Experts urge borrowers not to panic or make rash financial decisions, as PSLF still remains available amid legal challenges.
The federal government just issued regulations that could make it harder for some student loan borrowers to qualify for the Public Service Loan Forgiveness (PSLF) program.
PSLF is a student loan forgiveness program that allows borrowers who make 120 student loan payments while working at a qualifying public service employer, like the government or nonprofit organizations, to have their debt forgiven tax-free.
On October 30, the Trump administration released a final rule that would more narrowly define what's considered a 'qualifying employer'. This could exclude employers that the administration determines 'participate in illegal activities such that they have a substantial illegal purpose.'
"The Public Service Loan Forgiveness program was meant to support Americans who dedicate their careers to public service-not to subsidize organizations that violate the law, whether by harboring illegal immigrants or performing prohibited medical procedures that attempt to transition children away from their biological sex," said Under Secretary of Education Nicholas Kent in the press release.
This rule won't go into effect until July 1, 2026, but when it does, it could have negative consequences for some borrowers. Those who work at an organization that loses its 'qualifying employer' status at that time could no longer have their payments count towards forgiveness.
"There has never been such a limitation on qualifying employers in the history of PSLF, and it should not start now," said Khandice Lofton, counsel at Protect Borrowers, a nonprofit that advocates on behalf of student loan borrowers. "It has always been enough that borrowers work for a government entity or 501(c)(3) nonprofit organization, and this administration's attempt to overhaul the program to push its own agenda is only going to hurt hardworking families."
The administration's attempt to limit who qualifies for the program is overreaching and illegal, according to some experts.
"Once they are final, (the new regulations) are likely to be met with lawsuits seeking to block them under the Administrative Procedures Act (APA)," said student loan expert Mark Kantrowitz. "They are arbitrary, capricious, and vague, an abuse of discretion, and exceed the administration's statutory authority."
In fact, two lawsuits -- filed by numerous cities, nonprofits, and labor unions -- challenging the rule were filed in Massachusetts federal court on November 3, according to a New York Times report.
Student loan expert Betsy Mayotte, who participated in the negotiated rulemaking session for the final rule, told Investopedia that neither the executive order -- which was signed by President Trump earlier this year -- nor the federal regulations can be contrary to federal law. Otherwise, they risk being overturned by the court.
"This is not the Education Department's wheelhouse, and it's up to a court to determine if an entity has broken the law -- not the secretary of education," she said.
The most important thing to remember about any potential changes to the PSLF program is not to panic and make impulsive choices with your student debt.
"I'm seeing quite a few borrowers make snap decisions based on these draft regulations that are very troubling," Mayotte said. These include leaving public service jobs and cashing out retirement funds to pay off their loans, which can leave you in a financial lurch.
"PSLF is still very much an option for borrowers who want to pursue a career in public service, and advocates are prepared to fight to keep PSLF the way it has always been," Lofton said, adding that borrowers can still enroll in other income-driven repayment (IDR) plans.