22 states fight Education Department over loan forgiveness restrictions
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New York Attorney General Letitia James leads 22-state lawsuit challenging new rule limiting Public Service Loan Forgiveness.
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The rule would let the federal government disqualify state agencies and nonprofits based on perceived illegal activities.
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Coalition argues the regulation is politically motivated and threatens millions of public servants loan relief.
Attorneys general say rule turns loan forgiveness into political weapon
New York Attorney General Letitia James is leading a coalition of 21 other attorneys general in suing the U.S. Department of Education and Secretary Linda McMahon, alleging that a new federal rule unlawfully narrows eligibility for the Public Service Loan Forgiveness (PSLF) program.
The coalitions lawsuit contends that the rule, finalized October 31, gives the federal government sweeping and arbitrary power to declare entire state governments, schools, hospitals, and nonprofit organizations ineligible for PSLF based on ideology rather than law.
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 announcing the suit. Instead, this administration has created a political loyalty test disguised as a regulation.
A new test for acceptable public service
The PSLF program, established by Congress in 2007, forgives remaining federal student loan debt after ten years of qualifying service with a government or nonprofit employer. More than one million borrowers have already had loans forgiven, including tens of thousands of New Yorkers.
Under the new rule, however, the Department of Education could unilaterally decide that an organization has a substantial illegal purpose a term not defined in the PSLF statute and strip its employees of eligibility. The departments interpretation of illegality, the attorneys general argue, conveniently mirrors the administrations political targets, including organizations that:
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Support immigrants
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Provide gender-affirming care
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Promote diversity, equity, and inclusion, or
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Engage in political protest.
The rule, set to take effect in July 2026, would give the federal government discretion to deny forgiveness to borrowers who work for employers it disfavors potentially leaving teachers, healthcare workers, and legal aid attorneys without relief after years of qualifying payments.
Public servants could wake up one day to find they no longer qualify for PSLF because their employer fell out of favor with Washington.
Potential nationwide fallout
The lawsuit warns that the rule could destabilize the public workforce nationwide. State and local governments rely on PSLF to recruit and retain employees in critical areas such as education, healthcare, and law enforcement.
If this rule stands, the complaint states, entire classes of public workers could lose eligibility through no fault of their own, creating widespread confusion, fear, and instability.
For example, the attorneys general note that the Department of Justices past lawsuit against New Yorks Protect Our Courts Act could have rendered thousands of state employees suddenly ineligible for PSLF under the new standard.
Legal challenge argues rule exceeds federal authority
The coalition contends the rule violates both the law that created PSLF and the Administrative Procedure Act. The PSLF statute, they argue, clearly guarantees forgiveness to anyone working full-time in qualifying public service with no ideological exceptions. The new substantial illegal purpose clause, they say, is arbitrary and capricious, granting the Education Department unchecked power to redefine public service based on political preference.
The attorneys general are asking the court to vacate the rule and block its implementation.
What the states PSLF lawsuit means for your student loan forgiveness
It is unjust and unlawful to cut off loan forgiveness for hardworking Americans based on ideology.
New York Attorney General Letitia James
A new federal rule could change who qualifies for Public Service Loan Forgiveness (PSLF) and 22 states are suing to stop it. Heres what you need to know if you work in government or the nonprofit sector.
Who could be affected
The rule, set to take effect in July 2026, would give the U.S. Department of Education sweeping power to declare entire employers ineligible for PSLF if it determines they have a substantial illegal purpose.
That phrase isnt defined in law, and critics say it could be used to punish certain types of organizations. Among those that could be targeted:
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Nonprofits providing immigrant support
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Clinics offering gender-affirming care
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Schools or agencies with diversity and inclusion programs
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Groups involved in social or political advocacy
If an employer is disqualified, its workers could lose PSLF eligibility even if theyve already made years of qualifying payments toward forgiveness.
What borrowers should do now
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Check your employers eligibilityusing thePSLF Employer Search Tool.
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Keep making paymentsto stay on track for forgiveness.
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Save all documentation payment records, employment certifications, and correspondence.
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Stay informedthrough official sources such as yourstate attorney generals officeorstudentaid.gov.
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Avoid .You never have to pay for PSLF assistance; ignore calls or emails offering instant forgiveness.
Tip:If youve switched jobs, submit a new PSLF certification form right away it keeps your record current and protects your progress.
What happens next
The rule hasnt taken effect yet and is now being challenged in court by New York Attorney General Letitia James and 21 other state attorneys general. The coalition argues the change is politically motivated and unlawful under the Administrative Procedure Act.
Until the courts rule, PSLF continues as usual. Borrowers can still earn credit toward forgiveness if they meet existing requirements.
Related: Federal Student Aid PSLF Overview
Why this matters
More than one million borrowers have received forgiveness through PSLF since 2007, including thousands of teachers, nurses, and social workers.
If the new rule survives, entire classes of public employees could lose eligibility overnight not because they changed jobs, but because Washington decided their employers mission no longer fits federal preferences.
The 22-state lawsuit seeks to stop that from happening before it affects borrowers.
Posted: 2025-11-05 02:32:00
