Education Department sued over new student loan forgiveness rule

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.

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