A coalition of states, cities, and nonprofits just launched two lawsuits against new PSLF restrictions. Their lawsuits could determine whether public service workers still have a path to student loan relief.DoE
The Promise of PSLF
For nearly two decades, the Public Service Loan Forgiveness program (PSLF) has enabled teachers, nurses, police officers, social workers, and other public servants to alleviate some of the burden of student debt in exchange for serving their communities.
Back in 2007, Congress (in a rare moment of bipartisan unity) designed PSLF to ensure that those who dedicated ten years to government or nonprofit work could see their federal student loans wiped clean. The program was straightforward: work for a government or qualifying nonprofit, make 120 payments, and the rest of your debt would disappear.
The U.S. Department of Education (ED) administers PSLF by setting eligibility rules, certifying qualifying employers and borrowers, processing employment certification forms, and ultimately determining who receives loan forgiveness. While Congress created PSLF to encourage public service by promising loan cancellation after ten years of qualifying work, the Department implements the program’s day-to-day operations, interprets statutory and regulatory requirements, and enforces compliance.
Over a million borrowers have already benefited from PSLF. Moreover, public employers (states, cities, counties, and nonprofits) have relied on PSLF as a key recruitment and retention tool, especially in fields where salaries lag behind the private sector. But everything changed this year.
A Sudden Shift
This past March, President Trump signed Executive Order 14235. Called "Restoring Public Service Loan Forgiveness," the new rule’s intention was to limit PSLF, not restore it.
The order was explicit: PSLF would no longer be available to employees of organizations or jurisdictions whose "activities have a substantial illegal purpose." The administration's stated targets? Groups and governments that, in its view, undermined "American values.” What exactly did that mean? The list included organizations that support immigrants, provide gender-affirming care, advance diversity and inclusion, or engage in protest activities. The order directed the Department of Education to rewrite PSLF regulations to exclude these "disfavored" employers, and the ED wasted no time.
What followed was a whirlwind regulatory process. In a single session, the ED issued a draft rule that mirrored the executive order, proposing to allow the Secretary of Education to strip PSLF eligibility from any government or 501(c)(3) nonprofit employer deemed to have a "substantial illegal purpose." The definition was sweeping, covering everything from "aiding or abetting violations of federal immigration law" to "engaging in a pattern of illegal discrimination" or even "violating state tort laws" like trespassing or disorderly conduct. The ED argued it was doing so to protect the program's integrity and "taxpayer protection," but this was done without evidence of PSLF-eligible employers actually engaged in criminal activity.
Public Backlash
When the proposed rule was published in August, nearly 14,000 comments were received: from state attorneys general, city governments, nonprofit organizations, unions, teachers, nurses, legal aid lawyers, and individual borrowers.
They warned that the rule would severely impact the ability of public employers to attract and retain talent, especially in already understaffed fields such as education, healthcare, and social work. Many argued it would chill free speech and advocacy, as organizations would now have to weigh every action and statement against the risk of losing PSLF eligibility for their employees. Others highlighted the vagueness and subjectivity of the "substantial illegal purpose" standard, which handed the federal government unprecedented discretion to punish political opponents.
Despite these warnings, the ED passed the final rule with few changes. The new regulation granted the Secretary of Education broad authority to disqualify any government or nonprofit employer from PSLF based on a finding (often without judicial review) that the employer had engaged in disfavored activities. Employers would have to certify their compliance to remain eligible, and those disqualified would face a ten-year ban, with only a vague "corrective action plan" as a possible path to reinstatement.
Legal Throwdown
The rule's chilling effect was immediate. Cities and counties with sanctuary policies, states protecting gender-affirming care, nonprofits advocating for immigrants or civil rights, and unions representing public workers all faced the prospect of losing a crucial recruitment tool.
Faced with this existential threat, twin lawsuits were filed yesterday in the federal court for the District of Massachusetts. The first was brought by a coalition of 22 states and D.C., while the second was filed by a broad alliance of cities, counties, nonprofit organizations, and unions. Both the states’ and the cities’ lawsuits challenge the ED’s new PSLF rule using fundamentally similar legal theories. Each argues that ED exceeded its statutory authority under the Higher Education Act by creating new exceptions to PSLF eligibility that Congress never authorized.
They both also argue that the rule is therefore “contrary to law” and “in excess of statutory authority” under the Administrative Procedure Act (APA). Both complaints also assert that the rule is “arbitrary and capricious” under the APA, because it is vague, unsupported by evidence, and grants ED unfettered discretion to disqualify government and nonprofit employers from PSLF based on an ill-defined “substantial illegal purpose.” In essence, both lawsuits rest on the core legal theory that ED cannot unilaterally rewrite or narrow the PSLF statute’s categorical eligibility for government and 501(c)(3) nonprofit employers.
Two Perspectives, One Fight
Both lawsuits seek the same bottom line: a declaration that the rule is unlawful, an order vacating it, and a permanent injunction blocking its enforcement. Yet, while the states frame their injury as an affront to state authority and the rule of law, the cities and nonprofits foreground the lived experience of public service workers and the essential services at risk.
The states’ lawsuit leans heavily on federalism and separation-of-powers arguments, emphasizing the threat to state sovereignty and the federal government’s lack of authority to police state and local policy choices. Their focus is on the statutory text and the constitutional structure, and their claims are grounded in the APA.
The cities, counties, nonprofits, and unions, on the other hand, bring a more vivid, ground-level perspective. Their complaint is rich with concrete examples of how the rule will harm specific organizations, workers, and communities. They go beyond the APA, raising explicit First Amendment and Fifth Amendment Due Process claims. They argue that the rule chills protected speech and association, and is unconstitutionally vague.
Will this state-city double whammy have the power to restore PSLF’s promise? As the legal fight heats up, one thing is certain: what happens next will define the true value placed on service in America.
Related Resources:
- Consequences of a Student Loan Default (FindLaw’s Learn About the Law)
- Trump Administration Moves to Restrict Public Service Loan Forgiveness (FindLaw’s Law and Daily Life)
- Your Options When You Can't Repay Student Loans (FindLaw’s Learn About the Law)
