On August 18, 2025, the Department of Education publishes a proposed final rule on Public Service Loan Forgiveness (PSLF), in an effort to effectuate the so-called Restoring Public Service Loan Forgiveness Executive Order of March 7, 2025.  The pre-publication rule is here: https://public-inspection.federalregister.gov/2025-15665.pdf

Next will be a 30-day window of public comment, after which a Final Rule will be published, likely before November 1, 2025, and effective July 1, 2026. 

Litigation will surely ensue, likely brought by more than one group. Legal arguments against the rule include that the Department lacks the statutory authority to promulgate the rule (PSLF qualifying employment is defined by statute) and the rule lacks sufficient process. 

The original text is the best source of information and a summary is below.

• Purported Purpose of Proposed Rulemaking – The Secretary proposes to amend the regulations on the Public Service Loan Forgiveness (PSLF) program under 34 CFR 685.219 to exclude employers that engage in activities that have a substantial illegal purpose.

• Stated Goal of the Administration – “To prevent taxpayer-funded PSLF benefits from being improperly provided to individuals who are employed by organizations that engage in activities that have a substantial illegal purpose; to improve the administration of the PSLF program; and to provide protection for taxpayers.”

Summary of Major Provisions –

• Add new definitions for: aiding or abetting, chemical castration or mutilation, child or children, foreign terrorist organizations, illegal discrimination, other Federal immigration laws, substantial illegal purpose, surgical castration or mutilation, terrorism, trafficking, violating State law, and violence for the purpose of obstructing or influencing Federal Government policy.
• Amend § 685.219(c) so that, on or after July 1, 2026, no payment made by a borrower shall be credited as a qualifying payment for PSLF for any month subsequent to a determination that a qualifying employer engages in activities that have a substantial illegal purpose.
• Amend § 685.219(e) to require the Secretary to notify borrowers employed by a qualifying employer if the employer is at risk of becoming, or becomes, ineligible for the PSLF program.
• Amend § 685.219(g) to clarify that a borrower may not request reconsideration of a final determination by the Secretary that the employer lost status as a qualifying employer.
• Add § 685.219(h) to establish the standard that the Secretary would determine by the preponderance of the evidence, and after notice and opportunity to respond, that a qualifying employer has engaged in activities that have a substantial illegal purpose. Certain actions, such as final court judgments, pleas of guilty or nolo contendere, or settlements including an admission, would be conclusive evidence.
• Add § 685.219(i) to establish that the Secretary will determine an employer engaged in activities that have a substantial illegal purpose when an application fails to certify no such activities, or the Secretary otherwise determines such activities occurred under the § 685.219(h) standard.
• Add § 685.219(j) to allow an employer that lost PSLF eligibility to regain status after 10 years or upon approval of a corrective action plan.
• Add § 685.219(k) to require that if an employer regains eligibility, the Secretary will update the qualifying employer list within 30 days.

• Definition of Substantial Illegal Purpose – Includes: aiding or abetting violations of 8 USC 1325 or other Federal immigration laws; supporting terrorism; engaging in the chemical and surgical castration or mutilation of children in violation of Federal or State law; trafficking of children to states for purposes of emancipation in violation of law; a pattern of aiding and abetting illegal discrimination; or a pattern of violating certain State laws.
• Rationale and Legal Basis – The Department asserts that organizations that have a substantial illegal purpose are acting in contravention with the public good. The proposal is stated to be aligned with the “illegality doctrine” applied in IRS determinations under Internal Revenue Code § 501(c)(3), where organizations with a substantial illegal purpose are not considered to serve a public purpose. The Department states it has an overriding governmental interest in ensuring PSLF funds are not used to subsidize organizations engaged in unlawful activity.
• Impact on Borrowers – Borrowers employed by organizations that lose qualifying employer status under these regulations would no longer receive credit toward loan forgiveness for months worked after the effective date of ineligibility. Borrowers would be notified when an employer may become ineligible or is determined ineligible. Borrowers may not request reconsideration of a loss of qualifying employer status based on a finding of substantial illegal purpose.
• Process and Standards – The Secretary will determine whether an employer engaged in activities that have a substantial illegal purpose using the preponderance of the evidence standard, considering the materiality of illegal activities by gauging frequency and severity. Final court judgments, guilty pleas, or settlements including admissions are conclusive evidence. Employers will have notice and an opportunity to respond. Activities prior to July 1, 2026, will not be considered. Actions taken under protected First Amendment rights or other rights under the Constitution will not be the basis for such determinations.
• Regaining Eligibility – An employer found ineligible may regain qualifying status after 10 years from the determination or upon approval of a corrective action plan. The Secretary will update the list of qualifying employers within 30 days of reinstatement.
• Public Participation – The proposal follows truncated public hearings, written comments, and negotiated rulemaking. The committee did not reach consensus on the proposed regulations.
• Cost and Benefits – The Department claims these regulations will preserve program integrity, protect taxpayers, and ensure PSLF benefits only go to lawful public service employment. The changes are expected to reduce PSLF-related discharges for borrowers employed at organizations acting illegally, while adding administrative responsibilities for the Department such as reviewing court records, issuing determinations, and notifying borrowers.