William D. Ford Federal Direct Loan (Direct Loan) Program

DEPARTMENT OF EDUCATION

34 CFR Part 685

[Docket ID ED-2025-OPE-0016]

RIN 1840-AA28

William D. Ford Federal Direct Loan (Direct Loan) Program

AGENCY:

Office of Postsecondary Education, Department of Education.

ACTION:

Final regulations.

SUMMARY:

The Secretary establishes new regulations on the Public Service Loan Forgiveness (PSLF) program in the William D. Ford Federal Direct Loan (Direct Loan) program under 34 CFR 685.219 by adding or clarifying provisions to exclude employers that engage in specific enumerated illegal activities such that they have a substantial illegal purpose, including defining obligations and processes tied to making such a determination of an employer, clarifying that borrowers will receive full credit for work performed, until the effective date of the Secretary's determination that an employer is no longer a qualifying employer under the rule; and establishing methods for an employer to regain eligibility following a determination of ineligibility by the Secretary. These regulations ensure that taxpayer dollars are not misused by preventing PSLF benefits from going to individuals employed by organizations that have a substantial illegal purpose. The revisions strengthen accountability, enhance program integrity, and protect hardworking taxpayers from shouldering the cost of improper subsidies granted to employees of organizations that undermine national security and American values through criminal activity.

DATES:

These regulations are effective July 1, 2026. For the implementation dates of the regulatory provisions, see the Implementation Date of These Regulations in

SUPPLEMENTARY INFORMATION

.

FOR FURTHER INFORMATION CONTACT:

Tamy Abernathy, Office of Postsecondary Education, 400 Maryland Ave. SW, Washington, DC 20202. Telephone: (202) 987-0385. Email:

Tamy.Abernathy@ed.gov.

SUPPLEMENTARY INFORMATION:

Executive Summary

The Department of Education (Department) is committed to ensuring that taxpayer dollars are not used to support organizations engaged in unlawful activities. To uphold this principle, the Secretary will exclude organizations engaged in specific enumerated activities such that they have a substantial illegal purpose from being considered qualifying employers under the Public Service Loan Forgiveness (PSLF) program. The activities indicative of a substantial illegal purpose include aiding and abetting violations of Federal immigration laws, supporting terrorism or engaging in violence for the purpose of obstructing or influencing Federal Government policy, engaging in the chemical and surgical castration or mutilation of children in violation of Federal or state law, engaging in the trafficking of children to another State for purposes of emancipation from their lawful parents in violation of Federal or State law, engaging in a pattern of aiding and abetting illegal discrimination, and engaging in a pattern of violating State laws. This action aligns with President Trump's Executive Order

Restoring Public Service Loan Forgiveness,

Executive Order 14235 (Mar. 7, 2025) directing the Department to revise PSLF eligibility criteria to prevent Federal funds from subsidizing activities that undermine national security and American values. The final rule clarifies the definition of a qualifying employer, specifies activities constituting a substantial illegal purpose, outlines the impact on borrower eligibility, and ensures employers are notified and given an opportunity to respond before any adverse decision by the Secretary. These measures strengthen the integrity of the PSLF program and protect American taxpayers from supporting organizations engaged in illegal activities such that the organization has a substantial illegal purpose.

Purpose of This Regulatory Action

Summary of the Major Provisions of This Regulatory Action

The final regulations—

* Amend § 685.219(b) to modify the existing structure of the subsection into the regulatory paragraph structure.

* Amend § 685.219(b) to add definitions for: 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 for the purpose of obstructing or influencing Federal Government policy.

* Amend § 685.219(c) to establish that on, or after, July 1, 2026, no payment made by a borrower shall be credited as a qualifying payment for PSLF for any month that a qualifying employer is no longer eligible as a qualifying employer for the PSLF program. Borrowers will receive full credit for work performed until the effective date of the Secretary's determination that an employer engaged in illegal activities such that it has a substantial illegal purpose under the rule.

* Amend § 685.219(e) to require the Secretary to notify borrowers of a qualifying employer's status if the qualifying employer is at risk of becoming or becomes ineligible to participate in the PSLF program.

* Amend § 685.219(g) to clarify that a borrower may not request reconsideration of a determination by the Secretary that resulted in the employer losing status as a qualifying employer because the employer has a substantial illegal purpose.

* Add § 685.219(h) to establish that the Secretary determines by a preponderance of the evidence, and after notice and opportunity to respond, and consideration of materiality, that a qualifying employer has engaged in activities enumerated in paragraph (b)(30) on or after July 1, 2026, such that the employer has a substantial illegal purpose. Also, the Secretary will presume certain actions are conclusive evidence that the employer engaged in activities such that it has a substantial illegal purpose.

* Add § 685.219(i) to establish that the Secretary will initiate the process for determining whether a qualifying employer engaged in activities such that it has a substantial illegal purpose when (1) the Secretary receives an application in which the employer fails to certify that it did not participate in activities that have a substantial illegal purpose, or (2) the Secretary otherwise determines that the qualifying employer engaged in such activities under the standard set forth in § 685.219(h). The Secretary made a minor technical change from the NPRM to remove an extraneous word “which” from (i)(1)(ii). Further, paragraph (i)(2) clarifies that the Secretary may consider organizations that share the same identification number or other unique identifier to be separate entities if the organization is operating separately and distinctly from another entity with the same identification number (

i.e.,

for the purpose of determining whether an employer sharing such identifier is eligible).

* Add § 685.219(j) to establish that an employer that loses PSLF eligibility and desires to regain eligibility could regain qualifying employer status either (1) 10 years from the date the Secretary makes

a determination under the process in subsection (i), or (2) after the Secretary approves a corrective action plan.

* Add § 685.219(k) to require that, if an employer regains eligibility to participate in the PSLF program, the Secretary updates, within 30 days, the qualifying employer list.

Background

The PSLF program was established by the College Cost Reduction and Access Act of 2007 (CCRAA), Public Law 110-84, 121 Stat. 84. In particular, the CCRAA amended section 455(m) of the Higher Education Act of 1965, as amended (HEA), to allow for cancellation of remaining loan balances for eligible Direct Loan borrowers after they made 120 monthly payments under a qualifying repayment plan while working in a qualifying public service.

Following the enactment of the CCRAA, the Department promulgated PSLF regulations at 34 CFR 685.219, which became effective on July 1, 2009.

See Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program,

73 FR 63232 (Oct. 23, 2008).

Since its original promulgation, 34 CFR 685.219 has been amended seven times.

See

74 FR 55972 (Oct. 29, 2009); 77 FR 76414 (Dec. 28, 2012); 80 FR 67204 (Oct. 30, 2015); 85 FR 49798 (Aug. 14, 2020); 87 FR 65904 (Nov. 1, 2022); 88 FR 43064 (July 6, 2023); 88 FR 43820 (July 10, 2023).

Of these amendments, two amendments promulgated in 2020 and 2022, respectively, have substantively changed the criteria for qualifying employment for the purposes of participation in PSLF. In 2020, the definition of “public service organization” was substantively changed to allow employees of organizations engaged in religious activities (regardless of whether the borrower's duties included religious instruction, worship services, or any form of proselytizing) to be eligible for PSLF. This change was made in response to the United States Supreme Court decision in

Trinity Lutheran Church of Columbia, Inc.

v.

Comer,

582 U.S. 449 (2017), and the United States Attorney General's October 7, 2017, Memorandum on Federal Law Protections for Religious Liberty,

https://www.justice.gov/archives/opa/press-release/file/1001886/dl.

This memorandum was written pursuant to Executive Order 13798 on

Promoting Free Speech and Religious Liberty

(May 4, 2017) and was intended to ensure that faith-based entities are not discriminated against due to their religious beliefs and that borrowers choosing to work for such entities (which met the definition of public service organization) could gain the same benefits afforded to borrowers working for non-faith-based entities. In 2022, the Department changed the term “public service organization” to the term “qualifying employer” under 34 CFR 685.219 and substantively changed the underlying way the definition functions. In these regulations, subsection (v)(A) of the definition of qualifying employer referenced another term: “non-governmental public service.” Previous iterations of 34 CFR 685.219 provided a list of public services that, if provided by a private organization, allowed it to qualify as a “public service organization,” but did not offer any definition for the enumerated public services (except for certain public health roles, which relied on definitions provided by the Bureau of Labor Statistics). This list aligned closely with section 455(m)(3)(B) of the HEA, which defines “public service job.” Although the 2022 rule incorporated the bulk of previous version's list of public services into the definition of “non-governmental public service,” it also provided specific definitions for each public service incorporated into that definition. Furthermore, the 2022 rule clarified that private organizations providing a non-governmental public service had to be nonprofit organizations to be considered a qualifying employer for the purposes of PSLF, substantially limiting employer eligibility.

The Department, in this final rule, establishes that to be considered a qualifying employer for purposes of the PSLF program, an organization must not engage in illegal activity such that it has a substantial illegal purpose. Organizations that break the law such that they have a substantial illegal purpose are actively harming the public good.

See Mysteryboy Inc.

v.

Comm'r,

99 T.C.M. (CCH) 1057 (T.C. 2010). This rule prevents Federal funds from subsidizing harmful illegal activities through a program designed to reward public service.

Below, we address the Secretary's broad authority to engage in rulemaking on this topic and provide a brief discussion of the relevant statutory authority regarding what type of organization constitutes a qualifying employer for the purposes of PSLF, the implementation of that authority, and relevant changes to 34 CFR 685.219 since its original promulgation. Additionally, we discuss how the illegality doctrine utilized by the Internal Revenue Service (IRS) serves as a basis for the Department to promulgate regulations to exclude organizations that have engaged in certain illegal activities from the definition of qualifying employers.

The negotiated rulemaking committee that convened June 30 through July 2, 2025, considered draft regulatory text and did not reach consensus because one negotiator disagreed with the draft regulatory language.

On August 18, 2025, the Secretary published a notice of proposed rulemaking (NPRM). The NPRM included the Department's proposed regulations, and these final regulations reflect and respond to the public comments received on the regulatory proposals in the NPRM. These final regulations also contain changes from the NPRM, which are fully explained in the Analysis of Public Comments and Changes section of this document, where applicable.

Cost and Benefits:

As further detailed in the Regulatory Impact Analysis (RIA), the final regulations will have meaningful implications for borrowers, taxpayers, and the Department. The regulatory changes outlined in this final rule are designed to strengthen the integrity of the PSLF program by ensuring that only borrowers employed by organizations engaged in lawful activities and legitimate public service remain eligible for loan forgiveness. By excluding employers engaged in activities such that they have a substantial illegal purpose, the rule aims to better align PSLF eligibility with the program's statutory intent: to encourage Americans to pursue public service careers that improve their communities. Furthermore, the rule will ensure that the Department is not indirectly subsidizing employers engaged in activities that have a substantial illegal purpose that harm fellow Americans.

For borrowers, the final rule will remove PSLF eligibility whenever they are employed by organizations that do not qualify under the revised criteria. In cases where an employer is deemed to have engaged in activities that breach Federal or State law, affected borrowers will no longer receive credit toward loan forgiveness for the months worked after the determination date of ineligibility as made by the Secretary. However, borrowers will receive full credit for work performed until the effective date of the Secretary's determination that they are no longer a qualifying employer for the purposes of the PSLF program. Although this may delay or prevent loan forgiveness for a subset of borrowers, the overall design of the regulations, including advance notice, transparency around

determinations, and employer recertification pathways, help prevent unexpected or retroactive harm. These borrowers will retain the ability to pursue PSLF through eligible employment elsewhere, thereby preserving the program's intended purpose.

For taxpayers, the final rule reduces the risk of improper use of taxpayer funds by ensuring that credit toward loan forgiveness is only granted in circumstances where individuals are actually engaging in lawful public service. Employers that engage in unlawful activity are not serving the public interest because their actions harm their communities and the public good. By limiting PSLF eligibility to borrowers employed by organizations that do not engage in unlawful conduct, the rule reinforces appropriate commonsense stewardship of Federal funds. Although the exact budgetary impact will depend on the number and size of employers that do not meet the revised definition in this final rule, the regulations are expected to reduce PSLF-related discharges in cases where forgiveness would otherwise go to borrowers employed at organizations acting contrary to the public good.

For the Department, the rule introduces new administrative responsibilities that include reviewing employer conduct, issuing determinations, notifying borrowers of status changes, and entering into and overseeing corrective action plans. Although these tasks will require the reallocation of Department staff and system resources, the use of existing standards, such as definitions grounded in Federal law and doctrines adopted by other agencies, and processes, will allow the Department to administer the regulations efficiently and consistently to prevent improper payments. As in other regulations administered by the Department, the final rule also codifies a clear evidentiary framework, such as relying on court judgments or plea agreements, which limit the need for new investigative and adjudicative processes.

Taken together, these regulations represent a necessary evolution of PSLF oversight. The costs associated with employer review and administration are modest and proportional to the benefits gained, including reducing improper payments and increasing transparency, program integrity, and taxpayer protection. Most importantly, this final rule strengthens the fundamental purpose of PSLF—to encourage borrowers to enter occupations that improve their communities and advance the public good while also guarding against the diversion of Federal benefits to organizations that harm their fellow Americans by engaging in illegal conduct.

Implementation Date of These Regulations:

These regulations are effective on July 1, 2026. Section 482(c) of the HEA requires that regulations affecting title IV programs be published in final form by November 1, prior to the start of the award year (July 1) to which they apply.

Public Comment:

On August 18, 2025, the Secretary published an NPRM for these regulations in the

Federal Register

; 13,989 parties submitted comments on the proposed regulations.

Analysis of Public Comments and Changes

The Department has grouped issues according to the regulatory section or subject and themes, with appropriate sections of the regulations referenced where applicable. We discuss other substantive issues under the sections of the regulations to which they pertain. In instances where individual submissions appeared to be duplicates or near duplicates of comments prepared as part of a write-in campaign, the Department posted one representative sample comment along with the total comment count for that campaign to

www.Regulations.gov.

We considered these comments along with all the other comments received. In instances where individual submissions were bundled together (submitted as a single document or packaged together), the Department posted all the substantive comments included in the submissions along with the total comment count for that document or package to

www.Regulations.gov.

Generally, we do not address minor, non-substantive changes (such as renumbering paragraphs, adding a word, or typographical errors) within this final rule. Additionally, we generally do not address changes or comments recommended by commenters that the statute does not authorize the Secretary to make (such as forgiving all student loans), or comments pertaining to operational processes. Analysis of the comments and of any changes in the regulations since publication of the NPRM follows.

Process for Out-of-Scope Comments

We do not address comments that are out of scope. For purposes of this final rule, out-of-scope comments are those that are not addressed in the NPRM altogether. Generally, comments that are outside of the scope of the NPRM are comments that do not discuss the content or impact of the proposed regulations or the Department's evidence or reasons for the proposed regulations.

Request To Extend Public Comment Period

Comments:

Several commenters explicitly urged the Department to extend the comment period. They argued that the proposed changes were introduced without adequate opportunity for meaningful public participation. Additionally, commenters argued that there was a lack of transparency and stakeholder engagement. They suggested that the short comment period undermined trust and fairness, claiming that important legal aid, nonprofit, and advocacy groups had little chance to weigh in.

Discussion:

The Department disagrees with the commenters. The Department fully complied with the Administrative Procedure Act (APA) and requirements for negotiated rulemaking in the HEA. The comment period provided through the initial public hearing, negotiated rulemaking, and NPRM notice and comment process met the requirements established in law, giving the public numerous opportunities to provide feedback. Indeed, nearly 14,000 comments were received across diverse stakeholder groups, including those referenced by the commenters, within the established timeframe, demonstrating that interested parties were aware of the proposed changes and able to share feedback. In addition, the public engagement process, including the public comment period referenced by commenters, that the Department followed here is consistent with other title IV, HEA rulemakings.

See e.g.,

Student Assistance General Provisions, 87 FR 41878 (proposed July 13, 2022) (providing for a 30-day comment period); Financial Value Transparency and Gainful Employment, 88 FR 32300 (proposed May 19, 2023) (providing for a 32-day comment period). The public has had ample opportunity to engage and provide feedback throughout the Department's rulemaking process. No substantive input has been ignored.

Changes:

None.

Public Service Loan Forgiveness (§ 685.219)

General Comments

Comments:

Several commenters provided overarching commentary on the NPRM rather than commenting on specific provisions. Some commenters expressed their opinion that the rule was poorly conceived and duplicative of existing law, while others claimed that it will create confusion and uncertainty

for both borrowers and employers. A recurring theme was the perception that the NPRM lacked clarity on how it will be implemented. Several commenters questioned whether the proposed framework would be administered fairly and consistently. Others stated that finalizing the rule would undermine confidence in the whole Direct Loan program.

Discussion:

The final rule is not duplicative because the Department does not currently consider whether an otherwise qualifying employer engages in illegal activities such that it has a substantial illegal purpose for PSLF-eligibility purposes. The Department does not agree that the rule will cause confusion because the Department will provide notice to both borrowers and employers in the event an employer is no longer eligible because the Department has determined it engaged in illegal activities such that it has a substantial illegal purpose.

The Department does not think that the rule will undermine confidence in the PSLF program because the rule will ensure that PSLF benefits are only being received by employees of organizations that are serving the public interest. By limiting eligibility in this way, the rule ensures that taxpayer funds are only used to indirectly subsidize employment at employers who are not breaking the law. As such, this final rule should increase confidence in the PSLF program by reducing improper payments to borrowers working for employers who are breaking the law and harming their respective communities.

Changes:

None.

General Support for the Regulations

Comments:

Many commenters expressed gratitude and strong approval for the Department's efforts to reform the PSLF program. They characterized the program as historically confusing, plagued by denial of benefits, and saw the proposed reforms as a long-overdue fix that will restore trust and usability.

Discussion:

The Department agrees with the commenters and appreciates their support. The PSLF program has faced significant challenges over the years, including high denial rates, administrative barriers, and widespread confusion among borrowers. This final rule delivers clarity, fairness, and accountability for borrowers and qualifying employers under PSLF. It strengthens transparency and ensures PSLF is restored to its intended focus on public service for the betterment of communities. This final rule ends the subsidization of employment at organizations that are not only failing to serve the public interest but are actually doing harm by engaging in illegal conduct.

Changes:

None.

Comments:

Some commenters highlighted that strengthening the integrity of the PSLF program directly supports the recruitment and retention of professionals in public service careers such as teaching, nursing, social work, and government service. They emphasized that these reforms make it more feasible for individuals to dedicate their careers to public service without the burden of unmanageable debt.

Discussion:

The Department agrees that the PSLF program makes it easier for borrowers to pursue public service careers; however, the rule is unlikely to materially alter those incentives like the commenters suggest. This is because the rule does not expand eligibility for the program and is thus unlikely to induce new borrowers, who are not currently participating or would not otherwise be inclined to participate, to work for a qualifying employer. We agree, however, that strengthening the program's integrity will likely improve public perception and support its long-term sustainability.

Changes:

None.

Comments:

Some commenters stressed that PSLF is not only beneficial for borrowers but also for the communities they serve. By making it possible for professionals to remain in public service roles, PSLF helps stabilize organizations that provide education, healthcare, safety, and social services. Several commenters noted that healthy, stable public service organizations generate positive externalities for the economy and society.

Discussion:

The Department partially agrees with the commenters. PSLF is clearly beneficial to borrowers and the organizations that employ them, but it is also very costly for taxpayers who ultimately must bear the cost of loan forgiveness. Although this rule ensures PSLF has clear and consistent standards for qualifying public service employers in communities across the country, in some cases the program has created perverse incentives for colleges and universities to increase tuition costs and load unsustainable levels of debt onto students.

1

Moreover, the waivers provided by the last Administration—waiving payments specifically required by statute—provided PSLF loan cancellation benefits to thousands of borrowers who were sometimes years away from eligibility or who would never have been eligible under the statutory requirements of the program.

2

Unlike the temporary and legally questionable actions taken by the last Administration, this final rule addresses a key shortcoming of the PSLF program—granting benefits for employment at organizations engaged in illegal activities such that it has a substantial illegal purpose—through the proper rulemaking process.

1

Preston Cooper & Alexander Holt,

Turn Public Service Loan Forgiveness into a State Block Grant,

Ctr. on Opportunity and Soc. Mobility: AEIdeas (Apr. 17, 2025),

https://cosm.aei.org/turn-public-service-loan-forgiveness-into-a-state-block-grant/

.

2

Kaitlin Mulhere,

It Just Got a Lot Easier to Qualify for Public Service Loan Forgiveness,

Money (Oct. 6, 2024),

https://money.com/public-service-loan-forgiveness-changes-waiver/

.

Changes:

None.

Comments:

Several commenters emphasized that strengthening PSLF will restore public trust, not only in the program itself, but also in the Federal Government's ability to deliver on its promises to support public service careers. They argued that years of denial, poor communication, and unclear rules eroded faith in public service initiatives, and that these reforms provide a chance to demonstrate that government programs can work effectively, transparently, and fairly.

Discussion:

The Department agrees that strengthening the PSLF program is essential for the restoration of taxpayer trust in PSLF. This final rule ensures that PSLF benefits are not misdirected to those working for organizations that are not serving the public interest. Years of inconsistent administration, ill-conceived waivers, and confusing standards have eroded public confidence in the PSLF program. This rule reverses that trend and delivers much-needed clarity, transparency, and accountability for borrowers and employers.

Changes:

None.

Comments:

Approximately 70 comments noted borrowers from underrepresented and economically disadvantaged backgrounds are more likely to pursue careers in public service as a result of the PSLF program. Some comments cited a report commissioned by the National Legal Aid & Defender Association to suggest borrowers are more likely to struggle with student loan debt in the absence of the PSLF program.

3

They praised the PSLF program as a way to level the playing field, enabling a more diverse and representative public service workforce.

3

National Legal Aid & Defender Association (NLADA), Public Service Loan Forgiveness and the Justice System (Mar. 2025),

https://www.nlada.org/pslf-and-justice

.

Discussion:

The Department disagrees that PSLF advances equity and inclusion efforts that improperly use

racial goals. PSLF is race-neutral and was not designed with any specific targeting of benefits to borrowers from underrepresented or economically disadvantaged backgrounds. Rather, PSLF is intended to provide financial incentives to borrowers from all backgrounds to work in jobs in the public service sector with qualifying employers. In some cases, the value of PSLF benefits to borrowers may help to incentivize those borrowers to seek employment or to remain employed with PSLF qualifying employers rather than seeking employment in other sectors. This final rule supports this objective by ensuring that PSLF benefits are not improperly granted to any borrower employed by an organization that does not meet the definition of a qualifying employer, regardless of the borrower's racial or socioeconomic background.

Changes:

None.

General Opposition to the Regulations

Comments:

Several commenters opposed the proposed rule in its entirety. Some commenters expressed their distrust of the Department's motives, suggesting that the rule was less about protecting program integrity and more about restricting access to loan forgiveness. Others feared that the rule will deter participation in public service jobs, and ultimately harm both borrowers and the communities that rely on them.

Discussion:

The Department rejects the broad, unsubstantiated claims by these commenters. The standards in this rule bring clarity, consistency, and needed accountability to the PSLF program. The Department's motives are not pretextual or designed to limit access to PSLF beyond removing eligibility for organizations that engage in illegal activities such that they have a substantial illegal purpose. If an organization is found to have a substantial illegal purpose, any borrower working for such an employer may look for alternative employment with a qualifying employer if they wish to pursue PSLF. The Department acknowledges that borrowers who remain with an employer that loses eligibility will not receive credit toward loan forgiveness for months of employment at that employer who would have otherwise qualified prior to this final rule. These borrowers will have a choice to seek employment with a different qualifying employer. However, the Department believes that any harm to borrowers is outweighed by the Federal Government's interest in not allowing PSLF benefits to flow to borrowers who work for employers engaged in illegal conduct. The Department agrees that this final rule will serve as a deterrent for borrowers who may want to work for employers who are engaged in illegal activities such that the employer has a substantial illegal purpose and believes that kind of deterrence is appropriate as it creates incentives for organizations to avoid engaging in illegal activity. Furthermore, the Department emphasizes that this rule provides borrowers with advance notice regarding the types of activities that may constitute a substantial illegal purpose, thereby disqualifying an employer under the PSLF program. This transparency enables borrowers to make informed decisions about whether to begin or continue employment with a given organization. Additionally, borrowers will have sufficient time to assess their employment options and whether those options are impacted by these final regulations.

Changes:

None.

Comments:

Several commenters observed that PSLF is already “overly complicated and poorly managed.” They argued that adding what they viewed as subjective eligibility rules may deepen borrower confusion, making it harder for professionals in government and nonprofit work to continue through the PSLF program. They argued that borrowers will be penalized by their employer's activities rather than by their own individual actions.

Discussion:

The Department disagrees. Under this final rule, borrowers will receive full credit for work performed until the effective date of the Secretary's determination that an employer engaged in illegal activities such that it has a substantial illegal purpose. Borrower payments will not count toward time to forgiveness when payments are made after a determination that an employer is an ineligible employer for the PSLF program. The Department believes that any confusion that may be created by this final rule will be outweighed by the corresponding benefits to the integrity of the PSLF program and reductions in indirect benefits to organizations engaged in illegal activity. The focus of this rule is appropriately on employers, as Congress requires the Department to ensure that borrowers are working for a qualifying employer before providing PSLF benefits to a borrower. This final rule is not intended to punish borrowers. The Department is not taking away any credit toward loan forgiveness for any qualifying payment that was made before their employer was deemed ineligible. A determination that an employer is no longer an eligible employer within the PSLF program has no bearing on a borrower's current or future participation in loan forgiveness programs. However, the Department acknowledges that some borrowers may lose access to PSLF benefits due to their employer's unlawful actions—actions potentially beyond borrowers' control but which the Department cannot overlook. The Department believes this is necessary to prevent future benefits from going to employees of employers that have engaged in illegal activities such that the employer has a substantial illegal purpose.

Changes:

None.

Comments:

Many commenters argued that the NPRM lacked clear standards, and that PSLF could be subject to shifting interpretations depending on the political environment. They warned that this uncertainty makes the program appear arbitrary and would leave both employers and employees vulnerable to sudden disqualification. This unpredictability, they argued, would undermine trust in PSLF and weaken its intended role as a stable incentive for public service.

Discussion:

The Department rejects the claim that PSLF is left open to shifting political winds. This rule provides strong, clear standards anchored in law, not ideology. That clarity provides certainty for borrowers, confidence for employers, and accountability for taxpayers. Qualifying employers will only face uncertainty if they decide not to follow the law. Employers who follow the law will not be disqualified, and because most organizations follow the law, the Department believes the commenters' concerns about widespread changes in incentives to enter public service as a result of the rule are significantly overstated. By codifying objective standards, this final rule ties forgiveness to lawful public service for purposes of the PSLF program.

Changes:

None.

Comments:

Commenters claimed that the rule does not explicitly describe how determinations will be made, what counts as activity contrary to law, or how appeals will function. They argued that the absence of detail could create uncertainty for both borrowers and employers.

Discussion:

The Department rejects the claim that the rule lacks clarity as to how determinations will be made. The Secretary will weigh any evidence presented showing that an organization's activities violated any laws and make a determination if those violations rise to the level of substantial illegal purpose. The Secretary will look

to see if there is a pattern of behavior by the organization, the gravity of the violation, and generally exclude evidence of technical violations of law. When reviewing an employer's conduct, the Secretary will consider any reliable evidence, including countervailing evidence provided by the employer. This final rule also establishes a reconsideration process for employers when they have been determined ineligible. Employers may seek review, submit documentation, and receive written explanations of the Secretary's determination. This approach ensures transparency, protects taxpayers, and maintains borrower confidence. Furthermore, the Due Process Clause of Fifth Amendment ensures that all entities that are subject to a Departmental adjudication are entitled to an unbiased adjudicator. This ensures that all entities have an adjudicator who has not prejudged the law or the facts, as applied, and that all decisions are supported by reliable evidence.

Changes:

None.

Comments:

Some commenters noted that, when borrowers lose PSLF benefits, it affects not just them but the communities they serve. Professionals might leave public service for private-sector roles, reducing the workforce available to meet urgent needs in education, healthcare, and social services. Commenters expressed specific concerns about borrowers employed in rural areas where finding another job may be difficult in the event their employer loses PSLF eligibility. They noted that alternative employment options in these areas may be rare, and borrowers may be forced to relocate for other employment opportunities in the event there are no other qualifying employers in their area.

Discussion:

The Department acknowledges that it is possible if a borrower loses access to PSLF benefits due to this final rule that he or she could leave public service to find a job in the private sector. However, the degree to which this is likely to occur is speculative and will vary widely based upon the borrower's skills and abilities, where the borrower is living, other employment opportunities in the local community, and whether the borrower wants to continue to work in public service. The Department disagrees with the commenter that these speculative equities outweigh the benefits of the rule, which has been previously discussed.

The Department acknowledges there may be potentially fewer qualifying employers in rural communities than in more urbanized areas; however, as shown in Table 5.4 of the Regulatory Impact Analysis of this final rule, over 1 million borrowers have received PSLF benefits to date across more than 20 sectors of the economy. The Department must balance concerns that disqualification of qualifying employers in an area with few qualifying employers may result in fewer choices for borrowers seeking to benefit from PSLF against its primary responsibility to safeguard American taxpayer dollars and interests by ensuring that PSLF benefits are only received for work at qualifying employers that are serving the public interest.

The Department also disagrees with the assertion that this rule will have a significant macroeconomic impact on labor markets in education, healthcare, and social services in most areas. The commenter did not provide sufficient evidence to support this claim, and the Department finds no basis to conclude that such widespread effects are likely. As noted in the Regulatory Impact Analysis, because we expect most organizations to voluntarily comply with the rule, the Department anticipates that it will take action to remove eligibility for less than ten organizations per year. As presented in Table 5.2 of this final rule, to date, approximately 30 percent of borrowers receiving forgiveness through PSLF were employed by non-governmental entities. Accordingly, the Department believes the commenters' assertion is overstated and that this rule will not materially reduce the available workforce in education, healthcare, and social services.

Changes:

None.

Comments:

Several commenters noted that nonprofits, advocacy organizations, and religious institutions may self-censor or avoid lawful but controversial work for fear that PSLF eligibility could be withdrawn based on political interpretations. They stressed that PSLF should not create disincentives for organizations to pursue their missions independently, whether in areas like immigration, reproductive health, or civil rights.

Discussion:

The Department does not believe the rule will require nonprofits, advocacy organization, or religious institutions to self-censor to avoid losing eligibility as a qualified employer. This final rule explicitly includes references to the U.S. Constitution relating to protecting rights under the First Amendment. This final rule could not, even without such explicit references, be enforced in a manner that contravenes the First Amendment; therefore, commenters' concerns that the Department will impede upon the First Amendment rights of these organizations are overstated and not consistent with the Department's own legal limitations. Lawful activity will not disqualify an organization, no matter how controversial or unpopular it may be. The Department will enforce the PSLF program neutrally and transparently, consistent with the law. Nonprofits and advocacy groups are free to pursue their missions without fear of interference from the Department, provided their actions are lawful. This rule strikes an appropriate balance between preserving independence, protecting borrowers, and safeguarding taxpayers while keeping the PSLF program focused on lawful, public service as the American people expect.

Changes:

None.

Legal Authority

General Legal Authority To Change and Clarify

Comments:

Some commenters questioned the Department's authority to redefine or expand disqualification standards through regulation. They emphasized that the PSLF program was created by Congress with specific statutory language, and any meaningful change to qualifying employment categories should come directly from amendments to the statute rather than regulatory changes. They are worried that regulatory overreach could invite legal challenges, create uncertainty, and ultimately destabilize PSLF for borrowers. Also, some commenters stated that the Department was overreaching its authority, politicizing the PSLF program, and introducing unnecessary complexity into the program.

Discussion:

The Department rejects the suggestion that this rule exceeds its legal authority. The HEA grants the Secretary explicit power to regulate title IV programs. PSLF is a title IV program, and its proper administration requires clear, enforceable standards that are often established and implemented through regulations issued by the Secretary. Establishing objective standards through the rulemaking process is not overreach and avoids politicizing the PSLF program. It is a lawful and common exercise of authority delegated by Congress. Borrowers deserve clarity and taxpayers deserve accountability, both of which this final rule provides. Furthermore, under the illegality doctrine, courts and the IRS have established that revocation of statutory benefits to organizations engaged in illegal activities is proper if its purposes and activities are illegal or otherwise contrary to public policy.

See

Bob Jones Univ.

v.

United States,

461 U.S. 574, 591 (1983);

4

see also Rev. Rul. 75-384,

1975-2 C.B. 204 (“[i]llegal activities, which violate the minimum standards of acceptable conduct necessary to the preservation of an orderly society, are contrary to the common good and the general welfare of the people in a community and thus are not permissible means of promoting the social welfare . . .”) Therefore, this rule fulfills the Department's obligation to enforce PSLF consistent with its statutory purpose—to only benefit those borrowers working for organizations that truly serve a public purpose by helping, not harming, their communities. This rule makes certain borrowers receive forgiveness only for lawful public service by shielding forgiveness from abuse. The Department is faithfully executing the law, not expanding it.

4

Bob Jones University

is frequently invoked when discussing the so-called “public policy doctrine,” under which an organization's Section 501(c)(3) tax-exempt status may be revoked for engaging in conduct that is not specifically illegal. This occurs where there “can be no doubt that the activity involved is contrary to a fundamental public policy.”

Bob Jones Univ.,

461 U.S. at 592. In

Bob Jones University,

the Court determined that this standard was met, because the organizations' actions (

i.e.,

the maintenance of racially discriminatory admissions policies) ran contrary to “every pronouncement of this Court and myriad Acts of Congress and Executive Orders.”

Id. at

593. Although the public policy doctrine is similar to (and often discussed alongside) the illegality doctrine, the evidentiary bar set in

Bob Jones University

is different and applicable when revocation of an organization's tax-exempt status is based on conduct which is not explicitly illegal.

Id. at

591 (“A corollary to the public benefit principle is the requirement, long recognized in the law of trusts, that the purpose of a charitable trust may not be illegal or

violate established public policy.”

) (

emphasis added

). By contrast, the bar for revoking an organization's Section 501(c)(3) tax-exempt status for engaging in or encouraging illegal activity is different, because actions that violate laws are inherently contrary to public policy in that the political branches (legislative and executive branches through bicameralism and presentment) have created positive law to counter the conduct at issue.

See I.R.S. Gen. Couns. Mem.

34631 (Oct. 4, 1971) (

citing I.R.S. Gen. Couns. Mem.

31376 (Aug. 14, 1959)).

Changes:

None.

Comments:

Several commenters pointed specifically to 20 U.S.C. 1087e(m)(3)(B), which outlines definitions of public service job categories, and questioned whether the Department has authority to alter or clarify these categories through rulemaking. They argued that, by creating new standards of disqualification, the Department may be venturing beyond clarifying existing law into substantively redefining the statute, a role they asserted belongs solely with Congress.

Discussion:

The Department disagrees that the amendments made in this final rule are ultra vires. Section 1087e(m)(3)(B) provides the statutory categories, but it is the Department's responsibility to interpret and apply those categories in a way that ensures PSLF operates as the statute requires. This rule does not rewrite the statute. It fills out the statutory scheme Congress placed under the Department's supervision. In defining a public service job under the HEA, Congress listed 18 distinct categories of jobs. Within four of those categories (“public health,” “public interest law services,” “early childhood education,” and “government”), Congress provided parentheticals to provide some additional detail as to what types of jobs within each of those categories they meant to include or exclude. In addition, within the list of public service jobs, Congress included employment at an organization that is described in Section 501(c)(3) of the Internal Revenue Code. In the list of all 18 distinct categories, there is considerable overlap among the categories. For example, the categories of “military service,” “law enforcement,” “public library sciences,” and “public education” are also included within the “government” category. Likewise, there is overlap between “public interest law services (including prosecution or public defense or legal advocacy on behalf of low-income communities at a nonprofit organization)” and organizations that are described in Section 501(c)(3) of the Internal Revenue Code.

To make sense of these overlapping and arguably duplicative categories, it is important to consider the level of generality at which Congress approached the problem. Indeed, Congress provided for a long list of eligible professions to broadly ensure that all professions that advance the public interest were included in the list. This provides an important clue in interpreting the underlying statute, as the Department must presume that Congress would not want PSLF benefits to be received by employees of organizations that the Department knows are not serving the public interest. This includes organizations that are breaking the law, which is contrary to the public interest. Surely, Congress would not want to reward organizations that break the law and have a substantial illegal purpose by indirectly subsidizing their organizations by providing loan forgiveness to their employees.

Furthermore, although it is possible that the IRS could take independent action to revoke Section 501(c)(3) tax-exempt status from an organization engaging in illegal conduct, that same organization (absent action from the Department) could remain eligible for PSLF (assuming it still met the requisite criteria for nonprofit organizations) and continue to employ individuals in public service jobs if those jobs meet another part of the definition under 20 U.S.C. 1087e(m)(3). For example, an organization that is organized as a nonprofit and provides State-funded prekindergarten services could lose Section 501(c)(3) status under the Internal Revenue Code but remain an eligible employer under previous versions of the Department's regulation. Similarly, an organization that the Department determines has a substantial illegal purpose may continue to be exempt under Section 501(c)(3) because its tax-exempt status has not been revoked, a determination made by the IRS. This final rule provides that the Department can act in these circumstances, removing eligibility when the Department finds the organization has engaged in illegal activities such that it has a substantial illegal purpose.

This rule advances the statutory scheme Congress created in section 455(m)(3)(B) of the PSLF statute in the HEA, which includes multiple references to public service in defining public service job.

Changes:

None.

Comments:

A significant number of commenters argued that the Department lacks statutory authority to apply a “preponderance of the evidence” standard in making employer disqualification determinations. Commenters claimed the “preponderance of the evidence” standard is inappropriately low. They contended that such a standard is inappropriate for decisions with major financial consequences and instead urged exclusive reliance on final judicial or administrative findings. Some commenters indicated that Congress needs to provide explicit authorization for the Department to proceed with this evidentiary framework.

Discussion:

The Department rejects the claim that it lacks authority to establish an evidentiary standard and has utilized this same standard in other title IV regulations. This rule does not preclude legal activities that assist groups mentioned by the commenters. This includes any lawful work performed by legal aid attorneys, nonprofit law offices, community legal clinics that provide direct legal services, public defense, civil rights litigation and advocacy organizations, and other

activity that support low-income or disadvantaged people.

The Department will solely enforce this rule against organizations that participate in illegal activity such that they have a substantial illegal purpose. Congress, through the HEA, granted broad authority to regulate title IV programs. The preponderance of the evidence standard is well established in administrative law for civil adjudications and is fair and consistent with longstanding Federal practice. It ensures decisions are grounded in fact, not speculation, and allows the Department to act promptly to protect both borrowers and taxpayers. Here, in applying the preponderance of the evidence standard to the substantial illegal purpose test, the Secretary will need to find that it is more likely than not that an organization's illegal activity is more than an insubstantial part of its activities that advance an illegal purpose. Plea agreements or admissions of illegal conduct in settlements could provide sufficient proof of unlawful activity to warrant program action, ensuring accountability without waiting for final judicial or administrative findings that could otherwise delay enforcement and allow misconduct to persist. The Department has the responsibility to safeguard PSLF and ensure taxpayer funds are directed only to encourage lawful public service. This evidentiary framework provides the Department with discretion to act swiftly to ensure that taxpayer resources are not wasted to ensure fairness for employers and borrowers.

Changes:

None.

Comments:

Commenters raised concerns that PSLF program eligibility could be used as a political tool to compel alignment with an administration's priorities. They suggested that this could limit free speech and advocacy while potentially undermining the independence of public service groups.

Discussion:

The Department rejects this unsubstantiated concern. The standards for qualifying employment are not intended, nor do they regulate policy preferences, advocacy, or discriminate based upon viewpoint.

The standards are limited to ensuring that employers meet statutory requirements for lawful public service activities. Organizations that abide by Federal law and the laws of the State in which they operate will not be subject to potential loss of eligibility. PSLF employer eligibility is not conditioned on political alignment or conformity with any administration policies. Determinations regarding whether an organization has engaged in illegal activities such that it has a substantial illegal purpose will be objective and based on evidence such as judgments of State or Federal courts, guilty pleas of the organization, or statements by the organization admitting that it engaged in such conduct (such as in a settlement agreement). It will not be colored by the policy preferences of an employer. Here, the Department is not regulating viewpoint and will enforce the regulation in a manner that does not take viewpoint into account. This approach does not interfere with the policy preferences or advocacy efforts of public service organizations and safeguards taxpayer funds by ensuring benefits are delivered only to organizations that are not engaged in illegal activities such that they have a substantial illegal purpose. The Department will administer the PSLF program neutrally to keep the program focused on its purpose of supporting careers in qualified public service, notwithstanding the policy preferences or viewpoints of the public service employer.

Changes:

None.

Comments:

Many commenters expressed concern that the Department will apply the rule in a way that punishes organizations based on political ideology or affiliation rather than on legitimate unlawful conduct. They worried that nonprofit and advocacy organizations could be stripped of PSLF eligibility because their missions or policy stances differ from the administration.

Discussion:

The Department will administer the PSLF program in a manner that provides borrowers with the benefits required by statute, while ensuring the responsible stewardship of taxpayer resources. As discussed in the previous comment, the Department cannot take action against an employer because of their viewpoint or policy preferences. However, when employers break the law, such that the organization has a substantial illegal purpose, the Department may take action to safeguard the integrity of the PSLF program by removing eligibility from that employer. The Department cannot and will not prejudge the facts or the law with respect to specific employers, but organizations that follow the law will not be subject to adverse action under this final rule.

Changes:

None.

Comments:

Some commenters expressed concern that even if the Department does not intend to use PSLF in a political way, the lack of precise definitions and safeguards could create the perception of arbitrary or politically motivated enforcement. They emphasized that the appearance of bias can be as damaging as actual bias, eroding public trust and discouraging organizations from engaging in lawful advocacy work.

Discussion:

The Department recognizes that it is possible that enforcement under the regulation could be perceived as politically motivated, but perceptions are not often reality. The perception of some members of the public as to why the Department takes an action should not control or impair the Department's ability to take action, lest the Department become captive to popular perception of the underlying motivation whether true or not. The Department does not intend to take enforcement action based on pretextual grounds. Adverse action will be taken only where the evidence demonstrates that an organization has a substantial illegal purpose.

If the Department takes action under this regulation, impacted entities will receive notice and an opportunity to respond prior to any determination.

Changes:

None.

Comments:

Some commenters claimed that this rule is an overreach of executive power and unconstitutional because it creates new disqualification standards not explicitly authorized by Congress. Other commenters argued that the proposed rule deals with a major question under the Major Questions Doctrine and that the Department lacks a clear congressional authorization to promulgate the rule.

Discussion:

The Department disagrees that the rule is a form of executive overreach or that it is unconstitutional. The HEA gives the Secretary clear and broad authority to regulate title IV programs, such as PSLF. This final rule is firmly within that authority.

The history surrounding the creation and use of the illegality doctrine is instructive in assessing whether this rule is unconstitutional or is a form of executive overreach. Indeed, courts have upheld the use of the illegality doctrine in the context of administering the Internal Revenue Code relating to organizations that engaged in activities that are illegal or otherwise contrary to public policy.

See e.g., Bob Jones Univ.,

461 U.S. at 591 (holding that an organization may be denied tax-exempt status if its purposes or activities are illegal or otherwise contrary to public policy),

Church of Scientology of Cal.

v.

Comm'r,

83 T.C. 381 (1984) (upholding revocation of tax-exempt status for a religious organization because of its conspiracy to defraud the United States, which violated established public policy). These cases demonstrate that the Department is implementing

established legal standards when determining whether organizations are engaging in public service by examining whether they engage in activities that are illegal such that they have a substantial illegal purpose. These actions, like those taken by the IRS, are not unconstitutional nor do they amount to executive overreach. Furthermore, the Department disagrees that the rule is a major question under the Major Questions doctrine. The doctrine generally requires Congress to speak clearly if it wishes to assign to an agency decisions of vast economic and political significance.

West Virginia

v.

EPA,

597 U.S. 697, 716 (2022) (internal quotations omitted). There is not a bright line standard for what constitutes a major question, but courts look to the breadth of the authority asserted and its economic and political significance. The Supreme Court has found that the Major Questions Doctrine is implicated, for example, where the actions of an agency impact the price of energy for nearly all Americans, where the Secretary attempts to cancel upwards of $500 billion in Federal student loan debt for millions of borrowers, and where millions of health insurance subsidies would be impacted.

See e.g., West Virginia,

597 U.S. at 716;

Biden

v.

Nebraska,

600 U.S. 477, 505 (2023),

King

v.

Burwell,

576 U.S. 473, 135 (2015). Here, the Department estimates that this final rule may impact less than ten employers per year across the country. Furthermore, the rule makes no substantive changes to the legality of certain actions but changes the consequences for breaking the law where an employer has a substantial illegal purpose. The Major Questions Doctrine, as articulated by the Supreme Court, is not applicable when a rule impacts less than ten employers per year and does not prohibit lawful conduct.

Changes:

None.

Comments:

Many commenters provided examples of organizations aiding refugees and asylum seekers, which they believe to be lawful activities. Commenters were concerned that depending on political motivations, these actions could be deemed “illegal.” Commenters believed that advocacy or humanitarian groups could face disqualification despite acting within the law.

Discussion:

The Department disagrees with the commenters' concerns. In the first instance, Federal law prohibits individuals from aiding, abetting, counseling, commanding, inducing, or procuring another to commit a crime against the United States. 18 U.S.C. 2. Any individual who engages in such practices to assist illegal immigrants in breaking Federal law may violate 18 U.S.C. 2. Federal law does not prohibit individuals from advocating for illegal immigrants or representing them in Federal immigration court. Organizations that do not aid or abet in criminal activity will not be disqualified from participating in the PSLF program, while organizations that participate in unlawful behavior may have a substantial illegal purpose depending on the nature of the offenses. PSLF determinations under this final rule will not be made based on the political views or policy preferences of the organization. Rather, any decisions will be made based upon the factual record of the underlying actions the organization has taken and whether such actions violate the law. This rule does not preclude legal activities that assist groups mentioned by the commenters. The Department will only enforce this rule against organizations that participate in illegal activity such that they have a substantial illegal purpose.

Changes:

None.

Comments:

Commenters argued that existing statutes governing nonprofit conduct (for example, IRS regulations, State charity laws, and criminal statutes) already prohibit organizations from engaging in illegal activity. Creating additional rules through PSLF is seen as duplicative and unnecessary. Commenters also argued that there may be the potential for an irreconcilable conflict to arise for public service professionals where actions mandated by laws like the Individuals with Disabilities Education Act (IDEA), Emergency Medical Treatment and Active Labor Act (EMTALA), and Family Educational Rights and Privacy Act of 1974 (FERPA) or actions required by professional code, could be subjectively misinterpreted as illegal activities that have a substantial illegal purpose.

Discussion:

The Department acknowledges that rules at the Federal and State levels broadly prohibit nonprofit organizations from engaging in illegal conduct, but the Department disagrees that this final rule is duplicative of those efforts. Indeed, as explained previously, Congress created a broad definition of public service job to capture a broad array of public service employment. Even if the IRS or a State takes action to revoke an organization's tax-exempt status, the organization may still satisfy the definition of a public service employer and, therefore, would remain eligible for participation in the PSLF program. Accordingly, the Department would need to act to ensure that any organization that engages in illegal activities such that it has a substantial illegal purpose is not able, through its employees, to benefit from the PSLF program.

The Department considered alternatives here, namely that because the IRS could take independent action, it may not be necessary for the Department to make the changes in this rule. However, just like all executive branch agencies, the IRS has resource constraints that limit its ability to act against organizations under the illegality doctrine and must exercise some degree of prosecutorial discretion. This means that, at least at times, the illegality doctrine will be underenforced. In other words, there may be instances where some organizations that have a substantial illegal purpose continue to have IRS tax-exempt status.

The Department has a heightened interest in ensuring that the PSLF program is administered in a manner that safeguards against improper payments. Indeed, the median balance forgiven for borrowers through PSLF is $65,000 so the Department has a significant monetary interest in ensuring that only months of work in lawful public service employment are counted toward forgiveness.

5

The Department's interest here stands separate and apart from any interest the IRS has in taking action to revoke tax-exempt status, because Congress assigned the Department the responsibility to administer and oversee the PSLF program. Because of the Department's independent interest in preventing misuse of taxpayer resources, as well as the fact that the IRS may not always revoke the tax-exempt status of organizations engaging in activities that amount to having a substantial illegal purpose, the Department does not believe that this final rule is duplicative.

5

FY25 Department of Education Justifications of Appropriation Estimates to the Congress, Volume II, Student Loans Overview, page 9.

With respect to the commenter's assertion that the rule is duplicative because State taxing authorities or other parts of State government may also act against organizations engaged in activities that amount to having a substantial illegal purpose, the Department disagrees. State action has no bearing on eligibility for the PSLF program, so any State action will not necessarily impact employer eligibility for PSLF, which necessitates the need for the Department to be able to take independent action.

Regarding the comments raising the potential for the rule to conflict with existing Federal laws or State professional codes, the Department does not believe this rule conflicts with any laws. If there were a conflict between Federal law and State law with respect to the illegal conduct considered by the Secretary under this final rule, ordinary principles of Federal preemption law would apply.

See McCulloch

v.

Maryland,

17 U.S. 316, 427 (1819) (holding that a State law in conflict with Federal law is without effect). Nothing in this final rule directly preempts State law, and instead broadly defers to State law. The Department is not aware of any conflicts between this final rule and existing Federal and State laws.

Changes:

None.

Illegality Doctrine

Application of the Illegality Doctrine

Comments:

Commenters argued that the Department's proposal improperly utilizes the illegality doctrine developed by the IRS and the courts by applying doctrines developed in a tax context to a statutory loan forgiveness program. Some commenters also argued that the Department has misconstrued the illegality doctrine to cover a much wider range of conduct and activities than the doctrine has been applied to by the IRS, which could open the door to political misuse, disqualifying organizations based on contested interpretations of law rather than clear violations. Additionally, some commenters questioned the Department's authority to identify specific types of illegal conduct as a basis for determining that an organization is not a qualifying employer for the purposes of the PSLF program, instead of considering all illegal conduct.

Discussion:

The Department disagrees that it is improper for the Department to rely on the illegality doctrine when determining whether an employer qualifies for participation in the PSLF program. PSLF is a statutory benefit designed to encourage public service. The illegality doctrine provides a starting point for the Department to base the concept of excluding organizations with a substantial illegal purpose from PSLF, as the illegality doctrine provides a clear basis for denying certain statutory benefits to organizations whose aims and activities are harmful to the public interest. Furthermore, the substantial amount of case law that has been generated regarding the illegality doctrine demonstrates that courts have long recognized that government benefits are not required to flow to organizations whose purposes conflict with law.

See, e.g., Bob Jones Univ.,

461 U.S. at 591 (holding that an organization may be denied tax-exempt status if its purposes or activities are illegal or otherwise contrary to public policy);

Church of Scientology,

83 T.C. at 506 (holding that denial of an organization's Section 501(c)(3) tax-exempt status was proper where the purpose of the organization was engaging in criminal tax fraud);

Mysteryboy,

99 T.C.M. (CCH) 1057 (holding that an organization that promoted activities which are prohibited by Federal and State laws did not qualify for tax-exemption under Section 501(c)(3)).

As mentioned above, the history surrounding the creation and use of the illegality doctrine is instructive in assessing whether this final rule is unconstitutional or is a form of executive overreach. Indeed, courts have upheld the use of the illegality doctrine in the context of administering the Internal Revenue Code to revoke tax-exempt status from organizations that have a substantial illegal purpose. The Department rejects the supposition that the illegality doctrine can only be applied within the context of Section 501(c)(3) of the Internal Revenue Code. The way the IRS interprets the Internal Revenue Code is very similar to what the Department is doing in interpreting the phrase “public service.”

See e.g., Rev. Rul. 75-384,

1975-2 C.B. 204 (finding that an organization which encouraged civil disobedience did not qualify for tax-exemption as a Section 501(c)(4) organization operated exclusively for the promotion of “social welfare,” on the basis that “[i]llegal activities, which violate the minimum standards of acceptable conduct necessary to the preservation of an orderly society, are contrary to the common good and the general welfare of the people in a community and thus are not permissible means of promoting the social welfare”). Courts and the IRS have established that denial or revocation of an organization's tax-exempt status is appropriate when its purposes and activities are illegal or otherwise contrary to public policy.

See Bob Jones Univ.,

461 U.S. at 591;

Rev. Rul. 75-384,

1975-2 C.B. 204. Both the amount of time and attention an organization spends on the unlawful activities and the seriousness of the unlawful activities are relevant considerations.

See, e.g., I.R.S. Gen. Couns. Mem. 34631

(Oct. 4, 1971)(stating, as an example, that “[a] great many violations of local pollution regulations relating to a sizable percentage of an organization's operations would be required to disqualify it from 501(c)(3) exemption” but “if only .01% of its activities were directed to robbing banks, it would not be exempt”).

6

Taken together, the Department believes that the illegality doctrine can clearly be applied in scenarios outside of just those where the IRS has utilized it in the past, so long as it is used to respond to conduct that is clearly unlawful and substantial in nature.

6

The Department understands and acknowledges that IRS General Counsel Memoranda (“GCMs”) do not represent binding precedent. However, because GCMs demonstrate the way the IRS approached a discrete situation, they include persuasive legal analysis which may be applicable in analogous situations. The GCMs cited within this final rule are cited only as examples that the Department looked to while crafting this rule.

In crafting this rule, the Department looked to President Trump's Executive Order on

Restoring Public Service Loan Forgiveness,

Executive Order 14235 (Mar. 7, 2025), which identified the forms of unlawful activity that would merit denying an organization qualifying employer status for the purpose of the PSLF program. Although the Department believes that it would be legally permissible for the Department to deny qualifying employer status to organizations for a wider range of unlawful conduct than those set forth in that Executive Order, the Department believes that the Executive Order clearly indicates the areas that the President has identified as being of greatest concern. Furthermore, the Department's enumeration of specific forms of unlawful activity is consistent with the broad powers of prosecutorial discretion of the executive branch.

See United States

v.

Nixon,

418 U.S. 683, 693 (1974) (

citing Confiscation Cases,

74 U.S. 454 (1869);

United States

v.

Cox,

342 F.2d 167, 171 (5th Cir.),

cert. denied sub nom. Cox

v.

Hauberg,

381 U.S. 935 (1965)) (“[T]he Executive Branch has exclusive authority and absolute discretion to decide whether to prosecute a case . . .”);

United States

v.

Fokker Servs. B.V.,

818 F.3d 733, 741 (D.C. Cir. 2016) (

citing Cmty. for Creative Non-Violence

v.

Pierce,

786 F.2d 1199, 1201 (D.C. Cir. 1986);

ICC

v.

Bhd. of Locomotive Eng'rs,

482 U.S. 270, 283 (1987)) (“[J]udicial authority is . . . at its most limited when reviewing the Executive's exercise of discretion over charging determinations.”) (cleaned up);

Wayte

v.

United States,

470 U.S. 598, 607 (1985) (

citing United States

v.

Goodwin,

457 U.S. 368, 380, n. 11, (1982);

Marshall

v.

Jerrico, Inc.,

446 U.S. 238, 248 (1980)) (“In our criminal justice system, the Government retains

broad discretion as to whom to prosecute.” (cleaned up)).

The Department understands the March 7, 2025, Executive Order as being a directive from the President regarding how he would like the Department to exercise our prosecutorial discretion in taking enforcement actions where organizations are engaged in illegal conduct, and this final rule is focused on specific illegal conduct that he has determined that the Department should focus on. Finally, the Department believes that the identification of specific forms of unlawful activity will have the effect of reducing uncertainty for borrowers when considering prospective employers and for employers when making business decisions.

Changes:

None.

Lack of Statutory Authority

Comments:

Many commenters claimed the Department lacks statutory authority under the HEA to impose new disqualification standards in the PSLF program. They argued that Congress already defined “qualifying employment” to include work at government entities, certain nonprofits, and organizations exempt from tax under Section 501(c)(3) of the Internal Revenue Code because they are described under Section 501(c)(3) and that the Department cannot narrow or redefine this scope by regulation. Several commenters raised separation-of-powers concerns, stating that only Congress, not an executive agency, can amend the PSLF eligibility framework. Commenters warned that this expansion of administrative discretion could destabilize the program.

Discussion:

Commenters' claims that the Department lacks authority under 20 U.S.C. 1087e are misplaced. Congress has expressly delegated broad rulemaking authority to the Secretary under the HEA to administer the title IV programs, including PSLF. That authority includes clarifying employment qualifications and establishing conditions under which loan forgiveness may be granted. Although Federal agencies may not create new programs, they are charged with the implementation and oversight of programs created by Congress. That authority includes enumerating procedures for the program and providing clarity for compliance and elimination of improper payment uses. In addition, as stated above, the HEA authorizes the Department to take action to prevent employees of organizations that have a substantial illegal purpose from receiving benefits under the PSLF program. Congress would not have wanted public funds to support employment that harms the public because it advances illegal activity.

Changes:

None.

Duplication of Existing Legal Regimes

Comments:

Many commenters argued that existing regulatory regimes already prohibit unlawful activity by nonprofits, charities, and public service organizations. They pointed to IRS oversight, State charity laws, and criminal statutes as sufficient safeguards. They argued that layering additional PSLF-specific disqualification standards is duplicative, unnecessary, and could create conflicting enforcement regimes. Commenters warned that this approach risks burdening compliant organizations and confusing borrowers, while doing little to improve PSLF program integrity.

Discussion:

The Department disagrees with the view that the PSLF program should rely exclusively on other enforcement mechanisms and other Federal agencies to enforce the provisions of programs enacted under the HEA. As stated previously, tax exemption, State charity oversight, and criminal prosecution all serve distinct purposes, but none are designed to administer title IV loan forgiveness. PSLF is a Federal benefit program, and it requires its own eligibility safeguards to ensure taxpayer resources are not diverted to unlawful activity. The Department cannot abdicate this responsibility to outside agencies. This final rule complements, rather than duplicates, existing law. It uses established legal definitions and works in tandem with the IRS, State, and other Federal entities, while maintaining the Department's independent responsibility to administer the PSLF program—a responsibility that Congress clearly provided to the Department. A determination by the Department regarding whether an organization satisfies the requirements to be considered a qualifying employer for the purposes of PSLF is not a determination by the Department regarding that organization's tax-exempt status.

Borrowers deserve certainty and taxpayers deserve assurance that their dollars are used to encourage lawful activities that promote the public good. This framework delivers both by aligning PSLF with lawful public service and protecting the program's integrity.

Changes:

None.

Viewpoint Discrimination First Amendment—Free Speech and Association

Comments:

Commenters asserted that the proposed rule violates the First Amendment to the U.S. Constitution by conditioning PSLF program eligibility on the political or ideological missions of employers. They argued that excluding borrowers based on their employer's policy positions constitutes impermissible viewpoint discrimination. Commenters also expressed concern that the rule could reduce lawful advocacy and infringe upon employees' rights to freely associate with nonprofit organizations engaged in public service.

Discussion:

The Department rejects the claim that this final rule will result in a reduction of lawful advocacy and public service. The United States Supreme Court has repeatedly emphasized that government cannot condition access to public benefits on the surrender of constitutional rights, including freedom of speech and association.

See e.g., Perry

v.

Sindermann,

408 U.S. 593, 597 (1972) (stating “this Court has made clear that even though a person has no right to a valuable governmental benefit and even though the government may deny him the benefit for any number of reasons, there are some reasons upon which the government may not rely. It may not deny a benefit to a person on a basis that infringes his constitutionally protected interests—especially, his interest in freedom of speech.”) (cleaned up).

The Department continues to assert that PSLF employer determinations will not be based on the viewpoint or advocacy positions of nonprofit or governmental employers or their employees. Instead, the Department will anchor eligibility exclusively in lawful service to the public, consistent with 20 U.S.C. 1087e(m)(3)(B), which defines qualifying employment to include all government and Section 501(c)(3) organizations. Borrowers and employers may continue to engage in lawful advocacy without fear that PSLF will be used as a tool of ideological enforcement.

Changes:

None.

Due Process and Vagueness

Comments:

Commenters voiced constitutional concerns under the Due Process Clause of the Fifth Amendment to the U.S. Constitution, specifically in relation to the phrase “substantial illegal purpose.” They described this language as vague, ambiguous, and subject to shifting interpretation depending on political context. They

said the rule is unconstitutionally void for vagueness because key terms are ambiguous, subjective, overly broad, ill-defined, lack objective standards, and therefore fail to provide adequate notice of prohibited conduct.

According to commenters, the absence of clear definitions deprives borrowers and employers of fair notice and creates the risk of arbitrary enforcement. Commenters also stated that granting broad discretion to the Secretary without certain procedural safeguards could undermine due process by enabling decisions that could be inconsistent, opaque, or politically motivated.

Additionally, some commenters said the disqualification process violates constitutional due process by failing to provide adequate procedural safeguards and lacks a clear process for notice, a formal hearing, or a meaningful appeal to a neutral adjudicator.

Other commenters stated that the rule is procedurally unjust because it denies individual borrowers due process by failing to provide a clear, sufficient, or accessible appeals process to challenge an employer's disqualification. Commenters argued that employees are more directly and personally harmed under the rule, and as such, they should have recourse to correct potential errors, especially as some employers may choose not to challenge their disqualification.

Discussion:

The Department takes these due process concerns seriously. Courts have long held that vague standards fail when they create uncertainty and invite arbitrary enforcement.

See e.g., Grayned

v.

City of Rockford,

408 U.S. 104, 108 (1972) (“It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined.”). A law can be considered void for vagueness when an average citizen cannot generally determine what persons are regulated, what conduct is prohibited, or what punishment may be imposed.

See Johnson

v.

United States,

576 U.S. 591, 595 (2015);

see also Kolender

v.

Lawson,

461 U.S. 352, 357-58 (1983) (stating that a law is void unless it is defined with “sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement”);

Vill. of Hoffman Estates

v.

Flipside, Hoffman Ests., Inc.,

455 U.S. 489, 498 (1982) (“A law that does not reach constitutionally protected conduct and therefore satisfies the overbreadth test may nevertheless be challenged on its face as unduly vague, in violation of due process.”);

Papachristou

v.

City of Jacksonville,

405 U.S. 156, 162 (1972) (“Living under a rule of law entails various suppositions, one of which is that (all persons) are entitled to be informed as to what the State commands or forbids.” (

quoting Lanzetta

v.

New Jersey,

306 U.S. 451, 453 (1939) (cleaned up)). This rule clearly defines to whom the requirements apply, the conduct that is prohibited and the consequence of engaging in illegal activities for an employer who qualifies in the PSLF program. This final rule does not create new substantive prohibitions; it merely changes the consequences for the organization that is engaging in illegal activity such that it has a substantial illegal purpose. The underlying legal prohibitions are broad, but broad prohibitions are permitted so long as there is adequate notice of what is prohibited. Furthermore, the clear and defined parameters of the rule will help the Department avoid arbitrary enforcement of the rule, which is an important goal of the void for vagueness doctrine.

The Department acknowledges that its original definition in the draft regulations first presented to the negotiated rulemaking committee was broader and less precise than what was proposed in the NPRM. To ensure employers and borrowers have fair notice, and after having discussed issues and concerns during negotiated rulemaking, the Department refined the definition of “substantial illegal purpose” and several other definitions in the NPRM to better clarify the illegal activities that could lead to an employer being disqualified from participation in PSLF.

Additionally, under the process proposed in the NPRM, in section 682.219(j), employers will be provided with a notice, a transparent record, and an opportunity to review, respond, and rebut the Department's findings to a neutral adjudicator, thereby ensuring that due process is afforded to all impacted stakeholders and applied fairly and consistently. The rule also provides an opportunity for employers to regain eligibility by following a corrective action plan to come into compliance after a loss of eligibility. If the processes established in this final rule do not resolve a concern, employers can seek judicial review of the Department's decisions in Federal court. The Administrative Procedure Act (APA) provides default rules establishing procedures for judicial review of Federal agency actions. 5 U.S.C. 706. If an employer has exhausted the administrative remedies established in this rule and meets all of the other legal requirements to file a complaint, it can challenge the Department in Federal court.

Finally, the Department believes that employers are better situated than borrowers to respond to preliminary findings from the Department about the employer's eligibility. Employees may not have sufficient information to provide the Department with a full evidentiary framework to consider because they may not be privy to employer actions or decisions. Employers may include information in their submissions regarding the impact eligibility determinations may have on their employees.

Changes:

None.

Equal Protection Concerns

Comments:

Several commenters raised concerns that the proposed rule may violate the Fifth Amendment's Due Process Clause, asserting it disproportionately targets organizations that serve marginalized populations and could unlawfully deprive borrowers and employers of PSLF benefits without adequate notice, procedural safeguards, or a meaningful opportunity to be heard. Commenters argued that altering program eligibility or redefining qualifying employment could constitute an arbitrary or retroactive deprivation of benefits on which participants had reasonably relied. Several other commenters also asserted that the proposed rule violates the Due Process Clause of the Fifth Amendment by altering PSLF eligibility criteria in a manner that could deprive borrowers or employers of benefits without adequate procedural safeguards. Some commenters further alleged that the rule would have a disproportionate effect on nonprofit entities serving marginalized or disadvantaged populations, raising concerns under both due process and equal protection principles implicit in the Fifth Amendment.

Approximately 50 commenters further contended that the rule would disproportionately affect organizations serving marginalized or disadvantaged populations, such as those providing legal services, social support, and educational or healthcare access to low-income, minority, and immigrant communities. These commenters asserted that narrowing PSLF eligibility based on organizational mission or activities could effectively exclude nonprofit employers that advance equity and civil rights goals (

e.g.,

in work related to immigrant communities, LGBTQ+ individuals, or racial justice initiatives), thereby compounding inequities the program was designed to mitigate.

Discussion:

The Department agrees that the PSLF program must be administered in a neutral manner, without targeting organizations because of their viewpoint or activism. The Department would have no basis to remove eligibility from nonprofits engaged in work related to immigrant communities, LGBTQ+ individuals, or racial justice if those organizations are following the law. As such, the Department disagrees that this final rule would unfairly disadvantage the referenced types of groups.

As discussed throughout, the Department promulgates this rule under its authority in 20 U.S.C. 1087e(m) and HEA to administer the PSLF program and ensure consistent, lawful application of its requirements. In evaluating comments addressing constitutional issues, the Department considered whether any aspect of this rule implicates procedural or substantive rights under the Fifth Amendment.

The Department carefully considered concerns regarding the Fifth Amendment and concludes that the rule is fully consistent with constitutional requirements. The rulemaking process provides notice and an opportunity for public comment, as required under the Administrative Procedure Act (5 U.S.C. 553), satisfying the procedural component of due process. This final rule applies prospectively and does not rescind previously granted loan forgiveness or otherwise retroactively alter qualifying employment determinations. Accordingly, it does not implicate a constitutionally protected property interest.

See Bd. of Regents

v.

Roth,

408 U.S. 564, 577 (1972) (“To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined.”)

With respect to the alleged disparate impact on organizations serving marginalized populations, the Department emphasizes that PSLF eligibility is determined according to statutory criteria established in 20 U.S.C. 1087e(m). Eligibility determinations are made by considering the activities employers engage in that are unlawful either under Federal or State law, without respect to the impact it may or may not have on individuals based upon any protected characteristics. This final rule interprets those provisions in a neutral manner, without regard to the employer's mission, ideological orientation, or the population it serves. The mere disparate impact of a facially neutral rule does not, without evidence of intentional discrimination, establish a constitutional violation.

See Washington

v.

Davis,

426 U.S. 229, 242 (1976) (holding that a law which is “neutral on its face and serving ends otherwise within the power of government to pursue,” was valid under the Equal Protection Clause despite the law adversely impacting individuals from one race more than others).

The Department therefore finds that the rule neither infringes upon due process rights nor results in an unlawful disparate treatment or denial of equal protection under the Fifth Amendment.

Accordingly, the Department continues to assert that lawful advocacy or provision of services to immigrant communities, LGBTQ+ individuals, or racial justice organizations does not disqualify an employer from participating in the PSLF program. Only where a determination has been made that an organization is engaging in illegal activities such that it has a substantial illegal purpose will PSLF eligibility be at issue.

Changes:

None.

Contract Concerns

Comments:

Some commenters felt that the rule violates the Contracts Clause by unilaterally renegotiating the terms of existing agreements with borrowers, which they argue breaks the trust of individuals who made significant career and financial decisions in good-faith reliance on the government's promise and allows the Department to withdraw promised benefits based on its opposition to a borrower's work. Similarly, some commenters argued the rule violates legal principles like promissory estoppel, and that the government is legally and morally obligated to honor its commitment after borrowers have upheld their end of the agreement through years of service and payments.

Discussion:

The Department rejects the contention that the rule violates the Contracts Clause by unilaterally renegotiating the terms of existing agreements with borrowers. In the first instance, the Contracts Clause only applies to States, not the Federal Government. Furthermore, the contractual instrument the Department uses when originating loans, the master promissory note (MPN), explicitly disclaims the notion that terms and conditions of Federal student loans are fixed and cannot be changed through the legal process. When a borrower signs an MPN, the MPN is valid for additional Federal student loans the borrower takes out for ten years, with certain exceptions. This means that borrowers may receive multiple or serial loans for up to ten years from the date the borrower signed the MPN. By signing the MPN, borrowers agree to the terms and conditions of the loans while acknowledging that terms and conditions of those loans may be changed. Specifically, the MPN explicitly states that its terms and conditions “are determined by the HEA and other federal laws and regulations.”

7

MPN at 3. Section 1 of the Borrower's Rights and Responsibilities Statement (BRR) provided with the MPN further clarifies that amendments to the HEA and other Federal laws and regulations may amend the terms of the MPN and cautions that “[d]epending on the effective date of the amendment, amendments to the [HEA or other federal laws and regulations] may modify or remove a benefit that existed at the time that you signed this MPN.” MPN at 6. Therefore, by signing the MPN, the borrower acknowledges the possibility that the terms of the agreement between themselves and the Department can be changed and that currently offered benefits may not be available in the future.

7

Master Promissory Note (MPN) Direct Subsidized Loans and Direct Unsubsidized Loans William D. Ford Federal Direct Loan Program, OMB No. 1845-0007 (retrieved Oct. 22, 2025), available at

https://studentaid.gov/mpn/subunsub/preview

.

The Department rejects the contention that this rule is barred by promissory estoppel. The doctrine of promissory estoppel is commonly understood to be inapplicable in disputes between private parties and the Federal Government. Michael J. Cole,

Don't “Estop” Me Now: Estoppel, Government Contract Law, and Sovereign Immunity if Congress Retroactively Repeals Public Service Loan Forgiveness,

26.1 Lewis and Clark L. Rev. 154, 169 (2022) (

citing Hubbs

v.

United States,

20 Cl. Ct. 423, 427-28 (1990), aff'd, 925 F.2d 1480 (Fed. Cir. 1991);

Eliel

v.

United States,

18 Cl. Ct. 461, 469 (1989), aff'd, 909 F.2d 1495 (Fed. Cir. 1990);

Schwartz

v.

United States,

16 Cl. Ct. 182, 185 (1989); Ralph C. Nash & John Cibinic, Promissory Estoppel: A Theory Without a Home in Government Contracts, 3 THE NASH & CIBINIC REP. ¶ 52 (July 1989)). Breach of contract disputes involving the Federal Government are governed by the Tucker Act (28 U.S.C. 1491(a)(1)) and Contract Disputes Act (41 U.S.C. 7101-7109), neither of which allow the private parties to obtain relief

when they are harmed by the Federal Government's promises.

Even if promissory estoppel was applicable to the Department, the required elements for a promissory estoppel claim could not be satisfied by a borrower whose employer loses its qualifying employer status as a result of this rule. The doctrine of promissory estoppel is rooted in detrimental reliance and requires proof that there was a promise or representation made, that the promise or representation was relied upon by the party asserting the estoppel in such a manner as to change his position for the worse, and that the promise's reliance was reasonable and should have been reasonably expected by the promisor.

See L. Mathematics & Tech., Inc.

v.

United States,

779 F.2d 675, 678 (Fed. Cir. 1985). Here, the borrower would fail to satisfy the required elements for a promissory estoppel claim because they expressly acknowledged and agreed to the possibility of changes to benefits that existed when they signed the MPN. The MPN disclaims the idea that the terms and conditions of a Federal student loan are unalterable, meaning that any reliance interest is not reasonable. Furthermore, such a borrower would struggle to demonstrate that they were harmed as a result of this reliance, as the borrower would still have received a measurable benefit as a result of working for the formerly-qualifying employer, as all qualifying payments made by the borrower before the date of the organization's loss of qualifying employer status will continue to be counted as such, meaning that the borrower will have made progress toward loan forgiveness through PSLF as a result of their employment.

Retroactivity Concerns

Comments:

Several commenters expressed concerns that the rule is impermissibly retroactive because it adds new requirements that impact existing participants, creates uncertainty, and violates the holdings of cases such as

Landgraf

v.

USI Film Productions,

511 U.S. 244 (1994), and

Bowen

v.

Georgetown University Hospital,

488 U.S. 204 (1988), which require express Congressional authorization for rules with retroactive effect. Other commenters argued that the rule improperly penalizes organizations for lawful past conduct. A few commenters suggested that, to prevent unfair outcomes and impermissible retroactivity, any new restrictions must be applied prospectively to new borrowers, new loans, or new employees who begin service after the rule's effective date. Many commenters stated that current borrowers should not be impacted if their employer loses eligibility to participate in PSLF as a result of this rule.

Discussion:

The Department disagrees that this final rule has retroactive effect on any current qualifying employers or borrowers employed by such organizations. An organization can only lose or be denied qualifying employer status under this final rule if it engaged in illegal activities such that it has a substantial illegal purpose on or after July 1, 2026, the effective date of this final rule. Those activities are all clearly enumerated within the final rule. The Supreme Court has stated that “considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly.”

Landgraf,

511 U.S. at 265. This rule complies with that principle by identifying the prohibited activities and providing that the conduct occurring before a future date will not be a factor when the Department considers whether the organization has a substantial illegal purpose. Both employers and borrowers will have approximately eight months between the publication of this final rule and its effective date, providing sufficient time to understand the types of illegal conduct that could result in an employer losing PSLF eligibility.

With regard to borrowers employed by organizations that are currently qualifying employers, this final rule has no retroactive effect because any qualifying payment that the borrower made during the period of time that such employer was considered a qualifying employer will continue to count as such, including any payments made during the employer reconsideration process, even if the employer ultimately loses that status. In any case, an organization cannot lose or be denied qualifying employer status unless it engaged in illegal activities such that it has a substantial illegal purpose on or after July 1, 2026, meaning that payments made by borrowers employed by a qualifying organization could not possibly cease to be considered qualifying payments until the effective date of this final rule, at the very earliest. Taken together, the rule cannot and does not have a retroactive effect.

Furthermore, the Department rejects the argument that this final rule conflicts with the Supreme Court's rulings in the

Landgraf

and

Bowen

cases. In

Landgraf,

the Supreme Court rejected the plaintiff's argument that new remedies created by the Civil Rights Act of 1991 should apply in a sexual harassment case, even though the harassment and her resignation occurred before the legislation was passed, with the Court concluding that statutes burdening private rights are not presumed to have retroactive effect unless Congress clearly intended such retroactive effect.

See

511 U.S. at 270, 285, 286. In

Bowen,

the Supreme Court found that the Secretary of Health and Human Services had exceeded his rulemaking authority by promulgating a wage index rule in 1984 under which Medicare reimbursements paid to hospitals that had been disbursed since 1981 would be recouped, because Congress did not explicitly give the Secretary of Health and Human Services the power to promulgate rules with retroactive effect.

See

488 U.S. at 204, 210, and 211. This final rule is not in conflict with the Supreme Court's rulings in

Landgraf

or

Bowen

because it only concerns conduct occurring on or after July 1, 2026, and because payments made by borrowers employed by the organization during the period it was a qualifying employer will still be counted toward PSLF forgiveness, regardless of whether the organization later loses its qualifying employer status.

Furthermore, the Department disagrees that this final rule penalizes past lawful conduct. All the activities included within the definition of “substantial illegal purpose” require a violation of relevant State or Federal laws on or after July 1, 2026. An organization will not, and cannot, be penalized for past lawful conduct. To the extent that an organization engages in conduct which later becomes illegal as a result of a change in State or Federal law, only conduct occurring after the effective date of such a change could be considered relevant when considering whether the organization has a substantial illegal purpose, as the conduct was not illegal until that point in time.

Finally, the Department rejects the argument that any new restrictions on qualifying employment must only be applied to new borrowers. The MPN signed by each borrower explicitly states that its terms and conditions “are determined by the HEA and other federal laws and regulations.” MPN at 3. Section 1 of the BRR that is provided with the MPN further clarifies that that amendments to the HEA and other Federal laws and regulations may amend the terms of the MPN and specifically cautions that “[d]epending on the effective date of the amendment, amendments to the [HEA or other Federal laws and regulations] may modify or remove a benefit that existed

at the time that you signed this MPN.” MPN at 6. Because borrowers have been forewarned about the possibility of such changes, the Department believes it is unnecessary to grandfather in existing borrowers, especially when such an approach could result in the Department treating two borrowers differently when both are employed by the same organization, at the same time, and both are making payments. This result would be unfair to borrowers, would undermine the purpose of this final rule, and pose practical difficulties in terms of administration.

Definitions General (§ 685.219(b))

Comments:

Commenters objected to the introduction of new, undefined concepts such as “substantial illegal purpose,” “aiding or abetting,” or “violating State law.” Without precise definitions, they argued, these terms invite inconsistent application across States and agencies.

Discussion:

The Department disagrees that these terms are undefined or not well understood. These terms are clearly defined in the regulation, and in many instances are cross referenced to existing law that prohibits the underlying conduct. The concept of aiding and abetting is purposefully broad as it prohibits assisting in numerous types of criminal activity, but it is well understood by courts and the public. Likewise, the phrase “violating State law” is intentionally broad and encompasses a wide array of conduct, but it is also sufficiently clear and puts employers on notice that State law violations may be considered when determining if an organization has a substantial illegal purpose. Lastly, the term “substantial illegal purpose” is also clearly defined in the regulation and puts organizations on notice that the Secretary will consider any illegal conduct from the enumerated list and weigh it to determine if the organization has a substantial illegal purpose.

The purpose of using such terms is to set clear standards for PSLF program eligibility, not to create new interpretations. The Department will also rely on existing findings of unlawful activity by courts or other regulators where appropriate. To the extent that State laws may vary, the Department will defer to the judgments of State courts in determining what constitutes unlawful activity within the jurisdiction where the conduct occurs.

In instances where an organization has locations in more than one State and only broke the law in one or a few States, the Department may still find that the organization has a substantial illegal purpose by weighing all the relevant evidence. However, the Department will not find an organization to have engaged in illegal activity (and weigh that evidence under the substantial illegal purpose test) if the underlying conduct occurred in a State in which the conduct was legal. In other words, unless the State where the conduct occurs prohibits such conduct, the organization has not engaged in illegal conduct, and the Department will not use that conduct as a basis for removing employers from the PSLF program.

Changes:

None.

Comments:

Many commenters argued that the definitions provided in the rule are either too vague or sweep too broadly, creating uncertainty for both borrowers and employers. They worried that broad terms could invite inconsistent or arbitrary application, leaving organizations unclear about their eligibility status and borrowers without reliable assurances. Other commenters emphasized that definitions must be precise enough to avoid politicization but flexible enough to cover genuinely unlawful conduct.

Discussion:

The Department agrees that its definitions are broad but disagrees that they are too vague to be clearly understood. As mentioned above, this final rule establishes definitions that are anchored in law, have precise meanings that provide sufficient notice, are written in a manner in which they can be applied uniformly, and are generally understood by the public.

Changes:

None.

Aiding or Abetting (§ 685.219(b)(1))

Comments:

Commenters expressed concern that extending PSLF disqualification to organizations deemed to have “aided or abetted” unlawful activity would open the door to subjective interpretations. They questioned what level of involvement or association constitutes “aiding” and were worried that entities providing indirect support, such as legal advice, medical care, or humanitarian assistance, could be unfairly swept into disqualification. Commenters additionally expressed concern about the application of the definition of “aiding and abetting” from 18 U.S.C. 2 to organizations, rather than individuals, and argued that such application is improper because corporations are legal concepts that do not have or share intent. Additionally, commenters urged the Department to clarify that lawful representation of a client accused of participating in substantial illegal activity does not constitute participation in said illegal activity, and requested the Department provide a `safe harbor' for the activity representation.

Discussion:

The Department rejects the idea that ordinary, lawful assistance such as legal advice, medical care, or humanitarian support could trigger PSLF disqualification. Attorneys do not break the law, or adopt the views of their clients, by representing individuals in legal proceedings. This includes representing clients who may be unpopular, like terrorists. As such, the Department will not take action against legal employers under this final rule who are lawfully representing clients, including public defenders, or under the Legal Services Corporation Act. The term “aiding and abetting” carries a settled legal meaning: intentional participation in unlawful activity. It does not cover lawful support or incidental association. As such, the Department does not believe that it needs to provide a `safe harbor' consideration for these instances, as they are representative of lawful action undertaken by the eligible employer. Such actions are not illegal and thus would not be considered when determining if an employer has a substantial illegal purpose. The Department believes that it is necessary to include the concept of aiding and abetting within this final rule to address the issue that organizations that are going beyond lawful support or incidental associations are enabling or encouraging others to engage in certain unlawful activities. As such, organizations are just as at odds with the public interest as an organization that directly carries out unlawful activities. For example, if an organization has numerous employees who, at the direction of their employer, aided and abetted in acts of terrorism, the Department could clearly move to disqualify the employer and disallow PSLF benefits from flowing to its employees.

When considering, for PSLF eligibility purposes, whether an organization has aided and abetted illegal discrimination or violations of Federal immigration laws, the Department will carefully examine the balance of the evidence to determine both whether certain unlawful activities occurred and whether there is “objective indicia” that the organization sought to further those unlawful activities.

See e.g., Presbyterian & Reformed Pub. Co.

v.

Comm'r,

743 F.2d 148, 155 (3d Cir. 1984) (“The difficulties inherent in any legal standard predicated upon the subjective intent of an actor are further compounded when that actor is a corporate entity. In such circumstances,

courts forced to pass upon a potentially illicit purpose have looked for objective indicia from which the intent of the actor may be discerned.” (footnote omitted)). The Department may look to established legal standards associated with employer liability for acts of employees when making these determinations. Isolated incidents of unlawful conduct are unlikely to be sufficient to demonstrate that the employer engages in activities that result in the culmination of it having substantial illegal purpose. However, if there is a pattern and practice where numerous employees have engaged in illegal conduct, at the direction of or with the acquiescence of the employer, the Department may weigh that evidence more strongly in determining if the employer has a substantial illegal purpose, consistent with the doctrine of

respondeat superior. See e.g., Williams

v.

Clerac, LLC,

635 F. Supp. 3d 607, 613 (N.D. Ohio 2022) (stating that, under the

respondeat superior

doctrine, “if the employee tortfeasor acts intentionally and willfully for his own personal purposes, the employer is not responsible” unless the action was “calculated to facilitate or promote the business for which the [employee] was employed,” the employer “fails to take action where the employer knows or has reason to know that one employee poses a risk to other employees,” or if the employer “specifically and explicitly ratifies the employee's [tortious] act and adopts it as the employer's own.” (cleaned up));

Mylan Labs., Inc.

v.

Akzo, N.V.,

2 F.3d 56, 63 (4th Cir. 1993) (“[A] corporation is liable for the criminal acts of its employees and agents done within the scope of their employment with the intent to benefit the corporation.”)

Changes:

None.

Chemical Castration or Mutilation (§ 685.219(b)(3))

Comments:

Several commenters stated the definition of “chemical castration or mutilation” is especially unclear and controversial. They noted that Federal and State law already regulate medical procedures and questioned why the PSLF program should independently define or police such conduct. Other commenters noted that, without clarity, legitimate medical providers could be penalized simply for offering lawful procedures that might be politically contested. Other commenters recommended various amendments to the definition of “chemical castration or mutilation.”

Discussion:

The Department disagrees. The definition of chemical castration or mutilation is not about lawful medical practices; it is about ensuring that PSLF funds do not support the castration or mutilation of children in violation of Federal or State law. Medical providers performing activities within the bounds of Federal and State law will not be affected. Only conduct that is prohibited by Federal law, or State law in the State where the conduct occurs, is at issue. The standard is anchored in law and will be applied narrowly, based on clear evidence of illegality under Federal law or State law.

Consistent with President Trump's Executive Order on

Protecting Children from Chemical and Surgical Mutilation,

Executive Order 14187 (Jan. 28, 2025), the Department will be guided by the definition of “chemical and surgical mutilation” outlined in that Executive Order. As discussed in the NPRM, the Department searched for the most appropriate definition of chemical castration or mutilation and located the January 28, 2025, Executive Order,

Protecting Children From Chemical and Surgical Mutilation,

which provides the basis for the proposed definition. For further discussion and additional sources regarding the rationale for this decision, see

William D. Ford Federal Direct Loan (Direct Loan) Program,

90 FR 40154, 40159-40160 (Aug. 18, 2025).

Changes:

None.

Child or Children (§ 685.219(b)(4))

Comments:

Commenters asked for clarification on how “child” is defined for purposes of PSLF program eligibility. Some commenters worried that the rule could be read inconsistently across different contexts such as Federal law, State family law, or immigration law. They urged the Department to adopt a uniform definition that would purportedly avoid ambiguity and ensure fairness across all borrowers and employers. Commenters also recommended the Department use alternative definitions such as the “age of majority”, the term “18 years or younger”, or exempting emancipated minors no matter what their age.

Discussion:

The Department agrees that uniformity is important. The definition of child in this final rule is tied to the Executive Order on

Protecting Children from Chemical and Surgical Mutilation,

Executive Order 14187 (Jan. 28, 2025), to avoid confusion across States or when used in different contexts. This definition will be applied consistently across the country to ensure fairness and prevent inconsistent application.

Changes:

None.

Foreign Terrorist Organizations (§ 685.219(b)(10))

Comments:

Commenters supported excluding groups tied to terrorism but urged the Department to anchor determinations strictly to Federal law and formal designations. They feared that vague language could allow future administrations to disqualify entities engaged in lawful advocacy or international humanitarian work. Borrowers and employers emphasized that PSLF program eligibility should track clear Federal determinations, not discretionary judgments.

Discussion:

The Department agrees that PSLF program eligibility must follow formal Federal determinations. Organizations designated as foreign terrorist organizations under U.S. law will be excluded from the PSLF program. This final rule requires the Department to defer to terrorist designations already established by the Federal Government. Borrowers and employers will have certainty that decisions are neutral, grounded in evidence, and tied directly to statutory authority.

Changes:

None.

Illegal Discrimination (§ 685.219(b)(12))

Comments:

Commenters stated that the definition of “illegal discrimination” needs precision to avoid misuse. Commenters worried that organizations accused of discrimination, but not formally found liable, could be penalized. Others stressed that PSLF should not create new anti-discrimination standards beyond what is already defined under Federal or State law, to avoid layering duplicative or politically influenced rules.

Discussion:

The Department agrees that the PSLF program should not create new discrimination standards. This final rule relies strictly on established Federal law and allegations alone will not meet the standard for disqualification. Only organizations found to have engaged in unlawful discrimination will face disqualification.

Changes:

None.

Other Federal Immigration Laws (§ 685.219(b)(17))

Comments:

Commenters said referencing “other Federal immigration laws” is too broad and risks sweeping in organizations providing lawful assistance to immigrants, refugees, or asylum seekers. They worried that work such as legal aid, housing support, or medical services could be mischaracterized as unlawful under shifting political climates. They

requested precise language to ensure only clear and adjudicated violations of immigration law trigger disqualification.

Discussion:

The Department disagrees that referencing “other Federal immigration laws” is too broad or may sweep in legal conduct. This final rule will not penalize an organization for providing lawful assistance to immigrants, refugees, or asylum seekers. Disqualification will only occur where it is determined the organization is engaged in illegal conduct, and that conduct is material enough that the organization has a substantial illegal purpose. The phrase “Federal immigration law” is broad, but it is easily understood and only applies to Federal law that regulates immigration.

Changes:

None.

Qualifying Employer (§ 685.219(b)(27))

Comments:

Commenters asked for greater clarity on which organizations qualify as government, nonprofit, or public service employers under § 685.219(b)(27). Some argued that uncertainty about whether certain nonprofits, quasi-governmental bodies, or contractors qualify has long plagued the PSLF program. They stressed that borrowers and employers alike need predictable criteria, particularly where functions are performed through delegated authorities, shared services, or nontraditional entities. Without clearer boundaries, they argued, borrowers risk making career choices under uncertainty, only to later discover their service does not qualify for PSLF. Other commenters stated that they feared the new rule would perpetuate confusion rather than resolve it, noting that there was confusion over whether affiliates, contractors, or subcontractors performing public service functions on behalf of government or nonprofit entities count as qualifying employers. They warned that the absence of clear treatment for affiliates, contractors, and subcontractors invites inconsistent outcomes across service providers.

Discussion:

The Department agrees that clarity is critical so that borrowers can make informed decisions. This final rule does not change the five types of organizations and agencies that are considered as a qualifying employer under the current definition in 34 CFR 685.219(b)(27). Additionally, the government entities, nonprofits, and public service organizations that currently are considered by the Department as qualified employers are listed on the Department's website.

Under this final rule, the Department will update this list only after it takes action to remove an employer, and borrowers who work for that employer will be unable to receive credit for their work toward PSLF forgiveness only after the date of the Department's determination under subsection (h) or after any reconsideration requests or actions by the employer in accordance with subsection (j) of these regulations. These determinations will not be made retroactively, meaning that borrowers will receive credit for any work prior to the Department's determination. This final rule will ensure that borrowers have notice and will have an opportunity to change employers if they wish to continue to make progress toward loan forgiveness through PSLF.

Additionally, for a borrower to receive credit toward PSLF, the borrower must have a public service job working for a qualifying employer. Affiliates, contractors, and subcontractors that are not organizations or agencies meeting the definition of a qualifying employer do not offer public service jobs, so borrowers will not receive PSLF credit by working for those employers. This policy is not changed by this final rule.

Changes:

None.

Comments:

Many commenters raised questions about organizations that have both qualifying and non-qualifying functions, or that undergo restructuring, mergers, or spin-offs. They worried that borrowers could lose PSLF credit during employer transitions that are outside their control. Several commenters urged continuity protections, rules for partial qualifying service, and procedures to ensure that employer restructuring does not unfairly strip borrowers of eligibility.

Discussion:

The Department recognizes the risks created by restructuring and mergers of service organizations. It is possible that restructuring or mergers could change the eligibility of employers for PSLF. Organizations must be qualifying employers under the regulation for their employees to be eligible to participate in PSLF. If after restructuring or a merger, the employer no longer meets the definition of qualifying employer, its employees can no longer receive credit toward loan forgiveness through PSLF. The Department's regulations already account for this, and the Department is not proposing any changes in this final rule to further address this issue.

The Department acknowledges that when employers undergo these types of changes it may create uncertainty for borrowers; however, the PSLF statute is clear when a job is no longer qualifying. To give borrowers credit for working in jobs that do not qualify would violate the statute, so the Department cannot make changes to the regulations to address employers that transition out of their qualifying status.

Changes:

None.

Comments:

Commenters expressed uncertainty over how the PSLF program should treat quasi-governmental entities such as special districts, authorities, or instrumentalities. They pointed to wide variations in how State law defines such bodies and asked the Department to establish consistent Federal criteria.

Discussion:

The Department understands that State law definitions of governmental units vary. The definition of qualifying employer includes “A United States-based Federal, State, local, or Tribal government organization, agency, or entity, including the U.S. Armed Forces or the National Guard.” This definition is broad and captures a variety of organizations and instrumentalities that have been created by State or local governments, so long as the organization is not organized for profit and is not a labor union or a partisan political organization.

Changes:

None.

Comments:

Commenters requested standardized documentation requirements for nonprofit eligibility, such as reliance on IRS determination letters, State registration records, or other verifiable public filings. They urged the Department to avoid duplicative documentation requests and align with existing Federal and State oversight systems. Commenters also asked for clarity on whether nonprofits under investigation that are not yet found in violation remain eligible to participate in the PSLF program.

Discussion:

The Department agrees that nonprofit employers must have clear, standardized documentation requirements. Borrowers and employers should not face duplicative requests or arbitrary standards. The Department will continue to take into evidence objective, verifiable records such as employer provided IRS determination letters and State nonprofit filings. The Department acknowledges that the IRS could only disclose this information pursuant to an exception under 26 U.S.C. 6103. Borrowers can also use the PSLF Help Tool on the Department's website to find employers that the Department already believes are qualifying employers.

Qualifying employers who are under review because they may have a substantial illegal purpose will remain as qualifying employers until a determination is made by the Secretary. This approach respects due process while safeguarding the PSLF program from abuse.

Changes:

None.

Substantial Illegal Purpose (§ 685.219(b)(30))

Comments:

Many commenters said the phrase “substantial illegal purpose” is inherently vague and creates risk of overreach. They asked how the term “substantial” would be measured, whether it refers to the primary purpose of the organization or any significant unlawful activity, and how determinations would be documented. They emphasized the need for precision to avoid penalizing lawful entities for isolated or contested conduct.

Discussion:

The Department rejects claims that the phrase “substantial illegal purpose” is too vague to be understood. The activities that are included within this term are defined in this final rule. Organizations that have engaged in an illegal activity are not automatically considered to have engaged in an activity with a substantial illegal purpose. Instead, the Secretary considers evidence of activities and whether the materiality of those activities supports a determination that the organization has engaged in illegal activities such that it has a substantial illegal purpose. “Substantial” refers to unlawful activity that is central to an organization's purpose or operations, not incidental conduct. Determinations will be based on objective evidence, not speculation.

Changes:

The Department made changes to the standard and the process in subsections (h), (i), and (j) for determining whether an organization has a substantial illegal purpose to make clear that the Secretary weighs evidence of illegal activity to determine whether that illegal activity is so substantial that the organization has a substantial illegal purpose.

Comments:

Commenters asked how “substantial” would be measured in practice. They worried that isolated incidents, ongoing investigations, or unproven allegations could unfairly trigger PSLF disqualification. Many argued that only sustained and adjudicated illegal activity central to an organization's mission should be considered before disqualification of the employer. They urged the Department to establish multi-factor criteria that weigh scope, frequency, and intent to ensure that disqualification is limited to genuinely unlawful organizational purposes.

Discussion:

The Department agrees that determinations must be based on real and substantial unlawful activity, not speculation or unproven allegations. This final rule makes clear that eligibility decisions will rest on the materiality of any illegal activities or actions central to the organization's mission, not incidental actions by individuals acting outside the scope of their employment. The Department may consider allegations as a basis to start an inquiry, but the Department must develop the factual record to substantiate any allegations. The Department may also consider evidence that another entity, like a court, has adjudicated an issue when developing the factual basis for any action. Organizations will receive notice of any findings, an opportunity to respond, and an opportunity to rebut such findings. The Department will use clear and objective standards to measure “substantial,” weighing the scope, frequency, and intent of the conduct.

Changes:

The Department clarified the standard and made changes to the process for determining whether an organization has a substantial illegal purpose to make clearer that the Secretary weighs evidence of illegal activity that is enumerated in paragraph (b)(30) to determine whether that illegal activity is so substantial that the organization has a substantial illegal purpose.

Terrorism (§ 685.219(b)(32))

Comments:

Commenters agreed that organizations engaged in terrorism should be excluded, but they stressed that the rule must be tightly tied to statutory definitions and formal government determinations. They warned that, without such anchoring, lawful advocacy groups could be vulnerable to being labeled as terrorist-linked based on politics rather than evidence.

Discussion:

The Department agrees that the PSLF program must exclude organizations engaged in terrorism, and thus eligibility decisions will be tied strictly to statutory definitions and formal government determinations. The Department will be unable to find that an organization is engaged in terrorism if the organization's conduct does not meet the elements necessary to show that they have engaged in terrorism consistent with Federal law and formal designations. The Department must develop factual evidence to support any finding, which ensures that organizations will not be targeted under this provision because of their viewpoint or political advocacy.

Changes:

There are no substantive changes to the definition of terrorism. The Department removed the phrase “the Crime and Criminal Procedure” and the parenthesis around the citation to 18 U.S.C. 2331 for clarity.

Trafficking (§ 685.219(b)(33))

Comments:

Commenters broadly supported excluding organizations engaged in trafficking but asked for clear standards for how determinations would be made. They worried that nonprofits providing survivor support or harm reduction services could be swept in if the definition of “trafficking” was too broad. They urged the Department to ensure determinations rely on objective legal findings rather than discretionary judgments.

Discussion:

The Department agrees that PSLF must exclude employers engaged in trafficking. Determination will be based on objective legal findings, not speculation. The Department will be unable to find that an organization is engaged in trafficking if the organization's conduct does not meet the elements necessary to show that they have engaged in such unlawful conduct. Nonprofits providing services to survivors or harm reduction work will not be penalized so long as their conduct is lawful. This final rule makes sure PSLF disqualification is narrowly applied to unlawful trafficking.

Changes:

None.

Violating State Law (§ 685.219(b)(34))

Comments:

Many commenters noted that State laws vary widely and could create inconsistent outcomes for employers across States. They feared that nonprofits or local agencies might be disqualified based on politically driven litigation in one State, even if their conduct would be lawful elsewhere. They recommended that we limit this provision to well-established violations adjudicated by courts rather than allegations or unsettled disputes.

Discussion:

The Department acknowledges that State laws vary widely. PSLF disqualification will not rest on mere allegations or politically motivated lawsuits. When the Department is considering whether an employer has engaged in illegal activities such that it has a substantial illegal purpose by virtue of having violated State law, only final, non-default judgments against an employer for violations of those State laws listed in the regulation may be used as evidence in making that determination. This includes trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways.

The narrow scope of this provision limits its application and provides clear notice to borrowers and employers.

Changes:

None.

Violence for the Purpose of Obstructing or Influencing Federal Government Policy (§ 685.219(b)(35))

Comments:

Commenters strongly supported excluding organizations engaged in violence but worried the definition could be applied too broadly. They asked how the Department will distinguish between unlawful violent activities and lawful protest or advocacy that might involve civil disobedience. They stressed that only adjudicated instances of unlawful violence should trigger PSLF disqualification, to protect First Amendment rights while upholding statutory intent.

Discussion:

The Department agrees that organizations engaged in unlawful violence must be excluded from PSLF. Violence involves using physical force to hurt, damage, or kill someone or something. The First Amendment does not protect violence; it protects speech and the expression of ideas. The Department will rely on court precedent to distinguish between protected speech and expression and unlawful violence. Even speech advocating for violence is protected, so long as it is not directed to or used to incite imminent lawless action.

See e.g., Brandenburg

v.

Ohio,

395 U.S. 444 (1969) (holding that a state may not forbid speech advocating the use of force or unlawful conduct unless this advocacy is directed to inciting or producing imminent lawless action and is likely to incite or produce such action). When determining if an organization engages in illegal activities such that it has a substantial illegal purpose, the Department will not weigh evidence of lawfully protected speech or expression against an employer. This ensures First Amendment rights are respected while ensuring that PSLF benefits do not support employees of organizations that engage in violent behavior.

Changes:

None.

Borrower Eligibility (§ 685.219(c))

Comments:

Many commenters argued that, without clear rules, employees could lose PSLF benefits for reasons they could neither foresee nor control. They argued that workers should not bear the consequences of ambiguous employer classifications or administrative reinterpretations. Commenters urged the Department to ensure that credit continues for all periods of lawful public service, regardless of later disputes about an employer's eligibility.

Discussion:

The Department understands that employees need to be informed when their employer loses eligibility for reasons that are outside of their control or that were unforeseeable. The Department will only determine that an organization has a substantial illegal purpose if there is evidence that shows that they have engaged in unlawful conduct. Organizations have the ability, and should have controls in place, to ensure that they do not engage in unlawful conduct. Nothing in this final rule changes the legality regarding the underlying legal offenses, it simply changes the consequences for such unlawful conduct. Where the unlawful conduct is material and meets the other requirements of the regulation, the Department can remove eligibility for PSLF. The Department does not believe Congress intended to prop up and subsidize the unlawful behavior of organizations. Employees will not lose PSLF credit for any payments that previously qualified toward forgiveness before a determination is made. This final rule makes clear that qualifying payments earned during periods of public service will not be removed from the borrower's count toward forgiveness provided those payments were made prior to the Secretary's determination that the employer engaged in illegal activity such that it has a substantial illegal purpose. It is only after the Department has determined that an employer has lost eligibility as a qualifying employer due to engaging in unlawful activities on or after July 1, 2026, that a borrower's payment will not be counted as a qualifying payment. This approach protects workers by preventing retroactive application and ensures that payments made before the Secretary's determination continue to count toward forgiveness.

The PSLF program will honor public service, not penalize borrowers for administrative disputes, and borrowers will retain the ability to pursue employment at another qualified employer. Borrowers will be protected, employers will be held accountable, and taxpayers will know their dollars are used responsibly and in pursuit of lawful activities.

Changes:

None.

Comments:

Commenters stressed the need for reliance on protections for those borrowers already serving in qualifying employment. They urged that borrowers should not be penalized mid-service if their employer is later disqualified. Several commenters recommended explicit non-retroactivity provisions, transition rules, and that borrowers who have earned PSLF credit may maintain that same credit when they move to a new, qualifying employer. Additionally, a commenter believed that the final rule should clarify that a borrower's payments continue to qualify for PSLF until the final determination is made. They also requested the borrower be given a grace period to find new qualifying employment for the purposes of the PSLF program.

Some commenters wrote about specific borrowers who have long-term employment contracts, including medical residents. Commenters expressed the belief that medical residents, and extended term contract employees, have additional restrictions surrounding their employment, limiting their ability to switch jobs in the event their employer loses PSLF eligibility. Some commenters went so far as to claim that losing PSLF eligibility could have career ending consequences if transition flexibility was not provided.

Discussion:

The Department recognizes that borrowers in the PSLF program have significant reliance interests. The PSLF program was created by Congress in 2007 and requires borrowers to have certain types of student loans, enroll in certain types of repayment programs, and work for a qualifying employer for ten years. Many borrowers structure their life plans around the program, in that they sometimes decide to go to college and incur significant student loan debt in reliance on the program to ultimately subsidize the cost of their education. Furthermore, many borrowers may forgo higher-paying occupations in the private sector to maintain eligibility for the program. The Department believes that the rule appropriately balances the reliance interests of borrowers against the interests of taxpayers and the Federal Government in ensuring that the PSLF program is not supporting illegal activity. In accordance with borrower reliance issues, as explained previously, the Department is only taking action against employers prospectively. Even if an employer has engaged in unlawful conduct in the past, the Department's determination that an organization engaged in activities such that it has a substantial illegal purpose will not impact PSLF credit a borrower has received for working for that employer in the past. And while employees who work for these organizations may desire to continue to work for these organizations, they will have clear notice and the opportunity to change employers after the Department takes action against an employer. The Department believes this appropriately balances the borrower's substantial reliance interests against the Federal Government's interest in not indirectly subsidizing illegal activity.

With respect to the commenter's request that we clarify that a borrower's

payments continue to count toward PSLF until a final determination is made, we note that under this final rule, a borrower remains eligible for PSLF until the date of the Secretary's determination that employer is no longer a qualifying employer. Additionally, after considering the suggestion to include a grace period for a borrower to find new qualifying employment if their employer has been determined to be ineligible for PSLF, we believe that this would be inconsistent with current policy for borrowers who cease employment with qualifying employers for multiple other reasons or who change jobs between qualifying employers. Moreover, under section 685.219(h) of this final rule, borrowers will receive notice that the Secretary has initiated the process to determine whether an employer has engaged in illegal activities such that it could result in a determination that it has a substantial illegal purpose. Although not yet a final determination of employer eligibility, this final notice provides the borrower an opportunity to seek employment with another qualifying employer if they wish to continue to pursue PSLF without risk of interruption.

The Department acknowledges that there may be some medical resident borrowers who may face heightened challenges in changing employers due to the complex terms of their respective employment contracts. Although the Department acknowledges that this puts some borrowers in a more difficult situation, since the Department does not believe the interests of these borrowers outweighs the Department's interests in preserving the integrity of the PSLF program. Delaying the consequences of disqualification would mean that taxpayers would continue to indirectly subsidize the employment of individuals working for an employer engaged in illegal activity. Providing a transition period could reduce employers' incentives to comply with this final rule, including by delaying the timely development and implementation of a corrective action plan with the Department. As such, the Department does not believe that providing a transition period is appropriate. At the same time, the Department notes when an employer loses eligibility, borrowers who work for that employer will receive credit for the month in which eligibility is lost. For example, if an employer loses eligibility on the third day of a given month, the borrower will receive credit for that month.

Changes:

None.

Comments:

Commenters suggested that retroactive disqualification of employers could harm borrowers who relied in good faith on their employer's eligibility, creating unfairness and eroding trust in PSLF. They stressed that borrowers should not be penalized for decisions beyond their control.

Discussion:

The Department agrees. As explained previously, this final rule makes clear that all qualifying payments made while an employer was considered eligible will continue to count, even if that employer is found ineligible later. There will be no retroactive PSLF disqualification of employers due to the reliance interests the borrowers have, as the commenters identified. However, any payment made after an employer is deemed no longer eligible for PSLF will not be counted toward the number of payments to forgiveness. This safeguard protects borrowers' reliance interests and ensures fairness while allowing the Department to act prospectively to maintain program integrity. This approach ensures that workers who have served in good faith are not punished, while also protecting taxpayers by preventing benefits from flowing to unlawful conduct in the future.

Changes:

None.

Comments:

Commenters warned that borrowers could lose PSLF eligibility because of sudden employer disqualification, even though workers themselves did nothing wrong. They argued that employees should not be punished for decisions outside of their control.

Discussion:

The Department acknowledges that there may be instances where specific borrowers who work for employers the Department has determined to have a substantial illegal purpose may not have directly engaged in unlawful activity. The Department, however, must balance that against our interest in ensuring that the PSLF program is not indirectly subsidizing employment at organizations that have a substantial illegal purpose. The Department believes if the employer engages in illegal activities enumerated in paragraph (b)(30), such that it has substantial illegal purpose, that the Department, through the PSLF program, should not indirectly subsidize the employment of its employees. Organizations with a substantial illegal purpose are tainted by their illegal actions, even if some parts of the organization continue to engage in lawful behavior. The concept of a substantial illegal purpose appropriately balances the equities at hand by distinguishing between organizations that engage in isolated or minor legal violations and those whose core or predominant activities are unlawful. If more than an insubstantial portion of the employer's activities are unlawful, the organization may have a substantial illegal purpose. The Department recognizes that some organizations may have isolated misconduct where specific employees or segregable components engage in illegal conduct without that conduct defining the organization. In such cases, where unlawful activity is limited and not central to the organization's primary mission or operations, the employer would not be considered to have a substantial illegal purpose. This approach ensures that the PSLF program does not penalize borrowers for minor or isolated misconduct within their organizations, while still preventing the program from indirectly subsidizing entities whose principal or defining activities are unlawful.

Changes:

None.

Application Process (§ 685.219(e))

Comments:

Commenters stressed that timely notification of any Departmental action to remove eligibility from an employer is critical for borrowers to plan their careers and repayment strategies. They warned that without immediate notice, borrowers could be blindsided by sudden disqualification, left with little time to adjust, and placed at risk of financial harm.

Discussion:

The Department agrees that borrowers should receive notice when the employers lose PSLF eligibility. This final rule requires the Department to provide prompt notification whenever an employer's eligibility changes based on the determination by the Secretary. This protects workers and prevents unnecessary disruption. By mandating clear and proactive communication, this final rule ensures that borrowers have the information they need to make informed decisions regarding their PSLF eligibility. As discussed above, borrowers have significant reliance interests in the PSLF program, but those reliance interests must be balanced against the Department's interest in not indirectly subsidizing employers that have a substantial illegal purpose. Prompt direct notification to the impacted borrowers and broad disclosure on the Department's website are important to mitigate the impact to borrowers.

Changes:

None.

Comments:

Commenters emphasized that notification is not just about timing but also about substance. They requested that the notices clearly

explain the reason for an employer's disqualification, the effective date, the borrower's current credit status, and what steps borrowers may take to continue to participate in the PSLF program. Without such detail, commenters argued, notifications could create more confusion than clarity.

Discussion:

The Department agrees that its notification to affected borrowers must be substantive and should include information about the reason for an employer's disqualification, the effective date, the borrower's current credit status, and what steps borrowers may take to continue to participate in the PSLF program. The Department agrees with commenters that this approach reduces confusion and will provide helpful information to borrowers.

Changes:

None.

Comments:

Commenters urged the Department to use multiple communication channels, including email, online borrower dashboards, and paper mail to ensure that critical notifications reach all affected borrowers. They warned that reliance on a single method could leave some unaware of eligibility changes, particularly those borrowers with limited internet access or outdated contact information.

Discussion:

The Department agrees that notifying borrowers through multiple mediums is appropriate to increase awareness among borrowers. That is why this final rule requires the Department to use multiple channels of communication, including secure electronic notices, borrower dashboard updates, and paper mail where necessary, to ensure all affected individuals and the public are informed about an employer's PSLF eligibility.

Changes:

None.

Comments:

Several commenters suggested that the Department should provide transparency for both current participants but also for prospective borrowers considering careers in public service. They recommended public-facing employer eligibility lists that are regularly updated so that individuals entering the workforce can make informed decisions about whether their potential employer qualifies.

Discussion:

The Department agrees that both current participants and the public should be informed regarding employer eligibility. By informing the public, prospective participants and borrowers considering public service careers will be informed of their options for eligible employment. Accordingly, this final rule requires the Department to maintain and regularly update a public-facing list of employer eligibility determinations.

Changes:

None.

Comments:

Several commenters highlighted that new entrants into repayment should be warned about the possibility of employer disqualification and given transparent, accessible information about how eligibility determinations are made. They stressed that prospective borrowers must have the ability to make informed career and repayment choices with full knowledge of PSLF risks.

Discussion:

The Department agrees that prospective borrowers deserve transparency regarding the eligibility process for the PSLF program. However, the Department disagrees that we should display such information as a “warning.” Employers that have a substantial illegal purpose will lose PSLF eligibility, and the Department will inform borrowers and the public of such determination. Because most employers voluntarily comply with the law, and the Department does not expect this final rule to impact the majority of eligible borrowers, we do not think it is appropriate to label the process as a “warning.”

Changes:

None.

Borrower Reconsideration Process (§ 685.219(g)) and Employer Reconsideration Process (§ 685.219(h))

Comments:

Many commenters underscored that a robust reconsideration process is essential to borrower confidence in the PSLF program. They argued that determinations about qualifying employment carry life-changing financial consequences and therefore must include a meaningful right to challenge decisions. Commenters emphasized that reconsideration should not be treated as a perfunctory administrative step but as a genuine safeguard against error.

Discussion:

It is important to note that the current borrower reconsideration process is not changing in these final regulations. The Department is, however, making it clear that a borrower may not submit a reconsideration request when their employer is determined to no longer be a qualifying employer for the purposes of the PSLF program. This final rule establishes a clear employer reconsideration process that gives employers the right to submit additional information and seek review of determinations. This ensures decisions are not final without all relevant evidence and arguments being considered. This safeguard provides due process to ensure that the Department considers all relevant information prior to taking action to remove employer eligibility.

Changes:

In the NPRM, the Department made clear that employers would have notice and the opportunity to respond to any findings before final action is taken. To avoid confusion, the Department inserted an amendment to the regulatory text in a parenthetical in § 685.219(h)(1), which makes it clear that the opportunity to respond is called the “employer reconsideration process.”

Comments:

Many commenters argued that there is the need for greater transparency in the reconsideration process. Commenters asked for clear timelines on when and how reviews would be completed, as well as published standards explaining the criteria applied in reconsideration decisions. Commenters further stressed that the Department should provide written reasons for its determinations, so borrowers understand the basis for decisions.

Discussion:

The Department partially agrees with the commenters. The final rule requires that determinations be explained in writing and supported by clear reasoning. The employer reconsideration process exists to ensure that the Department has all the relevant information and takes it into account when making decisions. If the Department makes an error based upon the facts or the application of the regulation, the employer reconsideration process will ensure that organizations can bring that to the Department's attention prior to it taking final action. The Department understands the interest borrowers have in a definitive timeline for review of employer reconsideration requests; however, the Department is unable to commit to a specific timeline. Among other things, the Department needs to preserve flexibility to make certain that we have adequate time to consider all the relevant evidence. The Department expects that some employer reconsideration requests will be straightforward and will be able to be processed in a relatively short period of time. On the other hand, some employer reconsideration requests may be complex and involve significant amounts of new information. Complex reconsideration requests will take more time for the Department to process and may require elevated levels of approval. As such, given the complexity that may be involved, the Department is not making changes that would commit the Department to a temporally limited review period. As noted above, a borrower would not be affected by an adverse determination regarding an employer until the employer

reconsideration process is complete. Accordingly, if it takes six months for the Department to reach a final determination that an employer has a substantial illegal purpose, a borrower's qualifying payments made during that six-month period would continue to count toward loan forgiveness.

Changes:

None.

Comments:

Commenters expressed concern that delays in the reconsideration process could disadvantage borrowers, particularly if their PSLF progress is frozen during review. Several commenters urged that borrowers should continue accruing PSLF credit while reconsideration is pending so that they are not financially harmed by administrative timelines outside their control.

Discussion:

The Department agrees. This final rule makes clear that all qualifying payments made while an employer was considered eligible will continue to count, even if the employer's eligibility is under review. Borrowers will continue to be eligible to receive credit toward PSLF if they make qualifying payments while waiting for the Department to complete the employer reconsideration process and make a determination.

Changes:

None.

Comments:

Many commenters argued that while reconsideration is an important safeguard, the process remains incomplete without a clear and well-defined appeals mechanism. They raised concerns that, without explicit standards for appeals, determinations may lack legitimacy, leaving borrowers with limited recourse if they believe an error has occurred. Commenters suggested that the Department establish clear appeal pathways with independent review, binding timelines, and published rationales to ensure confidence in outcomes.

Discussion:

The Department agrees that employer reconsideration is an important procedural step that ensures that due process is provided. For this reason, this final rule includes a reconsideration process. Like all agencies that provide informal adjudications, the Department must provide a process that is consistent with the requirements of the Due Process Clause of the Fifth Amendment to the U.S. Constitution because of the property interests involved in the PSLF program.

See e.g., Pension Ben. Guar. Corp.

v.

LTV Corp.,

496 U.S. 633, 653-56 (1990) (holding that courts cannot require agencies to provide process beyond what is provided for in the underlying statute or the U.S. Constitution). The Department does not believe an additional internal reconsideration process is necessary to ensure that the Department makes reasoned decisions. As is generally true with informal adjudications under the APA, the Department's final agency action with respect to PSLF eligibility can be challenged in Federal district court.

See Dep't of Homeland Sec.

v.

Regents of Univ. of Cal.,

591 U.S. 1, 16 (2020) (“The APA establishes a basic presumption of judicial review for one suffering legal wrong because of agency action.” (cleaned up)).

Changes:

None.

Comments:

Commenters expressed concern that reconsideration outcomes might vary depending on which office or staff member handles a case, leading to inequities. They emphasized that a standardized process with uniform evidentiary thresholds, transparent procedures, and publicly available examples would promote consistency and fairness. Borrowers want assurance that reconsideration decisions will not hinge on individual discretion but instead follow predictable and published standards.

Discussion:

The Department agrees that all employers should be treated in an even-handed manner. The results from the reconsideration process should not turn upon the specific staff involved but should instead focus on the facts and how they apply to the regulation. The Department has internal reviews and controls in place with all agency adjudications to prevent variation across staff and minimize the risk of arbitrary and capricious decision-making.

Changes:

None.

Standard for Determining Whether a Qualifying Employer Has a Substantial Illegal

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