A powerful coalition of U.S. cities, counties, national non-profit organizations, and major labor unions filed a federal lawsuit on November 3, 2025, challenging a newly finalized Department of Education (DOE) rule that threatens to disqualify thousands of public service employers from the Public Service Loan Forgiveness (PSLF) program.
The lawsuit, filed in the U.S. District Court for the District of Massachusetts against Education Secretary Linda McMahon and the DOE, argues that the regulation is an unlawful and politically motivated attempt to use the PSLF program as a weapon against entities whose missions do not align with the Trump-Vance Administration’s political agenda. RELATED: U.S. Education Department Issues Final Rule On Loan Forgiveness, Cutting Off Illegal Groups
The plaintiffs assert that the rule, which allows the Secretary to strip an employer’s PSLF eligibility if they are deemed to have a “substantial illegal purpose,” acts in excess of the DOE’s statutory authority under the Higher Education Act.
The challenged rule, which was finalized on October 31, 2025, stems from a March 2025 Executive Order directing the DOE to exclude organizations that engage in activities with a “substantial illegal purpose.” The complaint highlights that this vague definition includes, but is not limited to, “aiding or abetting violations of… Federal immigration laws” and “engaging in a pattern of aiding and abetting illegal discrimination.”
The plaintiffs argue this language grants the Secretary “considerable discretion” to target and punish employers engaged in lawful activities—such as providing legal services to immigrants or promoting DEI policies—that are politically disfavored by the administration. The suit claims the rule violates the Administrative Procedure Act and several constitutional protections, including due process and free speech, by chilling protected advocacy.
The coalition of plaintiffs represents the core of the public service workforce. It includes major municipalities like the City of Boston, City of Chicago, and the City and County of San Francisco, which fear disqualification due to their “sanctuary jurisdiction” policies.
Non-profit plaintiffs include the National Council of Nonprofits and legal aid groups like the Amica Center for Immigrant Rights, which worry their lawful client advocacy could be deemed an “illegal purpose.”
Supporting the action are labor giants such as the American Federation of Teachers (AFT) and the National Education Association (NEA), representing millions of teachers, nurses, and social workers who rely on PSLF to pay off significant student debt, which averages over $70,000 for master’s-level social workers.
The lawsuit stresses the PSLF program’s critical function as a recruitment and retention tool for underpaid public service roles. The program, which has forgiven over $70 billion in student debt for more than a million borrowers, is vital in fields like education and local government, which face chronic workforce shortages.
The plaintiffs argue that local governments—the largest employer of PSLF recipients—cannot afford to compensate employees enough to offset the loss of loan forgiveness. As one attorney stated in the complaint, “There is no possible way I could work at Legal Aid… without PSLF.” The potential for employer disqualification creates immediate uncertainty, administrative burdens, and a competitive disadvantage in hiring, leading to the loss of experienced staff and a degradation of essential public services.
The coalition is requesting the court to immediately vacate and set aside the rule, and permanently enjoin the DOE from implementing or enforcing it.
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