Countless public workers could suddenly lose Public Servant Loan Forgiveness eligibility through no fault of their own.
Source: NM Department of Justice
Image: Courtesy Federal Reserve Bank of New York
Albuquerque, N.M. – Attorney General Raúl Torrez, alongside a coalition of 22 attorneys general filed a lawsuit today against the U.S. Department of Education (ED) for unlawfully restricting the eligibility for the Public Service Loan Forgiveness (PSLF) program, which allows government and nonprofit employees to have their federal student loans forgiven after 10 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’ – activities or actions that are disfavored by the administration.
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 such “illegality,” which includes activities that support undocumented immigrants and other inclusion efforts. The rule is scheduled to take effect in July 2026.
“The administration’s attempt to ‘cherry-pick’ which public servants are eligible for student loan forgiveness—despite years of dedicated service—is a clear effort to force state compliance with its political agenda,” said Attorney General Raúl Torrez. “These are people who have devoted their lives to serving their communities in healthcare, education, law enforcement, and other essential roles, with the understanding that they would be eligible for this program in return. We should be encouraging graduates to pursue public service, not making it harder to fill critical positions.”
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 10 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.
Attorney General Torrez 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 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. They assert that the rule’s vague “substantial illegal purpose” standard is arbitrary and capricious as it gives the Department unfettered power to target specific state policies or social programs while exempting federal agencies from scrutiny.
Joining Attorney General Torrez 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, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Jersey, Oregon, Rhode Island, Vermont, Washington, 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.