Federal Judges Block Trump Rule Restricting Public Service Loan Forgiveness

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Student loan borrowers don't need to worry about losing eligibility for Public Service Loan Forgiveness based on their employer, after two federal judges blocked a Trump administration rule.

On Tuesday, U.S. District Judge Amir Ali struck down the regulation adding new restrictions to PSLF, which were going to start July 1. On the same day, U.S. District Judge Myong Joun sided with states, cities and nonprofits that brought legal challenges against the policy, concluding that the rule is "contrary to law" and "violates the First Amendment."

The Trump administration's rule would have changed the definition of a "qualifying employer" under PSLF to exclude organizations that "engage in unlawful activities."

PSLF, signed into law in 2007 by George W. Bush, offers debt cancellation after a decade to borrowers who work for nonprofits and the government.

More than 9 million borrowers may be eligible for PSLF, according to a 2022 estimate from Protect Borrowers, a nonprofit.

"This decision marks an important victory for public servants and the rule of law," said Jaylon Herbin, director of federal campaigns at the Center for Responsible Lending.

"Congress made clear who qualifies for Public Service Loan Forgiveness, and the Department of Education cannot rewrite that statute by creating new eligibility restrictions that Congress never authorized," Herbin said.

Here's what borrowers in the program should know.

'A political loyalty test'

New York Attorney General Letitia James and more than a dozen other state attorneys general sued the administration in November over its new PSLF rule. A coalition of cities across the U.S., labor unions and nonprofit organizations also filed a lawsuit that month against the loan forgiveness restrictions.

"Public Service Loan Forgiveness was created as a promise to teachers, nurses, firefighters, and social workers that their service to our communities would be honored," James said in a statement at the time.

"Instead, this administration has created a political loyalty test disguised as a regulation," James said.

Critics have argued that the vague regulatory language would have granted Trump officials broad authority to exclude any programs it didn't like. Trump's executive orders have targeted immigrants, transgender and nonbinary people and those who work to boost diversity across the private and public sector. Many nonprofits work in these spaces, providing legal support or doing advocacy and education work.

Opponents of the policy also argued that Trump officials could not revise the fact that Congress specified PSLF would be available to any eligible borrower who worked for the government or a 501(c)(3) nonprofit.

"If Congress wished to give borrowers credit for loan payments made while they work only at certain section 501(c)(3) organizations or wished to delegate to the Secretary the authority to make such determinations, it knew how to do so," Ali wrote in his decision.

"Yet Congress chose to offer no caveats or delegations when it defined 'public service job,'" Ali said.

The U.S. Department of Education is "evaluating next steps," said Undersecretary of Education Nicholas Kent.

"The Public Service Loan Forgiveness Program is intended to support Americans who serve the public good, not to subsidize organizations that engage in terrorism, facilitate illegal immigration, or support the mutilation of children," Kent said.

What it means for student loan borrowers

As a result of the two court orders, "borrowers do not need to worry about losing eligibility for PSLF based on their employment," said higher education expert Mark Kantrowitz.

Otherwise, there are generally three requirements to qualify for PSLF: Your employer must be a government organization at any level, a 501(c)(3) not-for-profit organization or some other type of not-for-profit organization that provides public service; your loans must be federal Direct loans; and, you need to make 120 qualifying payments in an income-driven repayment plan.

The best way to find out if your job qualifies for PSLF is to fill out the so-called employer certification form. Try to fill out this form at least once a year and keep records of your confirmed qualifying payments, Kantrowitz said.