Why It Matters

On June 30, federal courts in Massachusetts and Washington, D.C. vacated the Trump administration's attempt to reshape Public Service Loan Forgiveness (PSLF) eligibility rules, leaving Congress with a narrow window to resolve a fundamental dispute over the program's scope.

A new Congressional Research Service (CRS) report documents how both judges rejected the administration's effort to exclude borrowers whose employers engage in activities the government deems to have a "substantial illegal purpose." The Department of Education has until August 31 to decide whether to appeal, and borrowers at nonprofits, schools, and public agencies retain their eligibility pending any further legal action.

The ruling creates policy uncertainty for an administration that has prioritized tightening PSLF access, while simultaneously restoring eligibility to a program that has distributed $93.4 billion in forgiveness to almost 1.3 million borrowers through April.

The Big Picture

The conflict centers on what "public service" means under Section 455(m) of the Higher Education Act of 1965, which has authorized PSLF for nearly 20 years. The statute does not explicitly authorize the Secretary of Education to disqualify employers based on their conduct.

President Trump signed an executive order on March 7, 2025, directing the Department of Education to exclude organizations engaging in activities with a "substantial illegal purpose." On October 31, 2025, Education Secretary Linda McMahon finalized a rule implementing that directive by giving the Secretary unilateral authority to strip qualifying employer status from any entity found to meet criteria including aiding immigration violations, supporting terrorism, or engaging in unlawful discrimination patterns.

The D.C. district court held that the statute required credit for payments made while working full-time at any Section 501(c)(3) organization and gave the Secretary no authority to "pick and choose" among them. The Massachusetts district court found that Congress had defined qualifying jobs by broad employment categories and included only one express exception: service as a member of Congress. That deliberate choice, the court reasoned, reflected Congress's intent to include all roles within a category unless expressly excluded.

Both judges concluded the administration cannot grant itself unilateral power to determine which nonprofits' employees lose eligibility. The Department of Education subsequently amended the PSLF application form to comply with the courts' orders, removing the employer attestation requirement it had added in June.

The Bottom Line

Legislators could enact a statute to create a "substantial illegal purpose" test, expand or narrow it, grant the Secretary broader discretionary authority over eligibility, or expressly prohibit eligibility restrictions based on employer conduct. Without congressional action, the program operates under its original statutory framework, and borrowers' eligibility depends on their job category and payment history, not their employer's activities.

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