A fresh legal battle has erupted over a new rule from the Trump administration that could reshape who qualifies for federal student loan forgiveness.
A coalition of Democratic-led states, cities, and nonprofit organizations filed lawsuits in federal court, accusing the U.S. Department of Education of weaponizing the Public Service Loan Forgiveness (PSLF) program to penalize groups it disapproves of.
The lawsuits, brought in Boston by 21 states and the District of Columbia alongside a second suit led by several nonprofits and unions, take aim at a rule unveiled last week redefining “qualifying employers.” Under the revision, any organization with what the government calls a “substantial illegal purpose” — a phrase the plaintiffs say is dangerously vague — would be excluded from the PSLF program.
Critics argue that this vague label could allow the administration to disqualify workers at organizations engaged in politically sensitive causes — such as immigration aid, gender-affirming healthcare, or diversity initiatives — simply because those causes conflict with the administration’s views.
The Public Service Loan Forgiveness Program, created by Congress in 2007, was designed to relieve federal student debt for individuals who dedicate a decade of their careers to public service through government or nonprofit work.
New York Attorney General Letitia James condemned the rule, calling it “a political loyalty test dressed up as regulation,” accusing the administration of trying to punish organizations based on ideology rather than legality.
The Education Department, however, defended the move as a necessary reform to ensure taxpayer dollars do not support “organizations involved in terrorism, child trafficking, or unlawful activities.”
The lawsuits contend that the Department overstepped its authority and that the rule’s language — especially the phrase “substantial illegal purpose” — lacks clarity, opening the door to arbitrary enforcement.
The rule is slated to take effect in July, setting the stage for a courtroom clash that could redefine the limits of executive power over one of the nation’s most significant student debt relief programs.
