Cities Sue Education Department Over Loan Forgiveness Changes

A coalition of cities, nonprofits, and unions allege the Education Department politicized the Public Service Loan Forgiveness program to target organizations the Trump administration doesn’t like.

The plaintiffs’ suit, filed Monday in the US District Court for the District of Massachusetts, targets the department’s rule allowing it to disqualify certain employers from the PSLF program if they are deemed to engage in activities with a “substantial illegal purpose.”

Thay allege this violates the Administrative Procedure Act and “forces plaintiffs to choose between curtailing this constitutionally protected speech and expression or risk losing access to the PSLF program.”

Among those suing are the National Council of Nonprofits, the American Federation of Teachers and the cities of Boston, Chicago, and San Francisco.

Under Secretary of Education Nicholas Kent said in a statement the rule is a “commonsense reform” to stop taxpayer dollars from subsidizing organizations involved in “terrorism, child trafficking, and transgender procedures.”

“The final rule is crystal clear: the Department will enforce it neutrally, without consideration of the employer’s mission, ideology, or the population they serve,” Kent said.

PSLF Program

The PSLF program, established in 2007. requires the Secretary of Education to cancel the remaining student loan debt for borrowers who have made 120 qualifying payments while employed in a “public service job,” which is defined to include jobs within government and at 501(c)(3) nonprofit organizations.

The rule will bar employers who, among other things, aid or abet violations of federal immigration laws, support terrorism, and engage in a pattern of aiding and abetting illegal discrimination. Disqualification from the PSLF program would last for 10 years, unless the Education Department approves a corrective action plan for the employer.

The legislation establishing the program doesn’t give the Education Department discretion to deny loan forgiveness or restrict what jobs qualify as “public service jobs,” the complaint says. The rule is arbitrary and capricious, as well as unnecessarly vague, since the Education Department failed to consider relevant factors, adequately explain its policy shift, or address the interests of those affected.

“The rule—like the executive order that directed it—sends a clear message to government and 501(c)(3) nonprofit employers doing work to which the administration objects: stop, or else,” the plaintiff said.

The plaintiffs seeks a declaration the rule is unconstitutional and a permanent injunction for it.

Protect Borrowers, Democracy Forward Foundation, the City and County of San Francisco, and the Office of County Counsel for the County of Santa Clara, Calif. represent the plaintiffs.

The case is Nat’l Council of Nonprofits v. McMahon, D. Mass., No. 1:25-cv-13242, 11/3/25.