HR leaders put real dollar figures behind the case against the rule
A federal court struck down a rule letting the Education Department disqualify nonprofits from the loan forgiveness program over a "substantial illegal purpose."
The US District Court for the District of Columbia ruled on June 30, 2026, that Education Secretary Linda McMahon exceeded her statutory authority when she rewrote eligibility rules for the Public Service Loan Forgiveness program, known as PSLF. The court vacated the rule entirely, granting summary judgment to four nonprofit employers that sued over its compliance demands.
PSLF forgives federal student loans for borrowers who spend ten years working full-time in public service jobs, including jobs at any 501(c)(3) nonprofit. Following a March 2025 executive order, the department finalized a rule in October 2025 that would have let the Secretary strip a nonprofit's status as a "qualifying employer" whenever she determined the organization had engaged in a "substantial illegal purpose." The rule defined that term broadly, covering conduct such as "aiding or abetting" federal immigration law violations and "engaging in a pattern of aiding and abetting illegal discrimination."
Under the rule, employers would have had to certify that they had not engaged in any of that conduct. If an employer skipped the certification, the Secretary could determine the organization was disqualified by default. A disqualified employer would have lost qualifying status...
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