Lawsuits Target US Education Dept. Over Student Loan Caps

By Staff, Agencies

The United States Department of Education is facing a wave of lawsuits from state attorneys general and public-interest organizations over a new rule that restricts eligibility for student loan forgiveness under the federal Public Service Loan Forgiveness [PSLF] program.

Announced last week and set to take effect on July 1, 2026, the regulation empowers the Department to disqualify entire employers from PSLF if they are deemed to have a “substantial illegal purpose.”

Plaintiffs say the measure is a broad, politically driven overhaul of the 2007 law, which forgave federal student debt after ten years of qualifying public or nonprofit service.

The lawsuits, filed Monday by 21 state attorneys general led by New York’s Letitia James and a coalition of nonprofits, unions, and local governments, accuse the Education Department of overstepping its authority and targeting disfavored groups.

Court filings say the new rule could bar employees in immigration, diversity, or gender-affirming care roles from debt relief, even if their work is lawful.

“The Department of Education’s new rule is an attack on our nation’s teachers, nurses, and public servants,” James said, adding that the administration is “weaponizing the Public Service Loan Forgiveness program to punish organizations it disagrees with.”

The department has defended the policy as a “commonsense reform” to ensure taxpayer funds are not subsidizing groups engaged in criminal or extremist activity.

The Education Department says the rule will be applied neutrally, but its vague language could let employers be disqualified for political or cultural reasons, undermining trust in the program and potentially limiting student loan relief for thousands.

The lawsuits seek to block implementation of the rule, arguing it violates both the Administrative Procedure Act and the First Amendment. Legal experts expect the case could ultimately reach the Supreme Court.