WA and other states sue U.S. Department of Education over illegal restrictions to Public Service Loan Forgiveness program

Washington Attorney General Nick Brown and 21 other attorneys general are suing the U.S. Department of Education (ED) for unlawfully restricting eligibility for the Public Service Loan Forgiveness (PSLF) program, which allows government and nonprofit employees to apply to have their federal student loans forgiven after ten years of service.
 
The attorneys general are challenging a new federal rule that would deem certain state and local governments or nonprofit organizations ineligible employers for PSLF if the federal government determines they have engaged in actions with a substantial illegal purpose – in practice, activities, or actions that are disfavored by the administration. The coalition argues that the sweeping new rule is unlawful and targeted to punish states and organizations that the administration does not like. 
 
“The PSLF program helps people afford to pursue public service careers without the weight of crushing debt of college or graduate school loans,” Brown said. “Giving back to the community is a good thing that should be encouraged. But now, once again, the administration is showing just how little regard it has for the people who keep our cities and states running.”
 
The PSLF program was established by Congress in 2007 to provide financial incentives to those who dedicate their careers to the service of others. The program forgives borrowers’ remaining federal student loan debt after ten years of qualifying public service and consistent payments.
 
Over the years, PSLF has enabled more than one million public servants to pursue careers that might have otherwise been out of reach. For state governments, PSLF is a critical tool to recruit and retain qualified professionals in vital fields like education, health care, and law enforcement.
 
On October 31, ED finalized a new rule granting itself the power to unilaterally declare entire agencies or organizations ineligible employers for PSLF if the administration determines they have a “substantial illegal purpose.” The rule includes only a very limited definition of “substantial illegal purpose,” which includes activities that support undocumented immigrants; provide gender-affirming health care to transgender youth; promote diversity, equity, and inclusion efforts; and engage in political protest. The rule is scheduled to take effect in July 2026. 
 
Brown and the coalition warn that this vague new authority could have devastating consequences nationwide. Countless public workers could suddenly lose PSLF eligibility through no fault of their own. States could be forced to confront severe staffing shortages, higher turnover, and skyrocketing costs to maintain essential services. 
 
The Department of Education projects the rule will have a significant impact. Nationwide, the department estimates it will receive over $1.5 billion in additional payments over the next ten years from borrowers who would no longer qualify for PSLF. Between October 2021 and January 2025, more than 23,000 Washington borrowers had $1.62 million in federal student loans approved for discharge under the PSLF program.
 
Washington residents who are willing to speak with our office about Public Service Loan Forgiveness are invited to fill out this form. Additionally, borrowers may learn more about the PSLF program by attending the Public Service Loan Forgiveness: Overview and Updates webinar hosted by the Office of the Student Loan Advocate at the Washington Student Achievement Council. 
 
The coalition’s lawsuit argues that ED’s new rule is flatly illegal. The PSLF statute guarantees loan forgiveness for anyone who works full-time in qualifying public service; it does not grant ED discretion to carve out exceptions based on ideology. The plaintiffs assert that the rule’s vague “substantial illegal purpose” standard is arbitrary and capricious as it gives ED unfettered power to target specific state policies or social programs while exempting federal agencies from scrutiny. 
 
The attorneys general are asking the court to declare the rule unlawful, vacate it, and bar the Department of Education from enforcing or implementing it. 
 
Joining Brown in filing this lawsuit, which was led by the attorneys general of New York, Massachusetts, California, and Colorado, are the attorneys general of Arizona, Connecticut, Delaware, Hawaiʻi, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Wisconsin, and the District of Columbia. A group of private plaintiffs and local governments is also filing a lawsuit today to block the implementation of the new rule. 
 
A copy of the complaint is available here.

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