New York Attorney General Letitia James has filed a lawsuit against the U.S. Department of Education and Secretary Linda McMahon, challenging a new federal rule that changes eligibility for the Public Service Loan Forgiveness (PSLF) program. The lawsuit, joined by attorneys general from 21 other states and the District of Columbia, claims that the rule unlawfully restricts access to PSLF for government and nonprofit employees.
The PSLF program was established in 2007 to allow workers such as teachers, nurses, firefighters, and social workers to have their federal student loans forgiven after ten years of public service. The program is intended to help recruit and retain professionals in key fields by removing financial barriers.
Attorney General James criticized the new regulation, stating: “Public Service Loan Forgiveness was created as a promise to teachers, nurses, firefighters, and social workers that their service to our communities would be honored. Instead, this administration has created a political loyalty test disguised as a regulation. It is unjust and unlawful to cut off loan forgiveness for hardworking Americans based on ideology. I will not let our federal government punish New York’s public servants for doing their jobs or standing up for our values.”
The new rule gives the Department of Education authority to declare entire agencies or organizations ineligible for PSLF if they are found to have a “substantial illegal purpose.” The attorneys general argue that this term does not appear in the original PSLF statute and that its definition aligns with certain political targets of the current administration. Activities cited include supporting immigrants, providing gender-affirming care, promoting diversity programs, or engaging in political protest.
Set to take effect in July 2026, the rule could lead to large groups of public employees losing loan forgiveness eligibility based on their employer’s activities rather than individual actions. According to James and her counterparts, this could create confusion among public workers and potentially worsen staffing shortages across essential services due to increased turnover.
An example highlighted involves an earlier lawsuit by the U.S. Department of Justice against New York over its “Protect Our Courts Act,” which protects individuals from immigration enforcement while seeking justice in state courts. Under the new PSLF rule, such state laws could be used as grounds for disqualifying thousands of New York public employees from loan forgiveness.
James and fellow attorneys general contend that Congress did not give the Department of Education discretion to exclude categories of employers based on ideology when it established PSLF. They also claim that allowing such broad power violates federal administrative law by being arbitrary and capricious.
The coalition seeks a court order declaring the rule unlawful and preventing its implementation or enforcement. Private plaintiffs and local governments have also filed suit against the measure.
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