Public Service Loan Forgiveness Lawsuits Over New Rule

Three federal lawsuits are challenging the Trump administration’s new Public Service Loan Forgiveness rule, all filed in the U.S. District Court for the District of Massachusetts in early November 2025. Each Public Service Loan Forgiveness lawsuit targets the same regulation: a Department of Education rule, set to take effect July 1, 2026, that lets the Secretary of Education strip employers of PSLF eligibility if the secretary finds they engage in activities with a “substantial illegal purpose.” As of mid-2026 the rule has not taken effect and no employer has been disqualified, but a summary judgment hearing in one of the cases was scheduled for June 3, 2026.¹

The Rule the Lawsuits Are Trying to Stop

The Department of Education published the final rule on October 30–31, 2025, with an effective date of July 1, 2026. It authorizes the Secretary of Education to disqualify a government agency or 501(c)(3) nonprofit from PSLF on a “preponderance of the evidence” finding that the employer engages in activities with a “substantial illegal purpose.”²

The listed categories of disqualifying conduct include aiding or abetting violations of federal immigration laws, supporting terrorism, engaging in violence to obstruct or influence federal policy, performing what the rule calls “chemical or surgical castration or mutilation” of minors, trafficking children for emancipation, a pattern of illegal discrimination, and repeated violations of state laws on trespassing, disorderly conduct, public nuisance, vandalism, or obstruction of highways.²

The rule flows from Executive Order 14235, “Restoring Public Service Loan Forgiveness,” which President Trump signed on March 7, 2025.³ Under the final rule, employers get notice and a chance to respond before a disqualification decision. Borrowers cannot request reconsideration of their employer’s loss of status. If an employer is disqualified, payments made before the determination still count; payments after it do not. A disqualified employer can regain eligibility after 10 years or through a corrective action plan approved by the secretary.²

The Department estimated fewer than 10 employers per year would be affected.⁴ Higher education groups warned during the comment period that more than 2.5 million borrowers with $225 billion in debt work for currently qualifying employers whose status could be reexamined.⁵

The Three Lawsuits

The 22-State Attorneys General Suit

On November 3, 2025, a coalition of 22 attorneys general filed Commonwealth of Massachusetts v. U.S. Department of Education (Case No. 1:25-cv-13244), assigned to Judge Myong J. Joun. The suit was led by the attorneys general of California, Colorado, Massachusetts, and New York, joined by Arizona, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Washington, Wisconsin, and the District of Columbia.⁶⁷

The states make two main arguments. First, the rule exceeds the Department’s statutory authority: the Higher Education Act defines qualifying employers as government agencies and 501(c)(3) nonprofits, without giving the secretary discretion to carve out ideological exceptions.⁸ Second, the rule is arbitrary and capricious under the Administrative Procedure Act because the “substantial illegal purpose” standard gives the Department “unfettered power” to target state policies while exempting federal agencies from the same scrutiny.⁶ New York Attorney General Letitia James called the rule a “political loyalty test disguised as a regulation.”⁹

The coalition is asking the court to declare the rule unlawful, vacate it, and enjoin enforcement.¹⁰ California’s filing put the stakes in numbers: more than 81,000 Californians had received over $6 billion in PSLF forgiveness as of 2024, and the state argues the rule could theoretically be used to deem the State of California itself ineligible.¹¹

The Cities, Unions, and Nonprofits Suit

Also filed on November 3, 2025, in the same court, National Council of Nonprofits et al. v. McMahon brought together a broad coalition of municipal governments, labor unions, and advocacy groups.¹² Plaintiffs include:

Cities and counties: Albuquerque, Boston, Chicago, San Francisco, and Santa Clara County.
Labor unions: the American Federation of Teachers; the American Federation of State, County, and Municipal Employees; and the National Education Association.
Nonprofits and advocacy groups: the National Council of Nonprofits, the National Association of Social Workers, the Amica Center for Immigrant Rights, the Coalition for Humane Immigrant Rights, Legal Aid DC, and Oasis Legal Services.

The plaintiffs are represented by Protect Borrowers and describe the rule as an “unconstitutional attack” that weaponizes PSLF to “silence critics and stifle dissent.”¹³ The plaintiff cities note they have been designated “sanctuary jurisdictions” by the Department of Justice, exposing them to disqualification under the rule’s immigration provisions.¹⁴ Beyond the APA and statutory-authority claims, this complaint adds a First Amendment challenge, arguing the rule penalizes nonprofits and their employees for protected advocacy.¹²

The Nonprofit Organizations Suit

On November 4, 2025, a third suit was filed by Robert F. Kennedy Human Rights, the American Immigration Council, The Door (a New York City youth services center), and the League of United Latin American Citizens, represented by Student Defense and the Public Citizen Litigation Group. These plaintiffs focus on injury to their own recruitment and missions, alleging the rule will make it harder to attract and retain staff and will “chill politically disfavored but legal activities” by PSLF-eligible employers. Like the other cases, this complaint argues the rule is contrary to the PSLF statute and exceeds the Department’s regulatory authority.¹⁵

How the Department Is Defending the Rule

Under Secretary of Education Nicholas Kent has said the federal government has a “vital interest in deterring unlawful conduct” and that PSLF was designed to support workers who “strengthen their communities and serve the public good,” not to subsidize illegal activity.¹⁶ The preamble to the final rule calls the criteria “anchored in law, not ideology” and describes claims of political motivation as “unsubstantiated.”² In court, the Department has framed the regulation as a lawful step to “guard against the diversion of Federal benefits to organizations that harm their fellow Americans by engaging in illegal conduct.”¹

The Department also points to the process behind the rule. It held public hearings in May 2025 and a three-day negotiated rulemaking session ending July 2, 2025, in which an “overwhelming majority” of negotiators voted in favor of refining the qualifying-employer definition but fell one vote short of the consensus required.¹⁶ The proposed rule drew nearly 14,000 comments during a comment period that closed September 17, 2025, most of them opposed.¹⁷

Where the Cases Stand and Why the Timing Matters

As of June 2026, all three lawsuits remain pending before the District of Massachusetts. A hearing on a motion for summary judgment in National Council of Nonprofits v. McMahon was scheduled for June 3, 2026.¹ That timing is significant: the rule’s effective date is July 1, 2026, so without a court order blocking enforcement, the Department will gain authority to begin disqualification proceedings within weeks of the hearing. The plaintiffs are asking the court to declare the rule unlawful and prevent it from ever taking effect; the Department maintains it is a valid exercise of its authority.

What This Means for Borrowers Right Now

No employer has been disqualified under the new standard, and the rule has not yet taken effect. Borrowers whose employers currently qualify for PSLF remain eligible under the existing framework, and payments continue to count under the current rules. Whether that changes on July 1, 2026, depends on how the Massachusetts court rules on the pending challenges.

1
Forbes. New Rule to Cut Off Student Loan Forgiveness for Certain Groups Gets Key Court Hearing
2
Federal Register. PSLF Final Rule, 2025-19729
3
The White House. Restoring Public Service Loan Forgiveness
4
Inside Higher Ed. ED Finalizes PSLF Rule Limiting Who Gets Forgiveness
5
AAVMC. Letter Opposing PSLF Modifications
6
Illinois Attorney General. Attorney General Raoul Sues U.S. Department of Education to Block Public Service Loan Forgiveness Restrictions
7
Civil Rights Litigation Clearinghouse. Commonwealth of Massachusetts v. U.S. Department of Education
8
California Attorney General. Public Servants Deserve What They Were Promised — Attorney General Bonta Sues
9
Spectrum News. Public Service Loan Forgiveness Program Lawsuit
10
Maryland Attorney General. Attorney General Brown Sues U.S. Department of Education to Block Public Service Loan Forgiveness Restrictions
11
CNBC. Public Service Loan Forgiveness Rule Opposed by Attorneys General
12
National Council of Nonprofits. Nonprofits, Cities, and Workers Unite to Stop Assault on Public Service Loan Forgiveness
13
Protect Borrowers. PSLF Lawsuit
14
LAist. Public Workers Could Be Denied Loan Forgiveness if Cities Defy Trump, Lawsuit Alleges
15
American Immigration Council. Lawsuit Challenges Department of Education Public Loan Forgiveness Rule
16
U.S. Department of Education. U.S. Department of Education Issues Proposed Public Service Program Rules to Protect American Taxpayers
17
National Council of Nonprofits. Department of Education Finalizes Rule for Unlawful Overhaul of Public Service Loan Forgiveness