Education Department Advances Rule Limiting Student Loan Forgiveness for Certain Nonprofit Employees

Strategic Insights -

The Education Department has advanced a new rule that revises the eligibility requirements for Public Service Loan Forgiveness, a program that cancels the education debt of government and nonprofit employees after 10 years of service and 120 monthly loan payments. Under the new rule, employers that engage in activities deemed to have a "substantial illegal purpose" will be disqualified from the program. This change is expected to impact approximately 1 million student loan borrowers.

Key Takeaways:

  • The rule targets employers that engage in activities such as aiding and abetting violations of federal immigration laws, supporting terrorism, or engaging in the chemical and surgical castration or mutilation of children.
  • Nonprofit employees will be disqualified from the program if their employer is found to have a "substantial illegal purpose" on or after July 1.
  • The rule allows employers to appeal if they are removed from the program and will not disqualify student loan payments made before the employer's removal.
  • The change could derail borrowers who are close to reaching the loan forgiveness threshold if the administration says their employer violates the new rule.
  • Approximately 1 million student loan borrowers may be impacted by the rule.
  • The Education Department considers the PSLF program to be meant for "Americans who dedicate their careers to public service -- not to subsidize organizations that violate the law."
  • Undersecretary of Education Nicholas Kent stated that the rule "is refocusing the PSLF program to ensure federal benefits go to our nation's teachers, first responders, and civil servants who tirelessly serve their communities."
  • Conservative groups and lawmakers support the rule, stating that it brings much-needed guardrails to the program and that "aiding illegal immigration, supporting terrorism, or promoting child abuse through gender transitions is not 'public service'."

Statistics:

  • Approximately 1 million student loan borrowers may be impacted by the rule.
  • 185-page rule revising eligibility requirements for PSLF.
  • 120 monthly loan payments required for loan forgiveness under the PSLF program.
  • 10 years of service required for loan forgiveness under the PSLF program.

Sources:

  • [Danielle Douglas-Gabriel, "Education Department advances rule limiting student loan forgiveness for certain nonprofit employees," The Washington Post (February 2023)]
  • [Statement from Undersecretary of Education Nicholas Kent]
  • [Statement from House Education Committee Chairman Tim Walberg]