Federal Government to Bar Employers Engaged in Illegal Activities From Loan Relief Program

The Education Department said the new rules restore the taxpayer-funded program to its original purpose of supporting public workers.

Under new rules, organizations that otherwise meet the Public Service Loan Forgiveness program's government or nonprofit requirements could lose their qualifying status if the Education Department determines that they engage in activities that have a "substantial illegal purpose." Shutterstock

The U.S. Department of Education said on Oct. 30 that it has finalized new rules for a student loan forgiveness program to exclude public service organizations that the department says engage in unlawful activities, such as aiding illegal immigration or performing transgender-related medical procedures on minors.

The final rule tightens eligibility criteria for employers participating in the Public Service Loan Forgiveness (PSLF) program, which discharges the remaining federal student loan balance for borrowers who make 10 years of qualifying payments while working full time in public service, such as for government agencies or qualified nonprofit organizations.

Under the new rules, organizations that otherwise meet the PSLF program’s government or nonprofit requirements could lose their qualifying status if the Education Department determines that they engage in activities that have a “substantial illegal purpose.”

The department provided a list of such disqualifying activities, including violating federal anti-discrimination laws, aiding or abetting illegal immigration, supporting terrorism, trafficking children, or participating in violent protests.

The rule also targets organizations engaged in what it describes as “chemical and surgical castration or mutilation of children” in violation of federal or state law.

This covers so-called “gender-affirming” surgeries that President Donald Trump has described as sterilizing in nature, as well as using puberty blockers and sex hormones for the purpose of attempting to change a child’s body to align with a gender identity that differs from his or her sex.

In response to public comments expressing concern that isolated incidents or unproven allegations could unfairly disqualify employers, the Education Department said it would base decisions on material evidence, with a particular focus on whether the alleged conduct is central to the organization’s mission rather than incidental acts by employees acting outside their scope of employment.

“The Department may consider allegations as a basis to start an inquiry, but the Department must develop the factual record to substantiate any allegations,” the agency stated, promising to use “clear and objective standards” to weigh the “scope, frequency, and intent” when determining whether it meets the “substantial” threshold.

Employers found at risk of losing PSLF eligibility will receive a notice and have the opportunity to review, respond, and rebut the department’s findings, it added.

Organizations found in violation of state laws could also be stripped of eligibility, according to the final rule, but only if there is a final, non-default judgment in cases involving trespassing, disorderly conduct, vandalism, public nuisance, or obstruction of highways.

The Education Department said the new rules restore the taxpayer-funded program to its original purpose.

“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,” Undersecretary of Education Nicholas Kent said.

The final rule builds on an executive order issued in March, which stated that the PSLF program had “misdirected tax dollars into activist organizations.” It directed Education Secretary Linda McMahon to revise the program to bar borrowers from debt relief if they work for organizations that “have a substantial illegal purpose.”

President Donald Trump places his hands on a signed executive order in the Oval Office on March 7, 2025. Evelyn Hockstein/Reuters

The executive order also took issue with the program for providing premature debt relief. In 2022, during the COVID-19 pandemic, the Biden administration temporarily relaxed PSLF requirements to expand eligibility and later made many of those changes permanent. As a result, more than 1 million borrowers have had their federal student loans forgiven through the program.

Several groups have condemned Trump’s order to revise the PSLF program, accusing the administration of weaponizing student debt against nonprofits that have missions that it does not like.

“He wants to impose an ideological litmus test antithetical to American values and contrary to the statute at hand,” American Federation of Teachers President Randi Weingarten said. “It’s an illegal attack on millions of dedicated public service workers who placed their faith in PSLF’s bipartisan promise, only to see it ripped away.”

The American Academy of Family Physicians, which represents more than 130,000 physicians and medical students, also voiced opposition after the department released its draft rule in September.

“Only Congress has the authority to substantively alter PSLF eligibility criteria,” the academy said in a letter. “The department’s effort to redefine qualifying employment through regulation exceeds its delegated authority and would set a concerning precedent.”

The final rule is set to take effect on July 1, 2026.