On October 30, 2025, the Trump administration unveiled a sweeping new rule that will dramatically reshape the Public Service Loan Forgiveness (PSLF) program, a federal initiative that has been a financial lifeline for millions of teachers, first responders, nonprofit workers, and other public servants across the United States. The rule, set to take effect on July 1, 2026, redefines which employers are considered eligible for the program, effectively excluding organizations that the government deems to have a "substantial illegal purpose."
The PSLF program, established by Congress in 2007 under President George W. Bush, was designed to encourage careers in public service by offering debt cancellation to borrowers who work for the government or qualifying nonprofits for at least a decade and make 120 qualifying loan payments. According to The New York Times, more than one million Americans have already benefited from the program, receiving tens of billions of dollars in loan forgiveness, and over nine million borrowers could be eligible.
But this new rule signals a major shift. The Department of Education, led by Secretary Linda McMahon, now requires that qualifying employers not be involved in activities considered to have a "substantial illegal purpose." As reported by Axios, these activities include supporting terrorism, providing gender-affirming care—such as puberty blockers or hormone therapy—to minors under 19, aiding violations of federal immigration laws, trafficking children across state lines for emancipation, and engaging in illegal discrimination or a pattern of violating state laws.
Under Secretary of Education Nicholas Kent explained the administration’s rationale in a statement quoted by The Hill: "Taxpayer funds should never directly or indirectly subsidize illegal activity. 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." Kent added, "With this new rule, the Trump administration is refocusing the PSLF program to ensure federal benefits go to our nation’s teachers, first responders, and civil servants who tirelessly serve their communities."
The rule fulfills a March executive order from President Trump, which the White House said was intended to end loan forgiveness for "anti-American activists." The administration has also stepped up efforts to restrict gender-affirming care, further complicating access for transgender individuals in the U.S., as noted by NPR.
While the Education Department expects that fewer than ten employers per year will be affected by the change, the new rule's impact could be far-reaching. The agency’s language in its official fact sheet suggests that organizations working with immigrants and transgender people are likely to come under increased scrutiny. The final determination of which employers lose eligibility will rest with the Secretary of Education.
For many public servants, the PSLF program has been a cornerstone of their financial planning. The new rule, however, means that if their employers are found to be ineligible, future qualifying payments may no longer count toward loan forgiveness. Still, the Department of Education has clarified that the rule will only apply prospectively: borrowers who have already made qualifying payments will not lose credit for those payments, even if their employer is later excluded. As Betsy Mayotte, president of the Institute of Student Loan Advisors, told The New York Times, "It’s very important to let borrowers know not to panic nor make any snap decisions on their loan strategy based on this rule. First, the rule itself could very well be struck down by the courts. Second, even if it isn’t, the rule is prospective only."
The process for determining employer eligibility also gives organizations some recourse. Employers under review will be notified and allowed to dispute the Department’s findings, maintaining their status as qualifying employers until a final decision is made. However, borrowers themselves cannot appeal their employer’s status, though they will continue to receive payment credits during the review process. If an organization is ultimately excluded, both the employer and affected borrowers will be notified.
Critics of the policy have raised the alarm about the potential for political abuse. Many worry that the rule gives the Education Department broad and subjective authority to target organizations that do not align with the current administration’s values. As Axios reported, Aaron Ament, president of Student Defense, stated his nonprofit would file a lawsuit to challenge what he called an "illegal overreach," adding, "The administration is playing political football with the financial well-being of people who have dedicated their lives to public service." LGBTQ+ advocacy groups, including GLAD Law, have warned that the rule could create "an ad hoc, opaque administrative system that provides the Secretary with significant discretion to disqualify an employer from the PSLF program—making it more costly and difficult to recruit and retain employees." They also argue that it could deprive both minors and adults of necessary medical care.
Other opponents, such as the advocacy groups Protect Borrowers and Democracy Now, have pledged to challenge the rule in court. In a joint statement quoted by The Hill, they said, "This is a direct and unlawful attack on nurses, teachers, first responders, and public service workers across the country. 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." Winston Berkman-Breen, legal director at Protect Borrowers, echoed these concerns: "This effort has always been about weaponizing debt relief to target and punish public service organizations and workers with whom the Trump-Vance administration disagrees."
The new rule also comes against a backdrop of rising student debt in the United States. Over 40 million Americans hold student loans, with outstanding balances exceeding $1.6 trillion, according to The New York Times. The PSLF program, which has provided relief to more than a million borrowers under the Biden administration, has been a particular focus of partisan debate. The Trump administration has criticized the Biden-era efforts to expand loan forgiveness and has now moved to tighten eligibility.
Borrowers currently working for or previously employed by organizations that become ineligible under the new rule will retain credit for their qualifying payments up until the rule takes effect in July 2026. However, the regulations are widely expected to face legal challenges, with advocacy groups, lawmakers, and attorneys general already preparing for court battles.
As the rule’s publication in the Federal Register looms, public servants and nonprofit workers across the country are left in a state of uncertainty, waiting to see how the legal and political fights will unfold—and what the future holds for one of America’s most significant student debt relief programs.
