Justice Department drops appeal of rule narrowing Public Service Loan Forgiveness employer eligibility

What the change was and who it would have affected

PSLF cancels remaining federal student loan balances for borrowers who work full time in qualifying public service jobs and make 10 years of qualifying payments. In 2025, the U.S. Department of Education issued a regulation that would have allowed the agency to exclude some employers — including certain section 501(c)(3) nonprofit organizations — from the program if the department found the employer had a “substantial illegal purpose.”

The Education Department’s proposed and final rule suggested activities such as serving undocumented immigrants, sponsoring diversity, equity and inclusion programs, or offering gender‑affirming care for minors could trigger employer disqualification. Critics said the rule would politicize PSLF and enable the department to bar nonprofits whose activities the administration disfavored.

Litigation and the courts’ findings

Multiple nonprofit groups sued the Education Department in November 2025, including the Robert & Ethel Kennedy Human Rights Center and the American Immigration Council. Two federal judges agreed with the challengers in separate rulings in summer 2026, finding the rule exceeded the education secretary’s statutory authority.

“The law creating PSLF 'does not suggest—let alone say—that the secretary can pick and choose among section 501(c)(3) organizations,'” one ruling said.

Those decisions concluded the regulation improperly narrowed the statutory definition of a “qualifying employer” by excluding certain 501(c)(3) organizations based on their activities. With the Justice Department’s appeal withdrawn, the rulings remain the operative legal outcome.

Administration statements and reaction

When the Education Department announced the rule last year, Nicholas Kent, the Trump administration’s top higher education official, defended the change, saying the program should not “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.” That remark was part of the public statement the administration used to explain the rule.

Advocates and the nonprofits that brought the suits had argued the rule would allow the department to arbitrarily exclude organizations from PSLF enforcement, chilling services and advocacy that are legal but politically contested. The courts sided with that view in their summer 2026 decisions.

What this means for borrowers and employers

• Borrowers working for government and many nonprofits: The court rulings remain in place, preserving broader employer eligibility for PSLF unless there is new litigation or a separate administrative change.
• Nonprofit organizations: The withdrawal of the appeal removes the immediate prospect that the Education Department’s narrow employer definition would be reinstated by a higher court.
• Future rulemaking: The Education Department could pursue different regulatory approaches or the administration could seek legislative changes, but those would be independent actions requiring their own processes.

The Justice Department did not provide additional comment in the filing withdrawing the appeal. The Education Department had defended the rule as a means to ensure PSLF supports lawful public‑service work. The nonprofit plaintiffs have previously said the regulation posed unconstitutional and statutory overreach.

The withdrawal leaves intact the court findings that the 2025 regulation exceeded the education secretary’s authority to determine which employers qualify for PSLF. For now, borrowers employed by government agencies and qualifying nonprofits should remain eligible for credit toward PSLF under the legal interpretation adopted by the district courts.