States, Cities Sue to Block PSLF Employer Rule

A coalition of 21 Democratic-led states, led by attorneys general from New York, Massachusetts, California and Colorado, and a separate coalition of cities, unions and nonprofits filed coordinated lawsuits in U.S. District Court in Massachusetts to block a U.S. Department of Education rule that would let the agency declare employers ineligible for Public Service Loan Forgiveness (PSLF) if they have a “substantial illegal purpose.” The Education Department finalized the rule on Oct. 31 and it is slated to take effect in July 2026; plaintiffs say it unlawfully expands agency power, violates the Higher Education Act and the First Amendment, and would chill activities such as support for immigrants, gender-affirming care and DEI work, destabilizing public workforces. The suits — brought by state attorneys general and a separate coalition led by groups including Protect Borrowers and Democracy Forward — seek declarations that the rule is unlawful and injunctions barring its enforcement before implementation. The department, including Under Secretary Nicholas Kent, defends the rule as a commonsense reform to prevent taxpayer dollars from subsidizing illegal activity and says affected employers would be rare.