Courts block Trump rule limiting public service loan forgiveness eligibility

Two federal judges blocked a Trump administration rule that would have let the Education Department strip public service loan forgiveness eligibility from certain employers, stopping it one day before it was set to take effect. The rulings leave the existing PSLF system in place while the administration weighs its next move.

Public Service Loan Forgiveness was created by Congress in 2007 to push graduates into government and nonprofit jobs. Under the program, borrowers can have remaining federal student debt canceled after 10 years of qualifying employment and monthly payments. The Education Department has already erased loans for more than 1 million Americans.

The blocked rule would have changed that by giving the education secretary power to disqualify an employer if the department decided it had a “substantial illegal purpose.” That could include supporting terrorism, aiding and abetting illegal immigration, and certain gender-affirming care-related activities. The rule was meant to ensure taxpayer dollars do not subsidize unlawful activity.

U.S. District Judge Myong Joun in Massachusetts vacated the Education Department’s changes, saying they exceeded the agency’s authority and threatened First Amendment protections. U.S. District Judge Amir Ali in Washington issued a similar ruling in a separate case. The Massachusetts suit was brought by more than 20 states, along with nonprofit groups and cities, while nonprofit organizations brought the Washington case.

The fight had been building since March 7, 2025, when President Donald Trump signed Executive Order 14235 directing the Education Department to revise PSLF eligibility. The department held hearings on April 29 and May 1, 2025, then negotiated rulemaking from June 30 through July 2 before issuing its proposed rule in August 2025. It finalized the regulation on October 30, 2025, and published it the next day, setting a July 1, 2026 effective date that the courts have now blocked.

The department received nearly 14,000 comments and planned to use a “preponderance of the evidence” standard in deciding whether an employer violated the rule. Critics warned the language was vague and could reach organizations involved in immigration rights, transgender health care, civil rights litigation, legal aid and public defense. The National Council of Nonprofits said the rule would harm communities that rely on local nonprofits, and Student Defense called the rulings a victory for borrowers.

New York Attorney General Letitia James said public servants should not have to pass a political loyalty test to earn the forgiveness they were promised. California Attorney General Rob Bonta also praised the rulings. Under Secretary of Education Nicholas Kent defended the rule as a commonsense effort to ensure taxpayer money does not subsidize illegal activity, while the department was evaluating next steps and still stood behind the regulation.