New Trump administration rule bars student loan relief for public workers tied to ‘illegal’ activity

WASHINGTON– The Trump administration is moving forward with plans to exclude certain nonprofits from a popular student loan forgiveness program if their work is deemed to have a “substantial illegal purpose” — a move that could deprive some teachers, doctors and other public employees of federal loan forgiveness.

New rules finalized Thursday give the Department of Education increased authority to ban organizations from the Public Service Loan Forgiveness program. The Trump administration considers it necessary to block taxpayer money from violators. Critics say this turns the program into a tool for political retaliation.

The policy, which is expected to take effect in July, is aimed primarily at organizations that work with immigrants and transgender youth.

It grants the Secretary of Education the authority to exclude groups from the program if they engage in activities such as trafficking or “chemical castration” of children, illegal immigration and support for terrorist organizations. “Chemical castration” is defined as the use of hormonal treatment or medications that delay puberty – gender-affirming care common among transgender children or adolescents.

It’s a major overhaul of a program that has canceled loans for more than a million Americans and was created by Congress in 2007 to steer more college graduates into lower-paying public sector jobs. The Trump administration has not yet identified the specific groups it intends to target, but it estimates that fewer than 10 would be banned per year.

“Illegal activities, by their very nature, run counter to the public good,” the Department of Education wrote in a fact sheet. “Congress is focused on public service, and the Trump Administration will not direct tax dollars from hardworking Americans to organizations that break the law. »

The program promises to cancel federal student loans to government employees and many nonprofit workers after making 10 years of payments. It has long been open to civil servants, teachers, firefighters and public hospital employees. The eligibility rules established by Congress focus primarily on the tax status of nonprofit organizations and their scope of operation.

Workers in organizations across the political spectrum have benefited. Yet in a March action demanding new limits, President Donald Trump said he had “diverted taxpayer dollars to activist organizations that not only fail to serve the public interest, but actually harm our national security and American values, sometimes through criminal means.”

One of the main concerns of critics is the broad latitude the department allows itself in determining whether an organization’s work should be considered to have a “substantially unlawful purpose.”

State and local government employers and nonprofit organizations can be kicked out of the program if a state or federal court rules against them or if they agree to a legal settlement that includes an admission of guilt. It appears that practicing gender-affirming care in the 27 states that ban it, for example, could be grounds for eviction.

Even without a court order, the Secretary of Education will be able to independently determine that an organization should be banned. The Secretary would assess whether the “preponderance of the evidence” favors the employer.

By supplementing the rule, the department dismissed the concerns of many who said the standard of proof was too low.

“This ensures that decisions are based on facts, not speculation, and allows the Department to act quickly to protect both borrowers and taxpayers,” federal officials wrote.

Opponents of the proposal included prominent associations in the higher education, health care and legal professions sectors. In public comments submitted to the department, many called this an illegal overreach and said it would undermine an incentive that has helped address labor shortages in high-demand fields.

The American Bar Association said it could thin the ranks of public defenders and those who handle public interest law. Thousands of people will lose access to representation, the association said, “simply because these attorneys’ jobs have been deemed politically unfavorable by the Secretary.”

The National Council of Nonprofits said the policy would allow future administrations of any political party to change eligibility rules “based on their own priorities or ideology.”

Rep. Tim Walberg, R-Mich., chairman of the House Education and Workforce Committee, said the overhaul will prevent taxpayers from covering loan relief for employees of “radical organizations that violate state and federal laws.” “Aiding illegal immigration, supporting terrorism, or promoting child abuse through gender transitions does not constitute a ‘public service,’” Walberg said in a statement.

Under the new rules, employers can only be sanctioned for activities that take place on or after July 1, 2026. They would be notified and given the opportunity to review the evidence and respond to the ministry’s findings. Individuals excluded from the program may reapply for eligibility after 10 years or return to the program sooner if they follow a “corrective action plan” approved by the Secretary.

Department documents indicate that a single violation of the law may or may not be enough to disqualify an employer, depending on the circumstances. Not every organization that violates the law has a “significant illegal purpose,” the agency said, and it ultimately comes down to the secretary’s analysis of the evidence.

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