Local Governments and Unions Sue Over Changes to Loan Forgiveness Program
In a significant legal move, the cities of Albuquerque, Boston, Chicago, and San Francisco, together with major teachers’ unions, have taken legal action against the Trump administration. The lawsuit aims to challenge recent alterations to the Public Service Loan Forgiveness (PSLF) program, which has been a cornerstone for public service workers since its establishment in 2007.
The lawsuit was filed shortly after the U.S. Department of Education introduced a new rule affecting PSLF, set to take effect on July 1, 2026. The rule allows the Department to deny loan forgiveness to employees of organizations engaged in activities deemed to have a “substantial illegal purpose,” a determination that will be made by the education secretary.
PSLF was designed to forgive the student loans of individuals who work in public service for ten years, covering fields such as education, healthcare, and law enforcement. However, changes proposed by the current administration have sparked concerns about potential political bias in its application.
The plaintiffs argue that the rule could be used to penalize organizations and communities that disagree with the administration’s policies, particularly on issues like immigration and diversity, equity, and inclusion (DEI). “Politically motivated retaliation, like what the administration has done here, should have no place in America,” said Skye Perryman, president and CEO of Democracy Forward.
Under Secretary of Education Nicholas Kent defended the rule, stating, “It is unconscionable that the plaintiffs are standing up for criminal activity,” and emphasized that the reform is intended to prevent taxpayer money from supporting organizations involved in illegal activities.
Critics of the rule fear it could jeopardize staffing in crucial public service roles. Albuquerque officials warned of a potential staffing crisis if access to PSLF is restricted, a sentiment echoed by Boston Mayor Michelle Wu, who highlighted the program’s importance in helping public service employees manage their college debt.
Defining “Substantial Illegal Purpose”
A central issue in the lawsuit is the lack of clarity in defining what constitutes a “substantial illegal purpose.” The rule lists activities like aiding violations of federal immigration laws and supporting terrorism as examples but leaves significant discretion to the secretary of education to determine what falls under these categories.
If an employer is found to engage in such activities, they could face a decade-long exclusion from PSLF unless they comply with a corrective action plan. Plaintiffs worry this could unfairly target organizations based on political disagreements.
The Education Department has stated that organizations following the law will not be penalized, but the plaintiffs, including cities labeled as “sanctuary jurisdictions,” remain skeptical. Persis Yu from Protect Borrowers argues that the secretary of education lacks the authority to make determinations about legal compliance.
Controversy Over Congressional Intent
At the heart of the legal battle is the interpretation of PSLF’s original intent. The plaintiffs argue that Congress clearly defined public service as including government and certain nonprofit jobs, and that the new rule oversteps the secretary’s authority by attempting to redefine eligibility.
The Education Department, however, insists it is acting within its legal rights, asserting that it requires clear standards to administer PSLF effectively. Meanwhile, a coalition of state attorneys general has filed a parallel lawsuit, raising concerns that the rule could disrupt public services by causing staffing shortages and increased turnover.
Since its inception, PSLF has relieved over 1.1 million public service workers of their federal student loan debts, according to federal data. The outcome of these lawsuits could significantly impact the future of the program and its beneficiaries.
