Education Department Drops PSLF Challenge: Student Loan Forgiveness Stays Intact for Public Service Workers
The Justice Department has dropped its appeals defending a rule that would have let the Education Department disqualify some government and nonprofit employers from Public Service Loan Forgiveness — ending a fight plaintiffs said put millions of borrowers at risk.
The federal government has abandoned its legal fight to restrict Public Service Loan Forgiveness. On Wednesday, the government filed a joint stipulation of dismissal ending its appeal in National Council of Nonprofits v. McMahon, according to a statement issued October 22 by the City and County of San Francisco and the County of Santa Clara, plaintiffs in the case, and Public Citizen reported the Department of Education also dropped its appeal of a parallel ruling in the RFK Center for Justice and Human Rights case the same week. Federal officials provided no explanation for the reversal, the Associated Press reported.
At stake was a rule, set to take effect July 1, 2026, that would have allowed the Secretary of Education to disqualify government and nonprofit employers deemed to have a “substantial illegal purpose.” The plaintiff coalition — which included cities, counties, nonprofits and teachers' and public-employee unions — argued the rule targeted organizations that support immigrants or provide gender-affirming care, and Public Citizen said it threatened to disqualify as many as 2.5 million federal student loan borrowers from the program.
The courts had already ruled against the rule. On June 30, U.S. District Judge Myong J. Joun vacated it, concluding it was contrary to law, in excess of statutory authority, arbitrary and capricious, and in violation of the First Amendment, according to the plaintiffs' statement. Congress created Public Service Loan Forgiveness in 2007: it forgives the remaining balance on direct federal loans after a borrower makes 120 qualifying payments while working full time for a government or nonprofit employer.
For San Antonio, the constituency is the city's public-service workforce itself — SAISD and area teachers, city and county employees, hospital and public-health staff, and the civilian workforce around Joint Base San Antonio are the kinds of workers the program was written for. San Francisco City Attorney David Chiu, in the plaintiffs' statement, called the outcome protection for “teachers, emergency responders, public health professionals, and other public servants.” With the appeals dropped, the disqualifying rule will not take effect and the program continues under its existing terms.
