Student Loan Update: Trump Plan Could Cut Off Forgiveness for Some Workers

Newsweek

a day ago

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Teachers, social workers, nurses and other public employees could lose access to a popular federal student loan cancellation program if the Trump administration determines their employer engages in activities with a "substantial illegal purpose," under a sweeping proposal unveiled Friday.
The Education Department's plan would reshape the Public Service Loan Forgiveness (PSLF) program, which cancels federal student debt for government and qualifying nonprofit workers after 10 years of payments. The proposal targets certain nonprofits and government bodies — particularly those working with immigrants and transgender youth — raising fears it could be used as a political weapon.
President Donald Trump hugs Education Secretary Linda McMahon after handing her the executive order to dismantle the Department of Education he just signed with during an event in the East Room of the White House...
President Donald Trump hugs Education Secretary Linda McMahon after handing her the executive order to dismantle the Department of Education he just signed with during an event in the East Room of the White House in Washington, D.C. on March 20, 2025. More
Associated Press
Under the plan, the education secretary would have final authority to decide if an organization should be excluded. Activities deemed "illegal" include trafficking, "chemical castration" of children — defined as hormone therapy or puberty-blocking medication for transgender youth — illegal immigration, and support for foreign terrorist groups.
President Donald Trump ordered the changes in March, accusing PSLF of sending taxpayer funds to "activist organizations" he considers a threat to national security. The public will have 30 days to comment before the proposal can be finalized, with implementation slated for July 2026.
The Education Department predicts fewer than 10 employers would be barred annually and says it does not expect a "significant reduction" in the share of borrowers receiving forgiveness. Still, the agency acknowledges the impact would not be evenly felt. Schools, universities, health care providers, social work agencies and legal service organizations are among those most likely to face eligibility challenges.
In states that ban gender-affirming care for minors, offering such care could be grounds for exclusion. A court ruling against an employer — or even a legal settlement admitting wrongdoing — could also lead to expulsion from PSLF. The secretary could independently determine ineligibility using a "preponderance of the evidence" standard, meaning it is more likely than not that the allegation is true.
Once banned, an organization's employees would no longer have their loan payments count toward forgiveness unless they found a new qualifying employer. The ban would last 10 years or until the organization completed a corrective action plan approved by the secretary.
Critics denounced the proposal as an attempt to politicize student loan forgiveness. Kristin McGuire, CEO of the nonprofit Young Invincibles, called it "a political stunt designed to confuse borrowers," adding: "By using a distorted and overly broad definition of 'illegal activities,' the Trump administration is exploiting the student loan system to attack political opponents."
The plan emerged from a federal rulemaking process that began in June. A panel of experts failed to reach consensus, giving the department freedom to craft its own version. The Education Department says it addressed some concerns, clarifying it will not bar organizations solely for exercising First Amendment rights, such as supporting transgender rights without providing gender-affirming care.
This article includes reporting by the Associated Press.