Attorney General Nessel Sues U.S. Department of Education to Block Public Service Loan Forgiveness Restrictions

LANSING – Michigan Attorney General Dana Nessel and 21 other attorneys general today filed a lawsuit (PDF) against the U.S. Department of Education (ED) for unlawfully restricting eligibility for the Public Service Loan Forgiveness (PSLF) program, which allows government and nonprofit employees to have their federal student loans forgiven after ten years of service. The attorneys general are challenging a new federal rule that would deem certain state and local governments or nonprofit organizations ineligible employers for PSLF if the federal government determines they have a “substantial illegal purpose” – in practice, that they engage in actions that are disfavored by the administration. The coalition argues that the sweeping new rule is unlawful and targeted to punish states and organizations that the administration does not like. 

“The Trump Administration has shown a troubling pattern of political retribution and unlawful targeting of those who dare to disagree with its policies,” Nessel said. “By now using this tactic with the Public Service Loan Forgiveness program, the White House is illegally undermining a vital resource that helps employers attract and retain qualified public servants. If allowed to stand, this rule could jeopardize loan forgiveness for first responders, nurses, teachers, and government employees who dedicate their careers to serving our communities. The Administration cannot unilaterally impose ideological exceptions on a loan program that has benefitted more than a million Americans, and I will continue to stand against these illegal actions and defend the integrity of programs that support those who are committed to public service.”

The PSLF program was established by Congress in 2007 to provide financial incentives to those who dedicate their careers to the service of others. The program forgives borrowers’ remaining federal student loan debt after ten years of qualifying public service and consistent payments. Over the years, PSLF has enabled more than one million public servants to pursue careers that might have otherwise been out of reach. For state governments, PSLF is a critical tool to recruit and retain qualified professionals in vital fields like education, health care, and law enforcement. 

On October 31, ED finalized a new rule granting itself the power to unilaterally declare entire agencies or organizations ineligible employers for PSLF if the administration determines they have a “substantial illegal purpose.” The rule includes only a very limited definition of such “illegality,” which includes activities that support undocumented immigrants, provide gender-affirming health care to transgender youth, promote diversity, equity, and inclusion efforts, and engage in political protest. The rule is scheduled to take effect in July 2026. 

Attorney General Nessel and the coalition warn that this vague new authority could have devastating consequences nationwide. Countless public workers could suddenly lose PSLF eligibility through no fault of their own. States could be forced to confront severe staffing shortages, higher turnover, and skyrocketing costs to maintain essential services.

The coalition’s lawsuit argues that ED’s new rule is flatly illegal. The PSLF statute guarantees loan forgiveness for anyone who works full-time in qualifying public service; it does not grant ED discretion to carve out exceptions based on ideology. They assert that the rule’s vague “substantial illegal purpose” standard is arbitrary and capricious, as it gives the Department unfettered power to target specific state policies or social programs while exempting federal agencies from scrutiny.

The attorneys general are asking the court to declare the rule unlawful, vacate it, and bar the Department of Education from enforcing or implementing it. 

Joining Attorney General Nessel in filing this lawsuit are the attorneys general of Arizona, California, Connecticut, Delaware, the District of Columbia, Hawai‘i, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington, and Wisconsin. A group of private plaintiffs and local governments is also filing a lawsuit today to block the implementation of the new rule.

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