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- A coalition of nonprofits and cities sued the Trump administration over its new rule to limit PSLF.
- The new rule would bar employers that do not align with the administration from Public Service Loan Forgiveness.
- The lawsuit said that the rule violates the law and would harm government and nonprofit recruitment.
The first lawsuit challenging a new rule to alter a major student-loan forgiveness program for public servants has arrived.
On Monday, advocacy groups Protect Borrowers and Democracy Forward filed a lawsuit on behalf of over a dozen cities, labor unions, and nonprofits over President Donald Trump's new rule to limit the Public Service Loan Forgiveness program.
PSLF was established by Congress in 2007 to forgive student debt for government and nonprofit workers after 10 years of qualifying payments. Last week, Trump's Education Department announced that it finalized a rule to limit the eligibility of the program to bar employers who engage in activity that does not align with the administration, like working with undocumented immigrants or helping transgender people.
This means that public servants currently enrolled in PSLF and making payments toward forgiveness risk losing relief once the rule goes into effect on July 1, 2026.
Persis Yu, managing counsel at Protect Borrowers, said in a statement that the rule "betrays the nonpartisan promise of PSLF and the core principles of our nation."
"They are silencing dissent and trying to dismantle the very institutions that hold power accountable," Yu said. "We will not let this stand."
The final rule follows an executive order Trump signed in March that directed the education secretary to redefine what "public service" means. The Department of Education later held negotiations with stakeholders on the executive order and solicited public comment before finalizing the rule.
The lawsuit said that thousands of commenters urged the department to withdraw the rule due to the harm it could inflict on public servants. It added that the rule could impede recruitment efforts at nonprofit organizations and local government.
Undersecretary of Education Nicholas Kent told Business Insider that it's "unconscionable that the plaintiffs are standing up for criminal activity."
"This is a commonsense reform that will stop taxpayer dollars from subsidizing organizations involved in terrorism, child trafficking, and transgender procedures that are doing irreversible harm to children," Kent said. "The final rule is crystal clear: the Department will enforce it neutrally, without consideration of the employer's mission, ideology, or the population they serve."
The Department of Education said in a fact sheet that the education secretary will determine whether an employer engaged in an illegal activity substantial enough to disqualify it from PSLF. The employer would receive notice and have an opportunity to rebut the department's findings, and borrowers would also receive notice that a review is being conducted on their employer.
Some Democratic lawmakers also criticized the department's new rule on PSLF. Sen. Bernie Sanders wrote on X on November 1: "Rescind this illegal rule."
"You do not have the right to take away student debt forgiveness from teachers, nurses, veterans and other public servants if they do not show loyalty to your right-wing political agenda," Sanders said. "This is a democracy, not a dictatorship."
