Education Department sued over new student loan forgiveness rule

• The Education Department outlined those actions as "supporting terrorism and aiding and abetting illegal immigration."
• A coalition of states and cities separately filed lawsuits, challenging the administration's rule.

What they're saying: New York Attorney General Letitia James led the lawsuit, which argues that the rule, set to take effect on July 1, 2026, is "flatly illegal."

• The administration's new rule "would effectively transform PSLF into a political weapon against states and causes the administration does not like by allowing the federal government to deem them to be 'substantially illegal' whenever it chooses," James said in a press release.
• "The law that created PSLF guarantees forgiveness for anyone who works full-time in qualifying public service; it does not grant [the Education Department] discretion to carve out exceptions based on ideology."

The other side: "It is unconscionable that the plaintiffs are standing up for criminal activity," Under Secretary of Education Nicholas Kent told Axios. "This is a commonsense reform that will stop taxpayer dollars from subsidizing organizations involved in terrorism, child trafficking, and transgender procedures that are doing irreversible harm to children."

Context: Former President George W. Bush signed PSLF into law in 2007, which forgives the remaining balance on federal student loans for eligible public service workers after ten years.

• As of December 2024, the Biden administration had canceled nearly $180 billion for 4.9 million borrowers.

Zoom out: The administration's PSLF rule is the latest example of Trump reshaping how people apply for and repay federal student loans.

• Trump's One Big Beautiful Bill Act, passed earlier this year, narrowed repayment options to just two plans for federal borrowers.
• The Education Department also paused the Income-Based Repayment plan in July, then notified some borrowers in October that they had met the payment threshold and qualified for debt cancellation.