Nearly two dozen attorneys general sued the Education Department Monday over a new rule requiring employers to "qualify" for the Public Service Loan Forgiveness Program (PSLF) by avoiding activities deemed to have "substantial illegal purpose."
The big picture: The rule, published Friday, limits eligibility for PSLF — which forgives the remaining balance on federal student loans for eligible public service workers after ten years — as part of the broader crackdown on what the Trump administration calls "anti-American activists."
- The Education Department outlined those actions as "supporting terrorism and aiding and abetting illegal immigration."
- A coalition of states and cities separately filed lawsuits, challenging the administration's rule.
What they're saying: New York Attorney General Letitia James led the lawsuit, which argues that the rule, set to take effect on July 1, 2026, is "flatly illegal."
- The administration's new rule "would effectively transform PSLF into a political weapon against states and causes the administration does not like by allowing the federal government to deem them to be 'substantially illegal' whenever it chooses," James said in a press release.
- "The law that created PSLF guarantees forgiveness for anyone who works full-time in qualifying public service; it does not grant [the Education Department] discretion to carve out exceptions based on ideology."
The other side: "It is unconscionable that the plaintiffs are standing up for criminal activity," Under Secretary of Education Nicholas Kent told Axios. "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."
Context: Former President George W. Bush signed PSLF into law in 2007, which forgives the remaining balance on federal student loans for eligible public service workers after ten years.
- As of December 2024, the Biden administration had canceled nearly $180 billion for 4.9 million borrowers.
Zoom out: The administration's PSLF rule is the latest example of Trump reshaping how people apply for and repay federal student loans.
- Trump's One Big Beautiful Bill Act, passed earlier this year, narrowed repayment options to just two plans for federal borrowers.
- The Education Department also paused the Income-Based Repayment plan in July, then notified some borrowers in October that they had met the payment threshold and qualified for debt cancellation.
