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By Suzanne Blake
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A federal judge is considering whether to block a Trump administration rule that could make it harder for some student loan borrowers to qualify for federal debt forgiveness programs, including Public Service Loan Forgiveness (PSLF).
The policy, which is scheduled to take effect in July, would narrow which employers qualify under federal forgiveness programs. Critics say the changes could leave borrowers uncertain about whether years of payments will still count toward eventual loan cancellation, while the Education Department argues the rule is aimed at organizations engaged in illegal conduct.
Why It Matters
Student loan forgiveness programs, especially PSLF, have become a critical lifeline for borrowers with large debt balances, including teachers, healthcare workers, and public service employees.
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The new rule could undermine borrower expectations after years of payments that they thought were going toward their loan forgiveness. It also could possibly discourage work in nonprofit or public-service sectors, while adding confusion to an already complex federal loan system.
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What’s Would Change?
If allowed to move forward, the Education Department’s new stipulations could:
- Prevent some nonprofit and advocacy groups from qualifying as eligible employers
- Disqualify employees working for those organizations from Public Service Loan Forgiveness
- Potentially impact borrowers already on track for forgiveness if their employer loses eligibility
- Create new uncertainty around which jobs qualify for federal relief programs
The case could ultimately determine whether the Department of Education has the authority to redefine eligibility standards in this way.
Why Borrowers Are Concerned
The legal challenge centers on a new Education Department regulation that would limit which employers qualify borrowers for PSLF and related forgiveness programs.
The rule targets certain organizations, particularly those involved in activities that conflict with federal policy priorities, and could disqualify employees from receiving loan cancellation even if they meet other program requirements.
The Education Department has argued that the regulation affects only organizations that engage in activities with a “substantial illegal purpose.”
Before the new rule was passed, borrowers could work for a qualifying nonprofit or government employer and make a set number of payments to receive forgiveness. But experts say the new regulations redefine those eligibility standards, placing many borrowers at risk.
“For borrowers, that creates a level of uncertainty that didn't previously exist. An employer that was once considered PSLF-eligible could potentially face scrutiny or lose that status based on unilateral decisions made within the Education Department,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
“If that precedent is upheld, it could force organizations to think twice about certain activities out of concern for maintaining eligibility.”
What Happens Next
The judge overseeing the case must decide whether to allow the rule to take effect while litigation continues or temporarily block it through an injunction.
That decision could come soon after the hearing and would determine whether the policy is implemented immediately or paused.
The broader legal battle could take months to resolve and may ultimately be decided on appeal.
“Even if courts eventually block it, damage starts July 1,” Michael Ryan, founder of MichaelRyanMoney.com, told Newsweek.
“Employer certification requests get denied, payment counts freeze. People months from forgiveness suddenly don't know if their employer qualifies. The uncertainty itself is the weapon.”
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