they may impact student loan forgiveness under the program.

Student loan forgiveness restrictions under PSLF began with Trump’s executive order

The push to reform PSLF began with President Trump’s issuance of an executive order in March, calling on the Department of Education to restrict student loan forgiveness under the program for organizations whose activities have a “substantial illegal purpose.”

“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,” said President Trump in the order. “The PSLF Program also creates perverse incentives that can increase the cost of tuition, can load students in low-need majors with unsustainable debt, and may push students into organizations that hide under the umbrella of a non-profit designation and degrade our national interest, thus requiring additional Federal funding to correct the negative societal effects caused by these organizations’ federally subsidized wrongdoing.”

Trump directed the Department of Education to draft new regulations that would limit an employer’s eligibility to participate in the PSLF program if their activities have a “substantial illegal purpose.” The department initiated a rulemaking process this summer, which continued into the fall.

How new rules would limit student loan forgiveness under PSLF

The new regulations, if implemented, would allow the Department of Education to cut off organizations from participating in PSLF if their activities run afoul of the new rules. The regulations define “substantial illegal purpose” as activities that fall into one or more of these categories:

• Facilitating the violation of federal immigration laws
• Providing or facilitating certain medical services to transgender youth
• Facilitating “illegal discrimination” 
• Violating state law

“Taxpayer funds should never directly or indirectly subsidize illegal activity,” said Nicholas Kent, Undersecretary of Education, in a statement to the media on Thursday. “The Public Service Loan Forgiveness program was meant to support Americans who dedicate their careers to public service — not to subsidize organizations that violate the law, whether by harboring illegal immigrants or performing prohibited medical procedures that attempt to transition children away from their biological sex.”

The proposed rules target employers, specifically. If the Department of Education determines that an employer is engaging in activities that violate the regulations, that employer — and everyone who works for that employer — could be cut off from student loan forgiveness under PSLF, even if individual employees have nothing to do with the underlying activities. Advocacy groups warned this would have major consequences, and could allow the administration to target organizations and groups it simply doesn’t like.

“There is potential for a far-reaching impact from this rule change for higher education,” said The Institute For College Access and Success (TICAS) in a blog post published in July. “The Administration previously has targeted 45 institutions of higher education, alleging that they are violating the Civil Rights Act. All employees of any of those institutions could lose PSLF eligibility if this regulation, as it is currently proposed, was used against them. In its proposed rule, the Department claims, without any real explanation, that it expects the rule to affect less than 10 employers annually. This may be because the Department expects this rule to have a chilling effect on what employers do and who their services help.”

Student loan borrowers would have no recourse or right of appeal if their employer is cut off from the PSLF program under the new rules. And while individual student loan borrowers would not lose any PSLF credit earned prior to an adverse employer determination, their payments would no longer count toward student loan forgiveness unless they find a new job with a different qualifying employer.

Advocates threaten legal challenges over student loan forgiveness restrictions

Advocacy groups slammed the PSLF regulations, arguing that the restrictions on student loan forgiveness would be weaponized by the Trump administration to target nonprofit organizations, as well as Democratic-led state and city governments, over ideological differences. The groups argued that the regulations are patently illegal, as the statute Congress enacted to create PSLF does not allow the Department of Education to pick and choose which otherwise-eligible employers qualify for PSLF.

“When Congress passed the PSLF law, it said that all government employers and all non-profit employers qualify, without including any exceptions,” said TICAS in the July blog post. “The Department’s claim that it can limit eligibility for any employer based on its alleged conduct conflicts with the PSLF law and has no statutory basis.”

“This is a direct and unlawful attack on nurses, teachers, first responders, and public service workers across the country,” said Democracy Forward and Protect Borrowers in a joint statement on Thursday. “Congress created the Public Service Loan Forgiveness (PSLF) program because it is important for our democracy that we support the people who do the hard work to serve our communities. This new rule is a craven attempt to usurp the legislature’s authority in an unconstitutional power grab aimed at punishing people with political views different than the Administration’s. In our democracy, the president does not have the authority to overrule Congress.  That’s why we will soon see the Trump-Vance Administration in court.” 

What happens next for student loan forgiveness restrictions

The Department of Education is expected to publish the new PSLF regulations in the Federal Register on Friday. This will allow the department to implement the regulations and make them effective by July 1, 2026. However, legal challenges could be filed in the coming weeks after the final rules have been officially published.