WASHINGTON, D.C. — The U.S. Department of Education finalized sweeping new regulations Friday to prevent organizations engaged in illegal activities from qualifying their employees for taxpayer-funded student loan forgiveness under the Public Service Loan Forgiveness (PSLF) program.
The rule, effective July 1, 2026, tightens oversight of the 17-year-old program by redefining what counts as a “qualifying employer.” Entities found to have a “substantial illegal purpose” — such as aiding terrorism, violating immigration laws, or performing medical procedures on minors in violation of federal or state law — will lose eligibility to participate in the program.
“Taxpayer funds should never directly or indirectly subsidize illegal activity,” said Under Secretary of Education Nicholas Kent. “The Public Service Loan Forgiveness program was meant to support Americans who dedicate their careers to public service — not to subsidize organizations that violate the law.”
The PSLF program, enacted in 2007, forgives remaining federal student debt for borrowers who make 120 qualifying payments while working full-time for eligible public service employers. The Department of Education said lax monitoring and pandemic-era waivers expanded eligibility beyond congressional intent, allowing some organizations engaged in unlawful conduct to benefit.
Under the new rule, the Department will investigate employers suspected of having a substantial illegal purpose. Disqualification will be based on a “preponderance of evidence” standard, and can include findings such as court judgments, guilty pleas, or settlements admitting illegal conduct. Organizations will have a right to respond before a final decision, and those removed from the program can reapply after 10 years or through a corrective action plan approved by the Secretary of Education.
Borrowers will be notified if their employer’s eligibility is under review or revoked. Payments made before a disqualification will continue to count toward forgiveness, but no payments will qualify after the effective date of a final determination.
The regulation stems from President Trump’s March 2025 executive order directing the Education Department to “restore the PSLF program to its statutory purpose.” Following public hearings, negotiated rulemaking, and nearly 14,000 public comments, the final rule was published in the Federal Register on October 31, 2025.
The Department said the policy “does not change the law — it enforces it,” and emphasized that only organizations breaking the law would be affected. Employers with minor compliance issues or isolated infractions will generally retain eligibility.
By refocusing PSLF on legitimate public service work, officials said, the rule aims to protect taxpayers while ensuring benefits reach teachers, police officers, firefighters, and civil servants “who truly serve their communities.”
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