Can Your Nonprofit Employer Lose PSLF Eligibility Under Trump's Executive Order?

Your employer’s PSLFPublic Service Loan Forgiveness (PSLF)A federal program that forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer. eligibility has not changed today, but a rule taking effect July 1, 2026, could disqualify certain nonprofit and government employers under a new “substantial illegal purpose” standard.

• No employer has been disqualified yet
• Qualifying payments already made and employment already certified are preserved under the rule’s prospective-only design
• Three federal lawsuits seek to block the rule before July 1
• Employment certification submitted before July 1, 2026, locks in credit for completed service months

How the New PSLF Rule Could Change Employer Eligibility Starting July 1, 2026

On October 31, 2025, the Department of Education finalized a rule that would allow it to declare certain nonprofit and government employers ineligible for PSLF. The rule amends 34 C.F.R. § 685.219 and is scheduled to take effect on July 1, 2026. It implements Executive Order 14235, signed by President Trump on March 7, 2025.

The rule introduces a “substantial illegal purpose” standard. Under this standard, the Secretary of Education has sole authority to determine whether a qualifying employer — including any 501(c)(3) nonprofit or government agency at the federal, state, local, or tribal level — should be excluded from PSLF. There is no automatic court review built into the administrative process.

An employer flagged for potential disqualification would receive notice, have an opportunity to respond, and could either enter into a corrective action plan or reapply for PSLF eligibility after 10 years.

What changes for borrowers if the rule takes effect:

• Future credit stops accruing at a disqualified employer. A borrower would need to change employers to continue making qualifying payments toward the 120-payment requirement.
• Past credit is preserved. The rule applies prospectively only. Any months of qualifying employment already certified on the PSLF form count, even if the employer is later deemed ineligible.
• Pre-July 1 conduct is excluded. Under the rule’s prospective-only application, employer conduct before July 1, 2026, is not subject to the new standard.
• Individual borrowers cannot directly challenge an employer disqualification. The administrative process runs between the Department and the employer.

What has not happened:

No employers have been disqualified. No borrowers have lost PSLF credit. The Department of Education says the program remains unchanged today. Three federal lawsuits filed in November 2025 are seeking to block the rule before it takes effect.

During the negotiated rulemaking sessions in June and July 2025, participants questioned whether the Department had statutory authority to make these changes and whether any PSLF-eligible employer had ever engaged in the activities described in the rule. The Department did not identify a single example.

Why the Department Says It's Changing PSLF Employer Eligibility

The order lists five categories of activity that could trigger disqualification:

1. Aiding or abetting violations of federal immigration laws, including 8 U.S.C. § 1325.
2. Supporting terrorism, including facilitating funding to or operations of organizations designated as Foreign Terrorist Organizations under 8 U.S.C. § 1189, or engaging in violence to obstruct or influence federal government policy.
3. Child abuse, which the order defines to include “the chemical and surgical castration or mutilation of children” and “the trafficking of children to so-called transgender sanctuary States for purposes of emancipation from their lawful parents”.
4. Engaging in a pattern of aiding and abetting illegal discrimination
5. Engaging in a pattern of violating state tort laws, including laws against trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways

The order’s preamble characterizes the PSLF program as having been “abused” by the prior administration and accuses it of directing tax dollars into “activist organizations” that “harm our national security and American values.” No specific examples or evidence were cited.

The Department’s position is that the rule protects taxpayers by ensuring PSLF eligibility is limited to employers engaged in lawful activities and legitimate public service. Plaintiffs in the three pending lawsuits argue the categories are designed to target organizations whose missions the administration opposes — particularly those working in immigration, civil rights, healthcare for transgender youth, and political advocacy.

What Changes for Borrowers in Practice

If the rule takes effect on July 1, 2026, the practical impact depends on whether a borrower’s employer is determined to have a “substantial illegal purpose.”

An estimated 2.5 million federal student loan borrowers are currently working toward PSLF. The rule applies to all qualifying employers — government agencies and 501(c)(3) nonprofits alike — not just nonprofits.

A borrower whose employer is disqualified would stop accruing new credit toward the 120-payment requirement at that employer. Months of qualifying employment already certified would be preserved. The borrower would need to find a new qualifying employer to resume progress, but would not need to restart the 120-payment count.

A borrower whose employer is not targeted would see no change. Borrowers who have already received PSLF forgiveness are not affected.

Borrowers have no direct role in the disqualification process and cannot appeal an employer determination. The only individual response available is changing employers.

Three Federal Lawsuits Are Challenging the Rule

Three separate lawsuits filed in November 2025 are seeking to block the rule before it takes effect.

National Council of Nonprofits v. McMahon was filed on November 3, 2025, in the U.S. District Court for the District of Massachusetts before Judge Myong J. Joun. The plaintiffs include the cities of Boston, Chicago, Albuquerque, and San Francisco, the County of Santa Clara, and major labor unions, including the American Federation of Teachers, AFSCME, and the National Education Association, along with the National Council of Nonprofits and the National Association of Social Workers. Democracy Forward Foundation and Protect Borrowers represent the plaintiffs.

Robert F. Kennedy Center for Justice and Human Rights v. McMahon was filed on November 4, 2025, in the U.S. District Court for the District of Columbia before Judge Amir H. Ali. The plaintiffs are Robert F. Kennedy Human Rights, the American Immigration Council, The Door – A Center of Alternatives, and LULAC (League of United Latin American Citizens). Student Defense and Public Citizen Litigation Group represent the plaintiffs.

Commonwealth of Massachusetts v. U.S. Department of Education was filed on November 3, 2025, in the U.S. District Court for the District of Massachusetts, also before Judge Joun. The plaintiffs are a coalition of 22 state attorneys general led by Massachusetts AG Andrea Joy Campbell and New York AG Letitia James.

All three lawsuits make overlapping legal arguments:

• The rule exceeds the Department’s authority. The Higher Education Act provides that all government agencies and 501(c)(3) nonprofits are [qualifying employers for PSLF](/pslf/pslf-employer-eligibility/). Congress gave the Secretary no discretion to selectively disqualify them.
• The rule is arbitrary and capricious. The Department could not identify a single PSLF-eligible employer that has ever engaged in the activities the rule describes.
• The rule violates the First Amendment. It targets organizations whose missions or viewpoints the administration opposes.
• The rule is unconstitutionally vague. “Substantial illegal purpose” provides no meaningful standard for employers or the Department to follow.

Where Do the Lawsuits Stand Now?

Last updated: February 2026

All three cases are moving toward a decision. Summary judgment motions were filed in each lawsuit the week of February 9, 2026. In RFK Center v. McMahon (D.D.C.), the government’s cross-motion for summary judgment is due March 9, 2026.

No court has issued a ruling or injunction. The rule remains scheduled to take effect July 1, 2026, unless a court blocks it.

A ruling could occur before July 1, given the current briefing schedule, but no outcome is guaranteed. Any decision — for either side — is likely to be appealed.

Timeline of key events:

• March 7, 2025: Executive Order 14235 signed
• June–July 2025: Negotiated rulemaking sessions
• October 30–31, 2025: Final rule published
• November 3–4, 2025: Three federal lawsuits filed
• Week of February 9, 2026: Summary judgment motions filed
• March 9, 2026: Government’s cross-motion due in RFK Center
• July 1, 2026: Rule scheduled to take effect (absent court intervention)

This section will be updated as rulings and developments occur.

What Borrowers Can Do Before July 1, 2026

The rule is not in effect, and litigation could block it. But the timeline creates a window where certain actions can reduce uncertainty regardless of the outcome.

• Now: Employment certification submitted through the PSLF form locks in credit for completed service months. Checking your payment count confirms where you stand.
• Before July 1, 2026: Certification of current employment before the effective date preserves credit for your current service period under existing rules, even if your employer is later disqualified. The PSLF employer rule is one of several federal student loan changes taking effect July 1, 2026 — see the full timeline for other deadlines that may affect your repayment strategy.
• March 9, 2026: The government’s brief is due in the D.C. lawsuit. A ruling could follow in the weeks or months after.
• July 1, 2026: If no court blocks the rule, the new standard takes effect, and the Department will begin evaluating employers under the new criteria.

Borrowers who have already reached 120 qualifying payments and submitted their PSLF application are not affected. Borrowers on income-driven repaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. plans are not required to change repayment plans in response to this rule. Continuing regular payments preserves qualifying credit under existing rules.

Changing jobs affects future credit only. The rule does not apply to employment periods that have already been certified, regardless of what happens after July 1.