On August 18, 2025, the U.S. Department of Education proposed amendments to the Public Service Loan Forgiveness (PSLF) regulations to exclude employers that engage in activities with a “substantial illegal purpose.” The proposal would revise the definition of a qualifying employer and add explicit definitions for terms including aiding or abetting, chemical castration or mutilation, child or children, foreign terrorist organizations, illegal discrimination, other federal immigration laws, substantial illegal purpose, surgical castration or mutilation, terrorism, trafficking, violating state law, and violence aimed at obstructing or influencing federal government policy. Under the rule, borrowers employed by organizations found to have a substantial illegal purpose would stop receiving credit toward PSLF after the Secretary makes that determination.
The proposal also establishes procedures to notify employers and affected borrowers when an organization risks losing eligibility, and it provides employers the opportunity to respond before a final decision. Borrowers could not request reconsideration of a determination that an employer lost PSLF status for illegal activity. Employers that lose eligibility could regain PSLF status either after ten years from the Secretary’s determination or sooner if the Secretary approves a corrective action plan. The Department states that these changes will protect taxpayer funds, align PSLF with its public service mission, and ensure that forgiveness benefits only go to borrowers working for employers that comply with federal and state law.