Federal government drops its appeals, leaving a loan forgiveness rule aimed at nonprofit employers struck down
The Justice Department ended all three appeals of June rulings that vacated a rule letting the education secretary bar employers with a "substantial illegal purpose" from Public Service Loan Forgiveness. Workers at nonprofits stay eligible under the existing rules.
Washington. The Justice Department has abandoned its appeals of the June court rulings that struck down a federal rule allowing the secretary of education to bar employers, including nonprofits, from the Public Service Loan Forgiveness program. Joint stipulations to dismiss were filed Oct. 21 in two of the three appeals and Oct. 22 in the third, so the rule stays vacated.
The program, created by Congress in 2007, forgives the remaining federal student loans of borrowers who work in public service, including at 501(c)(3) organizations, after 10 years of qualifying payments. The stipulations give no reason and leave each side to bear its own fees and costs. Federal officials provided no explanation, The Associated Press reported.
What the rule would have done
The Education Department published the rule on Oct. 31, 2025, to take effect July 1, 2026. It excluded organizations that engage in activities with a "substantial illegal purpose," a list that included aiding or abetting violations of federal immigration laws, supporting terrorism, certain medical treatment of minors that violates federal or state law, and a pattern of violating state laws. The secretary would decide by a preponderance of the evidence. Payments made while working for a disqualified employer would stop counting, and the disqualification would last 10 years unless the department accepted a corrective plan.
How the rule was struck down
On June 30, U.S. District Judge Myong J. Joun in Boston vacated the rule in two consolidated cases, one brought by 22 states and the District of Columbia, the other by the National Council of Nonprofits with cities, counties, nonprofit employers and unions. He held that the rule was contrary to law, exceeded the department's authority, was arbitrary and capricious and violated the First Amendment. More than 100 friends of the court filed in support of the challengers and none for the government.
“Administrations change with elections; criminal laws do not.”
The same day, U.S. District Judge Amir H. Ali in Washington set the rule aside in a suit by the Robert F. Kennedy Center for Justice and Human Rights, the American Immigration Council, The Door, A Center of Alternatives, and the League of United Latin American Citizens. The government appealed both rulings, to the First Circuit and the D.C. Circuit.
With the appeals gone, the existing rules for qualifying employers stay in place. Adam Pulver, a lawyer at Public Citizen, which represented the plaintiffs in the Washington case, wrote that because of the timing rules and negotiated rulemaking that apply to federal student loan regulations, any new attempt could not take effect before July 1, 2028.
About this story
501c3.help wrote this story from the sources listed with it, not from material an organization sent. Our editors approved it on Oct. 23, 2026. Stories in The Nonprofit Herald are free, and nothing is asked in return. Editorial rules.
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