Student loan borrowers relying on Public Service Loan Forgiveness (PSLF) may face uncertainty following a recent executive order from President Trump. The order proposes changes to which organizations qualify for PSLF, potentially impacting borrowers employed by certain organizations deemed to have a "substantial illegal purpose." While this proposal is expected to face legal challenges, it has generated concern among public service employees and federal loan borrowers who are actively working towards PSLF.
Here, we’ll break down what this executive order means, what PSLF currently covers, and what borrowers should do as this situation unfolds.
What Is Public Service Loan Forgiveness (PSLF)?
Public Service Loan Forgiveness is a federal program established under the Higher Education Act of 1965 (HEA) in section 465(m). It is designed to forgive the remaining balance on Direct Loans for borrowers who meet these criteria:
- Work full-time for a qualifying employer in a public service job.
- Make 120 qualifying monthly payments while employed at a qualifying organization.
The goal of PSLF is to encourage individuals to pursue public service roles, such as those in government, nonprofit organizations, education, public health, or law enforcement.
According to the law, to qualify for forgiveness, borrowers must work in a "public service job." This has always been defined as those who work for any level of government, as well as those employed by 501(c)(3) organizations, with minimal exceptions. The definition focuses on the employer’s classification, not the job title or duties.
How Does the Executive Order Change PSLF?
The executive order proposes narrowing the scope of PSLF by reclassifying organizations that qualify as public service organizations. Specifically, it seeks to exclude employees of organizations with a "substantial illegal purpose." However, this vague language leaves room for interpretation and raises significant concerns. In addition, the President requests for changes to be made by regulation, while public service jobs are defined in the HEA. This creates a challenge, as any regulation or policy created must be in accordance with the intent of the law.
The executive order describes agencies that have a substantial illegal purpose those which engage in certain activities, such as, aiding or abetting violations of certain Federal immigration laws, those who support terrorism, child abuse including offering gender affirming care to children, those who aid or abet illegal discrimination, or those who engage in a pattern of violating State tort laws, including laws against trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways.
Legal Challenges Ahead
PSLF is rooted in federal law in the HEA, meaning that its policies must align with the original legislation. Any changes attempted solely through executive action, or regulation and policy, could face legal challenges since the qualifier for a "public service job" is defined in the law. Without congressional action to amend the statute, it's unclear how this executive order will be implemented.
Why This Matters
Borrowers might wonder whether their employer could be classified ineligible under this order. If certain nonprofit organizations, government agencies, or schools lose their qualifying status, it could block all of their employees at these organizations from receiving PSLF benefits. This introduces a gray area, as opinions on what constitutes a "substantial illegal purpose" could vary between administrations or regulators.
There’s also a bigger question of whether PSLF is even the right target. Might this issue be better addressed by revising 501(c)(3) eligibility through the Department of the Treasury? These nuances complicate the implementation of such a sweeping change.
Another wrinkle is the potential impact on government employees. Currently, members of Congress and certain political appointees are the only government officials explicitly excluded from PSLF. Expanding exemptions to other government roles may prove legally and practically challenging, raising further questions about fairness and consistency.
What Borrowers Should Expect
Borrowers working toward PSLF should know the program is still in place. This executive order is a proposal and will require additional steps to be enforced.
Historically, significant changes to federal programs like PSLF take time, and legal challenges could further delay or block implementation. It’s also important to remember that the language and interpretation of these changes could shift significantly under future administrations.
For now, borrowers should keep tracking their loan payments and employment certifications to ensure they remain eligible under current PSLF criteria.
Should You Keep Pursuing PSLF?
Absolutely. If you are working toward PSLF, continue meeting the eligibility requirements. Here’s what you should do:
- Submit Employment Certification Forms Annually: Regularly submit this form to ensure you are meeting the eligibility criteria of the employer.
- Track Payments: Keep a record of your qualifying payments to stay on top of your progress toward the required 120 payments. Your progress is tracked in your StudentAid.gov account.
- Stay Updated: Monitor any updates or changes to the program and consult with your loan servicer or a trusted financial advisor to understand how they might apply to you.
What’s Next for PSLF?
This latest executive order underscores the often-political nature of student loan policy. While some may view the proposed changes as a way to ensure forgiveness is awarded only to deserving organizations, others see it as an overreach that could harm borrowers for organizational decisions, and legal interpretations, which are completely out of their control.
It’s crucial for borrowers to stay informed about proposed changes and consider their plans carefully. The coming months may bring new developments, including potential lawsuits or legislative responses, which could influence how PSLF is administered in the future.