Courts Vacate Public Service Loan Forgiveness Regulations

On June 30, 2026, federal courts in the District of Columbia and Massachusetts vacated Department of Education (the Department) regulations (the Regulations) that would have allowed the Department to exclude certain nonprofit employers from the Public Service Loan Forgiveness (PSLF) program if the secretary of education determined that an organization had a "substantial illegal purpose." Here, "substantial illegal purpose" was limited to certain immigration-related activities, gender-affirming care, the support and funding of terrorism, alleged illegal discrimination, reproductive care for minors, and protest-related conduct.

The Regulations were challenged in several lawsuits by a broad coalition of state attorneys general; civil rights, immigration, and human rights groups; and student advocates. The plaintiffs argued that the Department weaponized the vague "substantial illegal purpose" standard to penalize organizations engaged in activities the Trump Administration opposes, such as providing support to immigrants, gender-affirming care, and diversity initiatives.

The U.S. District Court for the District of Columbia held that the proposed rule exceeded the Department's authority under the Higher Education Act because Congress expressly requires PSLF eligibility for borrowers employed by qualifying organizations, noting that the secretary of education could not "pick and choose" among Section 501(c)(3) organizations that may qualify. The U.S. District Court for the District of Massachusetts held that the rule violated the First Amendment by conditioning PSLF eligibility on an organization's speech, advocacy, or viewpoint.

For now, PSLF eligibility for employees of qualifying Section 501(c)(3) organizations remains unchanged and continues to be an important employee recruitment and retention tool. Under the program, government and nonprofit employees can have their federal student loans forgiven after 10 years of service. The courts' decisions preserve the established understanding that employees of Section 501(c)(3) organizations may qualify for loan forgiveness based solely on their employment by Section 501(c)(3) organizations and their satisfaction of other PSLF requirements. Furthermore, the rulings stand for the proposition that the Department of Education cannot add to or revise PSLF eligibility requirements on its own because that authority rests with Congress.

The Regulations were scheduled to take effect July 1, 2026, but are now vacated. While the Department of Education is considering next steps, including a potential appeal, the rulings provide an encouraging signal that changes to PSLF eligibility must come from Congress and are not subject to agency discretion.

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Thomas Schroeder is a partner in DWT's Foundations and Nonprofits practice group and serves as head of the firm's Education industry group. DWT's Foundations and Nonprofits and Education groups will continue to monitor developments and keep you updated. For any questions, please reach out to Tom or another member of our Foundations and Nonprofits and Education teams. To stay informed, sign up for our alerts.

*Michelle Melgard is a 2026 summer associate at DWT.