A new Education Department rule could disqualify some nonprofit workers from Public Service Loan Forgiveness (PSLF).
The rule allows the agency to bar entire organizations if they engage in activities deemed “substantially illegal.”
Critics say the move politicizes student debt relief and threatens borrowers close to forgiveness.
Thousands of nonprofit employees may soon lose eligibility for federal student loan forgiveness under a sweeping new Education Department rule that redefines who qualifies for the Public Service Loan Forgiveness program.
The 185-page regulation, published Thursday, gives the education secretary power to disqualify entire employers — not just individual workers — if their organizations are found to have a “substantial illegal purpose.” The rule, which takes effect July 1, fulfills a directive from President Donald Trump’s March executive order targeting nonprofits accused of supporting “illegal immigration, child trafficking, pervasive damage to public property and disruption of the public order.”
That means workers at nonprofits serving undocumented immigrants, providing gender-affirming care to minors, or taking part in protest movements could lose PSLF eligibility. Payments made after a group is disqualified would no longer count toward the 120 qualifying payments required for forgiveness.
Activities that could trigger disqualification
Among the listed disqualifying activities: aiding violations of federal immigration law, supporting terrorism, performing gender-transition procedures on minors where prohibited, trafficking minors across state lines for emancipation, or engaging in organized violence to influence policy.
Employers may appeal if removed from the program, but the Education Department said payments made after disqualification will not count toward forgiveness even if the appeal later succeeds.
The change could affect a broad range of community organizations — from legal-aid groups and immigrant-rights advocates to health clinics and humanitarian charities — that rely on PSLF eligibility to recruit and retain staff.
Administration officials said the rule restores the program’s original purpose. “This regulation refocuses the PSLF program to ensure federal benefits go to our nation’s teachers, first responders, and civil servants who tirelessly serve their communities,” said Undersecretary of Education Nicholas Kent.
Conservative lawmakers applauded the move. “Taxpayers shouldn’t be forced to subsidize employees of radical organizations that violate state and federal laws,” said Rep. Tim Walberg (R-Mich.), chair of the House Education Committee.
But Democrats and borrower advocates blasted the rule as politically motivated. Rep. Robert C. “Bobby” Scott (D-Va.) said it “follows the Trump Administration’s disturbing pattern of making repayment less affordable and attempting to police political speech.”
Jaylon Herbin, director of federal policy at the Center for Responsible Lending, called the policy “a cruel trick” that would saddle public workers with decades of additional debt and worsen shortages in critical community services.
Program with high stakes for millions
Created in 2007 under President George W. Bush, PSLF was designed to encourage graduates to pursue careers in public service by erasing their remaining federal student loan debt after 10 years of qualifying payments.
More than 1 million borrowers have already received forgiveness under the program. If the new rule withstands anticipated legal challenges, experts say it could reshape PSLF’s reach across more than 20 economic sectors — and upend forgiveness for thousands of borrowers already nearing the finish line.
What this means for borrowers
If you are already working in a qualifying job and meeting the rules (qualifying loan type, full-time with a qualifying employer, making qualifying payments, submitting required certification), you should continue doing so and keep tracking your progress.
If your employer is a nonprofit or governmental entity, you’ll want to check whether your employer is (or will be) considered a “qualifying employer” under the updated rules. Any changes or uncertainty about your employer’s eligibility could impact your path to forgiveness.
Because the rules are in flux, it’s advisable to document your employment history, payments, certifications, and keep up-to-date with communications from loan servicers and the Department of Education.
If you’re considering starting public-service employment specifically for PSLF eligibility, you may want to ask: “Will this job/employer still qualify if the rules change?” — especially for nonprofits that may have ambiguous status.
