On June 30, the U.S. District Court for the District of Massachusetts held that a final rule issued by the Department of Education (ED) restricting eligibility for the Public Service Loan Forgiveness (PSLF) program is unlawful, finding that ED exceeded its statutory authority and acted contrary to the PSLF statute. As previously covered by InfoBytes, a coalition of 22 state attorneys general sued ED in November 2025 over an October 31 final rule that allowed ED to deem certain state, municipal and nonprofit employers ineligible for PSLF purposes if it determined they engaged in activity with a “substantial illegal purpose,” a category encompassing six enumerated activities, including aiding or abetting violations of federal immigration law and engaging in a pattern of violating state laws. The court concluded that the rule contradicted the unambiguous text of the PSLF statute and exceeded the scope of ED’s rulemaking authority, since Congress did not authorize ED to impose such a hurdle on employer eligibility.

The court further found the rule arbitrary and capricious, citing ED’s failure to identify a real problem the rule was meant to address, its failure to explain why it rejected alternatives, and the absence of a “rational connection” between the rule’s stated purpose and the criteria it adopted. The court also held that the rule violated the First Amendment by compelling employers to affirm the government’s characterization of certain lawful activities as illegal in order to preserve their employees’ PSLF eligibility, noting that the rule threatened to revoke eligibility from borrowers who, among other things, lawfully assist immigrants, teach diversity, equity and inclusion practices, or facilitate gender-affirming care. The court vacated the rule in full.