ED Publishes Proposed Rule on PSLF
By Hugh T. Ferguson, NASFAA Managing Editor
The Department of Education (ED) on Friday unveiled its Notice of Proposed Rulemaking (NPRM) for changes to the Public Service Loan Forgiveness (PSLF) program that seeks to bar organizations that engage in “activities that are unlawful” from being qualifying employers.
Last month, during the negotiated rulemaking session on the topic, negotiators did not reach a consensus, meaning the department was not bound to the language negotiated by ED and the committee during the session. However, ED did retain a substantial amount of the negotiated rules from those discussions in its formulation of the NPRM.
ED is seeking to revise PSLF regulations in accordance with an Executive Order issued by the president in March, ordering the Secretary to “ensure the definition of ‘public service’ excludes organizations that engage in activities that have a substantial illegal purpose.”
Under the proposed regulations, ED seeks to clarify the definition of a qualifying employer, define activities that have a substantial illegal purpose, address the impact on borrower eligibility, and ensure employers are given notice and the opportunity to respond to an adverse finding.
“By excluding employers that engage in activities with a substantial illegal purpose, the rule aims to better align PSLF eligibility with the program’s statutory intent—to reward public service,” ED explains in the NPRM. “Furthermore, it ensures that the Department is not indirectly subsidizing employers who are engaging in activities that have a substantial illegal purpose.”
ED appears to grant itself broad authority to make substantial “illegal purpose” determinations, which would lead to an organization’s loss of status as a PSLF qualifying employer and would not count employees’ payments made while employed at such organizations toward the 120 payments required for forgiveness after a determination of wrongdoing is found.
While the department kept many of the rules negotiated by the committee, ED deviated from a few key provisions discussed.
The first relates to how ED may determine that an employer has engaged in substantial illegal activity. In the department’s original proposed language, they included the text, “The Secretary would determine by a preponderance of the evidence,” which caused concern among the rulemaking committee as it gave the Secretary, in their opinion, excessively broad power. The committee had suggested to replace “by a preponderance of the evidence” with “clear and convincing evidence,” which was initially agreed on by the department, but was ultimately rejected in the most recent proposed rules as ED stated that they believe “that the preponderance of evidence is the most appropriate standard of proof because of the severity of the activities that have a substantial illegal purpose.”
In the initial draft of regulations, there were no provisions for an employer to regain its PSLF-eligible status, which caused concern among negotiators. To address the matter, ED added a provision for which this could be done, initially proposing that an employer may regain its eligibility “ten (10) years from the date the Secretary determines the organization engaged in activities that have a substantial illegal purpose if, at, or after that time the organization certifies on a borrower’s subsequent application that the organization is no longer engaged in activities that have a substantial illegal purpose”. To move the final rules towards consensus, ED was willing to change the number of years to 5, but ultimately, given the non-consensus vote, while ED kept this provision in, they reverted to 10 years.
A provision that the department kept from the session discussions was the inclusion of a process by which ED would be obligated to notify a borrower if their employer was determined to have engaged in substantial illegal activity and had lost or is at risk of losing their PSLF-eligible employer status. This process was not initially included in the proposed language, but this clause was added after a conversation with the committee, which was concerned that employees may not be aware that their employer is under investigation and at risk, and could be blindsided by the revocation.
Lastly, the department also kept a new clause that would benefit employers operating under a shared identification number or other unique identifier, like a university system with different campuses all under the same tax-related identifier. The rules would dictate that the Secretary shall consider the organization separate if the employer is operating separately and distinctly, to determine whether an employer is eligible for PSLF, ensuring that borrowers who work for a campus or department unrelated to the campus, which has been determined to be in violation of these rules, are not affected.
ED explained that the proposed rule could alter PSLF eligibility for borrowers employed by an organization, should they no longer qualify under the program’s revised criteria.
“In cases where an employer is deemed to have engaged in activities that breach federal or state law or established public policy, affected borrowers would no longer receive credit toward loan forgiveness for months worked after the effective date of ineligibility,” ED wrote in the NPRM. “While this may delay or prevent forgiveness for a subset of borrowers, the overall design of the regulations—including advance notice, transparency around determinations, and employer recertification pathways—helps mitigate unexpected harm. These borrowers would retain the ability to pursue PSLF through eligible employment elsewhere, thereby preserving the program’s incentive structure.”
NASFAA argued in a public hearing in April that ED should rely on long-established procedures in the courts to revoke the nonprofit status of organizations engaged in illegal activity, which would then automatically disqualify their PSLF eligibility, instead of relying on negotiators to identify illegal activity without legal finding, which could risk empowering negotiators to target organizations based on disagreements with their mission or services.
The NPRM – published in the Federal Register on August 18 – will have a 30-day public comment period. Comments can be submitted through regulations.gov and/or to [email protected]. ED expects to finalize these rules by Nov. 1, 2025, allowing them to go into effect July 1, 2026.
For more details on the PSLF committee, check out NASFAA’s recap coverage below:
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ED Hosts First Day of NegReg for PSLF Walking Through Definitions and Updated Language
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Neg Reg Continues With Focus on Newly Proposed PSLF Provisions
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Final Day of Neg Reg Concludes Without Consensus on Proposed PSLF Rules
Stay tuned to Today’s News for more updates, and use NASFAA’s Negotiated Rulemaking page for more details.
Publication Date: 8/19/2025
Alexandria J | 8/19/2025 10:48:46 AM
The link to the Federal Register is currently going to a proposal for perkins loans cancellation. Here is the link to the PSLF changes: https://www.federalregister.gov/documents/2025/08/18/2025-15665/william-d-ford-federal-direct-loan-direct-loan-program
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