Education Dept finalizes PSLF employer ban rule; takes effect July 1, 2026
The Education Department finalized a rule, taking effect July 1, 2026, that bars employers from qualifying for Public Service Loan Forgiveness if the department finds they are substantially involved in certain alleged illegal activitiesâranging from aiding or abetting illegal immigration, supporting terrorism or violence, trafficking children across state lines, or illegal discrimination, to providing genderâaffirming care (the rule defines âchemical castrationâ to include puberty blockers and hormone therapy for transgender youth)âwith the education secretary having final authority under a preponderanceâofâtheâevidence standard; PSLF credit earned before the effective date is preserved and disqualified employers may reapply after 10 years or sooner via an approved corrective action plan. The rule, which stems from a March executive order, has prompted multiple legal challenges from more than 20 Democraticâled states (led by New York, Massachusetts, California and Colorado), several cities and nonprofit and advocacy groups that say the standard is vague and exceeds the departmentâs authority.
đ Key Facts
- The Education Department finalized a Public Service Loan Forgiveness (PSLF) employer-eligibility rule that takes effect July 1, 2026; the rule is forwardâlooking and preserves PSLF credit earned before that date.
- The rule gives the education secretary final authority to disqualify employers from PSLF using a 'preponderance of the evidence' standard.
- Disqualifying activities listed in the rule include aiding or abetting illegal immigration; providing gender-affirming care (the rule defines 'chemical castration' to include puberty blockers and hormone therapy for transgender youth); illegal discrimination; supporting terrorism or violence to influence policy; trafficking children across states for emancipation; and violations of state laws.
- Disqualified employers may reapply for PSLF eligibility after 10 years or sooner if they implement a corrective action plan approved by the education secretary.
- The rule stems from a March executive order and has prompted multiple legal challenges.
- More than 20 Democratâled states â led by New York, Massachusetts, California and Colorado â filed a lawsuit in Massachusetts on Nov. 3 challenging the rule; separate suits were filed by cities (including Boston, Chicago, Albuquerque, San Francisco and Santa Clara) and the National Council of Nonprofits, and additional challenges are expected from groups such as RFK Human Rights, the American Immigration Council, and The Door; at least three lawsuits by Democratic attorneys general, cities, labor unions and nonprofits are underway.
- State and municipal challengers argue the rule is vague (notably the phrase 'substantial illegal purpose') and that Congress did not authorize the department to add new limits affecting government and nonprofit employers; the department (Under Secretary Nicholas Kent) defended the rule as targeting organizations engaged in illegal activities such as terrorism, child trafficking and 'chemical castration.'
đ° Sources (3)
- The rule is forwardâlooking and takes effect July 1, 2026; PSLF credit earned before that date is preserved.
- The Education secretary may disqualify employers under a 'preponderance of the evidence' standard.
- Disqualifying activities listed include aiding/abetting illegal immigration, providing genderâaffirming care, illegal discrimination, supporting terrorism or violence to influence policy, trafficking children across states for emancipation, and violations of state laws.
- Disqualified employers can reapply after 10 years or sooner via a corrective action plan approved by the secretary.
- The rule stems from a March executive order; at least three lawsuits by Democratic AGs, cities, labor unions and nonprofits are challenging it.
- More than 20 Democrat-led states filed a lawsuit in Massachusetts on Nov. 3 challenging the PSLF employer-eligibility rule; the coalition is led by New York, Massachusetts, California and Colorado.
- A separate suit was filed by cities (Boston, Chicago, Albuquerque, San Francisco, Santa Clara) and the National Council of Nonprofits; another challenge is expected from RFK Human Rights, the American Immigration Council, and The Door.
- Under Secretary of Education Nicholas Kent defended the rule in a statement, saying it targets organizations involved in illegal activities such as terrorism, child trafficking, and 'chemical castration' of children.
- The rule defines 'chemical castration' to include puberty blockers and hormone therapy for transgender youth, and gives the education secretary final say using a 'preponderance of the evidence' standard.
- States argue the term 'substantial illegal purpose' is vague and that Congress did not authorize the department to add new limits affecting government and nonprofit employers.