ED Publishes Final PSLF Regulations On Employer Eligibility Changes
By Jill Desjean, Director of Policy Analysis
On Friday, the Department of Education (ED) issued its final rule detailing changes to the Public Service Loan Forgiveness (PSLF) Program. The changes were made in response to an Executive Order from President Donald Trump in March ordering ED to “ensure the definition of ‘public service’ excludes organizations that engage in activities that have a substantial illegal purpose.”
While the department responded in the final rule to nearly 14,000 comments (including NASFAA’s) received in response to the proposed rule issued in August, it made very few changes to its original proposal offered during the first session of Negotiated Rulemaking.
The final rule limits “substantial illegal purpose” for PSLF employer eligibility purposes to: aiding or abetting violations of federal immigration laws; supporting terrorism; providing transgender youth with, or assisting them in receiving, gender-affirming medical treatments; engaging in a pattern of aiding and abetting illegal discrimination; or engaging in a pattern of violating state laws.
One significant change from the proposed rule to the final version relates to how ED refers to illegal activities and illegal purpose, replacing text throughout that previously referred to organizations “engaged in activities that have a substantial illegal purpose” with organizations “engaged in activities such that it has a substantial illegal purpose.”
The change is aligned with statements ED made during negotiated rulemaking in July and in its response to comments received that it does not intend for isolated illegal acts to necessarily disqualify an organization from being considered an eligible employer for PSLF purposes, saying, “Organizations that engage in illegal activity do not automatically have a substantial illegal purpose under this final rule,” and that they would instead weigh the seriousness and frequency of illegal activities in making ineligibility determinations.
The final rule also provides some assurances about specific actions ED would not consider contributing to a substantial illegal purpose, in response to specific commenters’ concerns:
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On organizations providing immigration services: “Federal law does not prohibit individuals from advocating for illegal immigrants or representing them in Federal immigration court. Organizations that do not aid or abet in criminal activity will not be disqualified from participating in the PSLF program.”
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On violations of state law: “PSLF disqualification will not rest on mere allegations or politically motivated lawsuits.”
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On violence for the purpose of obstructing or influencing federal government policy: “The Department will rely on court precedent to distinguish between protected speech and expression and unlawful violence. Even speech advocating for violence is protected, so long as it is not directed to or used to incite imminent lawless action.”
The rule provides for two ways that ED could determine an employer to be ineligible. One is when the Secretary determines that an employer has engaged in activities with substantial illegal purpose; the other is when employers fail to certify on borrower Employer Certification Forms that they did not engage in activities with substantial illegal purpose. On the second, ED says, “The Department, via the borrower, will provide the employer an opportunity to correct the application and provide the requested information. However, when an employer consistently fails or refuses to provide a certification on multiple applications, the Department may consider disqualifying the employer…”
ED added clarification in the final rule that employers would receive notice and be provided an opportunity to respond prior to ED issuing a final determination of ineligibility. However, ED did not commit to a specific timeframe for reviewing employer reconsideration requests, as some commenters had requested.
The rules also address instances where only one or a few units of a larger organization have been determined to have engaged in activity with substantial illegal purpose, noting that the final rule provides ED with the flexibility to operationally divide a single employer into separate organizations for PSLF eligibility purposes.
Disqualification is effective for 10 years, although the regulations provide for that timeframe to be shortened if employers submit a corrective plan and demonstrate compliance. ED reiterated, though, that while there is a borrower reconsideration process when forgiveness is denied under PSLF for certain circumstances, borrowers may not request reconsideration based on the determination of employer ineligibility. In such cases, only the employer could challenge determinations of employer ineligibility.
Importantly, borrowers do not lose credit for payments made before the employer has been determined ineligible. This means that if the employer regains eligibility or the borrower changes jobs to an eligible employer, they can resume progress toward PSLF, as PSLF does not require consecutive 120 months of payments.
ED acknowledges in the final rule that administering this new process for disqualifying eligible employers will require additional resources and estimates that it will require 10 full-time employees to manage the process. This is especially relevant in light of the significant reduction in staff at ED earlier this year, whose impacts are being experienced by financial aid administrators.
ED also discloses in the final rule that it “expects that it will only take action to remove PSLF program eligibility for less than ten employers per year.” They also anticipate that the changes will result in annual savings of $179 million for taxpayers. With an average forgiveness of $75,900 per ED, this would result in approximately 2,358 borrowers per year losing access to PSLF.
The effective date for the PSLF changes is July 1, 2026.
Publication Date: 11/3/2025
David S | 11/3/2025 9:25:14 AM
When Joe Biden planned to forgive student loan indebtedness, there wasn't a Republican who didn't say it was unconstitutional, and the courts declared that the Executive Branch does not have the authority to decide whose student loan is forgiven and who isn't; that authority rests with Congress. The law signed in 2007 establishing PSLF, as I understand it, does not declare employers to be ineligible based on their policies, activities. business models or the clients they serve. Given that, how does this administration have the authority to do this?
And then there's the whole issue with what they consider "illegal" and "terrorism." Just to throw out an example of each, they have declared DEI to be illegal, and have called ANTIFA a terrorist organization...despite the fact that it's not an organization in any way. I could go on with other relevant examples, but I'll leave it at that.
Borrowers who meet all qualifications for PSLF as per the statute passed by Congress are going to find themselves being denied benefits they qualify for. That is something I hope our profession stands united against.
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