{"database": "openregs", "table": "crs_reports", "rows": [["LSB11472", "Public Service Loan Forgiveness: Recent Legal Developments", "2026-08-25T04:00:00Z", "2026-08-27T17:53:10Z", "Active", "Posts", "Sean Stiff", "Public Service Loan Forgiveness Program (PSLF), Postsecondary Education", "For nearly 20 years, Section 455(m) of the Higher Education Act of 1965 (HEA), as amended, has authorized a benefit for borrowers of federal Direct Loan program student loans commonly known as Public Service Loan Forgiveness (PSLF). First established by the College Cost Reduction Act of 2007 (CCRA), the PSLF program requires the Secretary of Education (Secretary) to cancel the outstanding loan balance of borrowers who have pursued public service. To receive this benefit, a borrower must have made 120 monthly loan payments under a qualifying repayment plan. A loan payment counts toward PSLF forgiveness if the borrower made the payment while employed in a \u201cpublic service job.\u201d The borrower must also hold a \u201cpublic service job\u201d when applying for forgiveness.\nThe statutory category of \u201cpublic service job\u201d is thus key to administering the PSLF program. Congress did not leave the term undefined. In the CCRA and a 2008 amendment, it defined \u201cpublic service job\u201d to mean a full-time job in one of 18 categories, ranging from emergency management and law enforcement to employment with a nonprofit organization described in Internal Revenue Code Section 501(c)(3) (501(c)(3) organization).The Secretary has promulgated agency rules that further elaborate on elements of the statute\u2019s definition. The regulations have long specified, for example, that a \u201cborrower may obtain loan forgiveness\u201d under the PSLF program if, among other things, they make the requisite number of qualifying monthly payments while working for a \u201cqualifying employer.\u201d The rule\u2019s \u201cqualifying employer\u201d category, in turn, has long included governmental agencies, Section 501(c)(3) organizations, and nonprofit organizations that provide a nongovernmental public service, such as early childhood education, to name a few, with added detail about program eligibility (e.g., when employment counts as \u201cfull-time\u201d employment). Through April 2026, the Department of Education (ED) provided forgiveness to approximately 1.254 million borrowers, totaling $93.4 billion in student loan debt, under PSLF and its related programs.\nOn October 31, 2025, Secretary of Education Linda McMahon added a further element to PSLF eligibility by amending ED\u2019s agency rules for the program (the 2025 final rule). The Secretary\u2019s rulemaking responds to a March 2025 executive order directing her to make program changes that meet President Trump\u2019s objectives for PSLF. President Trump stated that prior ED leadership had used the PSLF program to direct tax dollars to \u201cactivist organizations that not only fail to serve the public interest, but actually harm our national security and American values, sometimes through criminal means.\u201d He ordered that the PSLF program be administered so that \u201cindividuals employed by organizations whose activities have a substantial illegal purpose\u201d would not be eligible for loan forgiveness. The 2025 final rule implements this policy by amending the PSLF program\u2019s rules to deny \u201cqualifying employer\u201d status to an entity that the Secretary finds has a \u201csubstantial illegal purpose.\u201d \nWithin days of its publication, the Secretary\u2019s final rule drew legal challenges from organizations that employ or represent borrowers who may be affected by the rule. One set of Plaintiffs litigated their claims in the U.S. District Court for the District of Massachusetts (the Massachusetts federal court), while another set of Plaintiffs filed suit in the U.S. District Court for the District of Columbia (the D.C. federal court). On June 30, 2026, one day before the rule was set to take effect, both district courts entered final judgment against ED vacating the final rule.\nThe litigation raises legal questions concerning the Secretary\u2019s statutory authority to withhold PSLF benefits from individuals employed by entities that she determines to have a substantial illegal purpose. This Legal Sidebar examines those questions by describing the 2025 final rule\u2019s \u201csubstantial illegal purpose\u201d eligibility criterion. The Sidebar then canvasses the Secretary\u2019s statutory arguments in support of the test and the Plaintiffs\u2019 opposing viewpoints. It explains the district courts\u2019 rationales for vacating the rule. The Legal Sidebar concludes by noting Congress\u2019s options for addressing these recent PSLF program developments if desired.\nED\u2019s PSLF Framework\nPSLF\u2019s implementing regulations appear at 34 C.F.R. \u00a7 685.219. The rule begins by declaring the program\u2019s purpose of \u201cencourag[ing] individuals to enter and continue in full-time public service employment by forgiving the remaining balance of their Direct loans after they satisfy the public service and loan payment requirements of this section.\u201d \nSection 658.219(c) defines borrower eligibility for PSLF forgiveness, stipulating that a borrower must not be in default on the loan for which forgiveness is sought, must have made 120 qualifying monthly payments while employed full-time by a \u201cqualifying employer,\u201d and must be employed by such an employer when applying for PSLF benefits.\nAs noted above, the 2025 final rule adds a new regulatory criterion, substantial illegal purpose, upon which access to PSLF benefits could turn. Under the rule, an employer has a substantial illegal purpose if the employer\naids or abets violations of federal immigration law; \nsupports terrorism through various means;\nengages in the unlawful \u201cchemical or surgical castration or mutilation of children\u201d; \nparticipates in the unlawful interstate trafficking of children with the aim of emancipating them from their lawful parents;\ncarries out a \u201cpattern of aiding or abetting illegal discrimination\u201d; or\nhas a pattern of violating state laws proscribing trespass, public nuisance, vandalism, and similar offenses, as demonstrated by a state court\u2019s final, nondefault judgment.\nThe Secretary\u2019s decision that an employer has a substantial illegal purpose would have two related effects, both of which serve to limit borrower eligibility for PSLF relief. First, the 2025 final rule explains that an employer is a \u201cqualifying employer\u201d only if, among other things, it does not \u201cengage in activities such that they have a substantial illegal purpose.\u201d An employer judged to have a substantial illegal purpose is not a qualifying employer. A borrower who is employed by such an entity at the time they apply for PSLF relief would thus not be eligible for PSLF benefits, even if the borrower had made 120 qualifying monthly payments while employed by another entity that was a qualifying employer. Second, a substantial illegal purpose finding would affect whether a borrower\u2019s monthly loan payments are credited toward PSLF relief. After July 1, 2026, the Secretary would not count as a qualifying payment any subsequent payment made by a borrower while employed by an entity that the Secretary finds to have a substantial illegal purpose.\nAs a matter of agency procedure, the Secretary would make substantial illegal purpose findings using one of two processes. The first agency process involves the content of a borrower\u2019s PSLF application, which is one avenue by which a borrower can receive PSLF benefits. (The rule specifies that the Secretary also may grant PSLF relief without the need for a borrower application if she already possesses sufficient information establishing the borrower\u2019s PSLF eligibility.) If the Secretary receives a borrower application on which an employer fails to certify that it does not engage in the rule\u2019s list of relevant illegal acts, then the Secretary would find that the employer has a substantial illegal purpose. The second agency process would involve an affirmative finding by the Secretary that an employer has such a purpose. The Secretary must decide, based on the evidence before her, that it is more likely than not that the employer engaged in relevant illegal acts on or after July 1, 2026, considering the materiality of such acts. Certain forms of evidence would give rise to a conclusive presumption that an employer engaged in relevant illegal acts, but the Secretary could not base a substantial illegal purpose finding on an employer\u2019s constitutionally protected actions, such as \u201cexercising their First Amendment protected rights.\u201d \nIf the Secretary determines that an employer has a substantial illegal purpose, the finding would remain in effect for 10 years, at which time the employer would need to certify that it no longer engages in relevant illegal acts to regain qualifying employer status. However, the final rule allows the Secretary to restore this status at any time, so long as the employer submits a satisfactory corrective action plan that includes its certification that it no longer engages in relevant illegal acts.\nCompeting Views on the Final Rule\u2019s Validity\nWithin days of the 2025 final rule\u2019s publication, Plaintiffs filed two lawsuits challenging the Secretary\u2019s authority to apply her substantial illegal purpose eligibility rule. Among other claims, both lawsuits argue that the 2025 final rule conflicts with HEA Section 455(m)\u2019s requirement for the Secretary to provide PSLF benefits to borrowers of Direct Loan program student loans who seek PSLF after having made 120 qualifying monthly payments while employed in a \u201cpublic service job.\u201d The Plaintiffs maintain that ED\u2019s rule is thus contrary to law and \u201cin excess of statutory jurisdiction, authority, or limitations, or short of statutory right\u201d within the meaning of the Administrative Procedure Act (APA) and should be vacated. \nED has disputed these claims. Part of ED\u2019s argument relies on the fact that various federal statutes vest the Secretary with the power to promulgate rules to carry out her statutory functions. For example, the Department of Education Organization Act empowers the Secretary to prescribe rules she deems necessary or appropriate to carry out her statutory functions. \nED\u2019s argument also rests on its view of the text and purpose of HEA Section 455(m) and, in particular, its definition of \u201cpublic service job.\u201d The statutory definition lists 18 categories of full-time employment that count as a \u201cpublic service job.\u201d According to ED, certain of these categories overlap. For example, a borrower who represents indigent criminal defendants would hold a \u201cpublic service job\u201d under the statute either because they provide \u201cpublic interest law services\u201d (one of the statute\u2019s 18 categories) or because they are employed by a Section 501(c)(3) organization (another of the statute\u2019s 18 categories). ED argues that its reading of Section 455(m) is permissible because it \u201cmakes sense of these overlapping categories.\u201d In ED\u2019s view, Congress\u2019s purpose in defining \u201cpublic service job\u201d using a lengthy list of partially overlapping job categories was to ensure that \u201conly those professions that advance the public interest constitute eligible public service jobs.\u201d Providing PSLF relief to a borrower employed by an entity with a substantial illegal purpose would, ED argues, conflict with Congress\u2019s goal for the program. According to ED, granting relief to employees of organizations with a substantial illegal purpose would render the statute\u2019s \u201cpublic service job\u201d partially redundant, a result that ED says would disregard the canon against construing statutes to contain surplusage. \nPlaintiffs interpret the statutory framework differently than ED. Plaintiffs observe that the HEA Section 455(m) imposes a mandatory duty on the Secretary\u2014she \u201cshall cancel the obligation to repay the balance of principal and interest due\u201d on Direct Loan program student loans that are eligible for PSLF relief. Plaintiffs argue that in carrying out this mandatory duty, the Secretary lacks authority to determine that employment that otherwise fits one of the 18 \u201cpublic service job\u201d categories (e.g., a full-time job in \u201cpublic education\u201d) is nonetheless not qualifying PSLF employment due to the specific acts of the employer. \nThe Plaintiffs in the Massachusetts federal court (Massachusetts Plaintiffs) say this result flows from the fact that Congress included only one express exception within the \u201cpublic service job\u201d definition\u2014full-time employment in \u201cgovernment\u201d counts as a \u201cpublic service job,\u201d but since a 2008 amendment to the definition \u201ctime served as a member of Congress\u201d does not. The Massachusetts Plaintiffs similarly argue that HEA Section 455(m)\u2019s broader statutory context reinforces the Secretary\u2019s lack of discretion to make ineligible employment that otherwise fits the \u201cpublic service job\u201d definition. Section 455 extensively describes the terms and conditions of Direct Loans from interest rates and repayment plans to loan forbearance. In Plaintiffs\u2019 view, this level of statutory detail demonstrates that \u201cCongress knows how to direct the Secretary to create specific programs and procedures to administer the Department\u2019s vast student-loan portfolio.\u201d \nIn their lawsuit, the Plaintiffs in the D.C. federal court (D.C. Plaintiffs) contend that any overlap in the employment categories that make up the statute\u2019s \u201cpublic service job\u201d definition, \u201creflects Congress\u2019s decision to broadly include within PSLF professions that advance the public interest.\u201d Such category overlap does not, in these Plaintiffs\u2019 view, delegate ED any authority to determine whether the work of a given employer advances the public interest.\nED also argues that its interpretation of the HEA parallels the Internal Revenue Service\u2019s (IRS\u2019s) administration of Section 501(c)(3) of the Internal Revenue Code (IRC). Section 501 provides an exemption from federal income taxes for entities organized and operated exclusively for listed purposes (e.g., for \u201ceducational purposes\u201d). In 1982, the Supreme Court held in Bob Jones University v. United States that relevant IRC provisions contained \u201cunmistakable evidence\u201d that \u201centitlement to tax exemption depends on meeting certain common law standards of charity\u2014namely, that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy.\u201d The Court held the IRS had properly denied Section 501 tax exemptions to private schools that enforced racially discriminatory admissions policies because \u201cracial discrimination in education violates deeply and widely accepted views of elementary justice.\u201d According to the Court, Congress was \u201cacutely aware\u201d of the IRS\u2019s Section 501 interpretation but did not amend the statute to overrule that reading. On the contrary, sources of legislative history indicated congressional approval of the IRS\u2019s view.\nED contends that the IRS\u2019s illegality doctrine \u201cdemonstrates that [ED\u2019s] public policy considerations are rooted in the long-standing government practice to address and deter illegal activity as a matter of policy.\u201d Plaintiffs counter that the Supreme Court has embraced the illegality doctrine because of federal tax exemptions\u2019 origins in the English law of charitable trusts. Plaintiffs contend that ED\u2019s reliance on the illegality doctrine is misplaced because the PSLF program lacks comparable common law antecedents.\nOn June 30, 2026, one day before the 2025 final rule was to take effect, both district courts entered judgments vacating the rule. Both courts construed HEA Section 455(m)\u2019s plain text to bar use of the substantial illegal purpose criterion. The D.C. district court presided over litigation brought by Section 501(c)(3) organizations. The court construed Section 455(m)\u2019s \u201cpublic service job\u201d definition as requiring \u201cthe Secretary to give borrowers credit for payments made while working full-time at any section 501(c)(3) organization.\u201d The statute, according to the district court, conferred no authority on the Secretary to \u201cpick and choose\u201d among Section 501(c)(3) organizations when administering the PSLF program. Similarly, the Massachusetts district court found a clear conflict between HEA Section 455(m) and ED\u2019s rule given Congress\u2019s decision to \u201cdefine qualifying public service jobs by broad categories of employment\u201d and to make only one exception to those categories. The court explained that Congress\u2019s approach to drafting the \u201cpublic service job\u201d definition showed \u201ca conscious choice to include all roles within a given category\u201d of \u201cpublic service job\u201d \u201cunless expressly excluded.\u201d Neither court accepted ED\u2019s reliance on the illegality doctrine. The D.C. district court reasoned that ED had cited no history in the loan forgiveness context of borrower eligibility turning on employer conduct comparable to the \u201cdeeply rooted\u201d history of statutory tax exemptions depending on charitable trust principles. The Massachusetts district court found no congressional acquiescence in ED\u2019s construction of the statute comparable to Congress\u2019s inaction in the face of the IRS\u2019s application of the illegality doctrine.\nCongress\u2019s Discretion to Shape the PSLF Program\nED apparently has not yet publicly announced whether it plans to appeal the district courts\u2019 judgments. The Secretary has until August 31, 2026, to appeal. In the meantime, ED has amended the PSLF application form to comply with these courts\u2019 orders, removing a June 2026 requirement that a borrower\u2019s employer attest that it does not have a substantial illegal purpose.\nCongress has a broad range of options for responding to ED\u2019s rulemaking if it seeks to do so. The Property Clause of the U.S. Constitution vests Congress with the \u201cPower to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States,\u201d including federal contract rights. Congress \u201cexercises the powers of the proprietor,\u201d or owner, of federal property. As such, Congress may either insist on its contractual rights or waive them, in whole or in part, by authorizing or requiring ED to cancel sums owed to the United States under a federal student loan. Congress could endorse ED\u2019s substantial illegal purpose criterion by adding it to the statute, either in the form drafted by ED or in a modified form that (for example) expands or restricts the activities that would cause an entity to be denied \u201cqualifying employer\u201d status. Congress could supplement ED\u2019s existing, relatively general rulemaking authorities with a specific delegation of discretionary authority to specify the employment that meets HEA Section 455(m)\u2019s \u201cpublic service job\u201d definition. Alternatively, Congress could expressly bar the Secretary from withholding PSLF eligibility or credits based on her assessment of whether a borrower\u2019s employer\u2019s actions advance the public interest. 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