Federal Court Blocks Rule Targeting Nonprofits in PSLF Program Dispute

Court Blocks Changes to Public Service Loan Forgiveness Program

WASHINGTON – In a significant legal decision, a federal court has mandated that the administration halt its attempts to modify the Public Service Loan Forgiveness (PSLF) program. This ruling is part of the case National Council of Nonprofits et al. v. McMahon, where a coalition of cities, labor unions, and nonprofit organizations challenged a new rule from the U.S. Department of Education. The contested rule would have permitted the Secretary of Education to disqualify employers in government and nonprofit sectors who do not align with the administration's political policies, potentially affecting workers in public service roles.

The plaintiffs in this case include numerous cities such as Albuquerque, Boston, and Chicago, as well as organizations like the National Association of Social Workers and the American Federation of Teachers. They are represented by Democracy Forward and Protect Borrowers, while the County of Santa Clara and City and County of San Francisco are acting independently.

For statements from the coalition's plaintiffs, click here.

Randi Weingarten, President of AFT, stated: “Today’s ruling shows that imposing an ideological litmus test on millions of public servants and their employers is antithetical to American values and contrary to the statute at hand. For years, the AFT has fought to ensure the promise of Public Service Loan Forgiveness was a promise kept. PSLF was created by a Republican president and Democratic senators to help attract and retain teachers, nurses, firefighters and many more who’ve dedicated their careers to helping others. The current president decided instead to attack borrowers’ livelihoods if they didn't agree with the government—an illegal assault on millions of Americans who placed their faith in PSLF’s bipartisan promise, only to see it cruelly ripped away.”

The court emphasized that “Congress unequivocally prescribed the requirements for PSLF-eligible public service jobs. The statute does not vest any discretionary authority in the Secretary to disqualify employers (and consequently borrowers) or to alter unambiguous requirements set forth in… the repayment provision or the statutory definition of ‘public service jobs. Consequently, the Final Rule is unlawful because it permits the Secretary to disqualify statutorily eligible employers upon determining that they have a ‘substantial illegal purpose.’ The Final Rule plainly contradicts the unambiguous text of the PSLF Statute and exceeds the scope of the Department’s authority because Congress does not require such a hurdle and did not specifically instruct the Department to impose it.”

The court further declared, “The Final Rule is contrary to law and promulgated in excess of statutory authority, is arbitrary and capricious, and violates the First Amendment. I therefore hold it unlawful and set it aside. The Final Rule is vacated.”

The legal representatives on this case include Sarah Goetz, Victoria Nugent, Simon Brewer, Jennifer Fountain Connolly, and Robin Thurston from Democracy Forward, along with Persis Yu and Winston Berkman-Breen from Protect Borrowers.

Read the court’s opinion here and learn more about the case here.

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The AFT represents 1.8 million pre-K through 12th-grade teachers; paraprofessionals and other school-related personnel; higher education faculty and professional staff; federal, state and local government employees; nurses and healthcare workers; and early childhood educators.

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