Overview
- Two coordinated lawsuits—one by nearly two dozen Democratic-led states and Washington, D.C., and another by major unions, cities, and nonprofits—challenge a final rule that lets the Education Department disqualify employers from Public Service Loan Forgiveness for having a “substantial illegal purpose.”
- Plaintiffs include the American Federation of Teachers, National Education Association, AFSCME, the National Council of Nonprofits, Boston, Chicago, Albuquerque, San Francisco, Santa Clara County, and groups such as RFK Human Rights, the American Immigration Council, The Door, and LULAC.
- The rule, finalized Oct. 30–31 and slated to take effect July 1, 2026, lists examples of disqualifying unlawful activities such as supporting terrorism, aiding illegal immigration, child trafficking, and certain gender-affirming care for minors as described by the department.
- Union leaders and state officials argue the policy imposes an ideological test, exceeds statutory authority under PSLF’s employer definitions, and will harm recruitment and retention for educators, health workers, legal aid attorneys, and local government staff.
- The Education Department, citing a March executive order, defends the change as a neutral safeguard to prevent subsidizing criminal activity and says it will enforce the rule evenhandedly, while critics also question the department’s planned preponderance-of-evidence standard.