A proposed Education Department regulation would remove an employer's PSLF eligibility for 10 years if found in violation.

A proposed Education Department regulation would remove an employer's PSLF eligibility for 10 years if found in violation. J. David Ake/Getty Images

New Education rule could end public service loan forgiveness for some and open a wealth of questions

The proposed rule would exclude employers from the Public Service Loan Forgiveness program if they engage in “activities that have a substantial illegal purpose,” but raises even more questions for the program. 

Under a new proposed rule, the Education Department is seeking to cull Public Service Loan Forgiveness benefits from employees and groups deemed as aiding in activities of an “illegal purpose.” 

But as a result, the regulation may impact some gender-affirming care providers, potentially those employed in diversity, equity and inclusion efforts and others from receiving loan forgiveness benefits and has the potential to create a nest of legal questions. 

The proposed rule, published in the Federal Register on Aug. 18, would amend regulations on the PSFL program — which forgives the balances on certain federal student loans for individuals employed by government or not-for-profit organizations after 10 years — to exclude certain employers it deems as substantially involved in illegal activity. 

“The regulatory changes outlined in this rule are designed to preserve the integrity of the PSLF program by ensuring that only borrowers employed by organizations engaged in lawful public service remain eligible for forgiveness,” the proposed rule states. “By excluding employers that engage in activities with a substantial illegal purpose, the rule aims to better align PSLF eligibility with the program's statutory intent—to reward public service.”

The new regulation would task the Education Secretary with determining whether a qualified employer would have its PSLF status revoked for having substantial illegal purpose either on or after July 1, 2026. Evidence of such a finding could include state or federal court rulings, guilty or nolo contendere pleas or legal settlements that include admission by the employer. 

The regulation provides the employer a chance to respond to the allegations, but if found in violation, they would lose PSLF eligibility for 10 years, but could regain it with approved corrective action. 

That would add new regulatory enforcement to a department the Trump administration has spent much of the year trying to unwind. It also raises question of due process for not only the employers, but also the student loan recipients working for them.

“The problems here are enormous and they multiply the closer that you look,” said Don Kettl, professor emeritus and former dean of the University of Maryland School of Public Policy. “I completely get what they think they are trying to do, but the difficulty is in doing it, they do it in a way that introduces enormous amounts of arbitrary judgment in ways that have enormous implications for the people who borrowed money and launched careers.” 

Laid out in the rulemaking of the new regulation is a series of criteria that could exclude agencies or organizations serving certain marginalized groups for what the Education Department claims “are either explicit violations of State or Federal law, and as such, are actions which do not serve the public good.”

The regulation includes employers the government found to have aided in the violation of trafficking laws or providing support of terrorism or other violations. 

But it also includes providers of gender-affirming care like puberty blockers or sex hormones to minors — in line with the president Jan. 28 executive order on gender transition care — and those deemed to have violated federal discrimination laws and immigration laws.

And that’s where some of the confusion starts. The regulation’s rulemaking states that the employer would have to violate either a federal or state law to run afoul of the Education Department and would not be in violation if such “surgical castration or mutilation” procedures on minors were conducted in a state that supports them.

“If the federal government’s regulations and laws on these areas is in tremendous flux, it’s even more so for state governments,” Kettl said. “We’ve seen the nature of state laws and regulations in so many of these social policy areas in constant change and constant flux. It makes it that much more difficult for the federal government and the Department of Education to decide eligibility given that [it] would have to interpret state laws and regulations that may be in flux and subject to court challenge.”

The regulation's approach to illegal discrimination also leaves room for ambiguity when it comes to how it might impact employees. The regulation focuses on only violations of federal discrimination law and leans on the Education Department and other federal agencies’ expertise in identifying discrimination at various employers, but Kettl said that too could lead to confusion given the shifting recognition, then reversal of DEI policies following the Trump administration’s Jan. 21 executive order declaring the practice as discriminatory. 

“One can imagine almost endless possibilities for trying to sort this out,” he said. “It is the case that many universities are scaling back their DEI efforts and are renaming them. You could get into a definitional question about whether a particular function is DEI or not and the same would be true for nonprofits as well.

“Is it a function that is connected to DEI or not? The organization would say, ‘Certainly not. Here are the purposes we are serving,’ and the administration says, ‘Yes it is. If it walks like a duck, it talks like a duck, it must be a duck.’ But then who decides whether or not DEI is a DEI? So there is ambiguity there that goes along with that,” he added.

The regulation notes that during the rulemaking process, one negotiator express concerns that while the Education Department has experience in recognizing discrimination in educational institutions “it does not have the expertise or authority to enforce other types of discrimination, including employment discrimination law” and could create a “chilling effect” in reporting discrimination as the employee would lose their PSLF eligibility if their employee was found in violation. 

“In response, the Department pointed out the circular nature of the argument if the Department cannot enforce the rules preventing illegal discrimination due to the fear of the ‘chilling effect.’ Therefore, we reiterate that we have an interest in helping ensure that PSLF qualifying employers do not engage in illegal discrimination,” the regulation said. 

The proposed regulation is open for public comment through Sept. 17. When asked about whether the potential effects of the regulation would specifically impact gender-affirming care or government or nonprofit employees whose jobs were in DEI initiatives, Education Department representatives referred back to language in the regulation.