Education Dept Narrows PSLF Eligibility, Resumes IDR Forgiveness

The Education Department finalized a rule narrowing which employers qualify for Public Service Loan Forgiveness (PSLF), excluding organizations that “engage in unlawful activities such that they have a substantial illegal purpose.” The rule follows a March executive order from President Trump and, while the department previously estimated it would affect very few employers, analysts warn it could put broad cohorts — potentially millions — of public‑service borrowers at risk given prior Biden‑era cancellations affecting about 1 million people. After a lawsuit by the American Federation of Teachers, the administration agreed to resume processing forgiveness for an estimated 2.5 million borrowers enrolled in income‑driven repayment (IDR) and PSLF plans, and the Education Department has resumed many IDR discharges. The department confirmed borrowers who become eligible in 2025 will not owe federal taxes on discharged loans, but paperwork delays and a temporary tax exclusion that may expire on Jan. 1, 2026 could affect timing. Critics warn the regulatory changes may face legal challenges and express concern that selling parts of the federal loan portfolio to private investors could limit the government's ability to cancel loans.