[Federal Register Volume 90, Number 209 (Friday, October 31, 2025)]
[Rules and Regulations]
[Pages 48966-49002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-19729]
[[Page 48965]]
Vol. 90
Friday,
No. 209
October 31, 2025
Part II
Department of Education
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34 CFR Part 685
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William D. Ford Federal Direct Loan (Direct Loan) Program; Final Rule
Federal Register / Vol. 90 , No. 209 / Friday, October 31, 2025 /
Rules and Regulations
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DEPARTMENT OF EDUCATION
34 CFR Part 685
[Docket ID ED-2025-OPE-0016]
RIN 1840-AA28
William D. Ford Federal Direct Loan (Direct Loan) Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary establishes new regulations on the Public
Service Loan Forgiveness (PSLF) program in the William D. Ford Federal
Direct Loan (Direct Loan) program under 34 CFR 685.219 by adding or
clarifying provisions to exclude employers that engage in specific
enumerated illegal activities such that they have a substantial illegal
purpose, including defining obligations and processes tied to making
such a determination of an employer, clarifying that borrowers will
receive full credit for work performed, until the effective date of the
Secretary's determination that an employer is no longer a qualifying
employer under the rule; and establishing methods for an employer to
regain eligibility following a determination of ineligibility by the
Secretary. These regulations ensure that taxpayer dollars are not
misused by preventing PSLF benefits from going to individuals employed
by organizations that have a substantial illegal purpose. The revisions
strengthen accountability, enhance program integrity, and protect
hardworking taxpayers from shouldering the cost of improper subsidies
granted to employees of organizations that undermine national security
and American values through criminal activity.
DATES: These regulations are effective July 1, 2026. For the
implementation dates of the regulatory provisions, see the
Implementation Date of These Regulations in SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Tamy Abernathy, Office of
Postsecondary Education, 400 Maryland Ave. SW, Washington, DC 20202.
Telephone: (202) 987-0385. Email: [email protected].
SUPPLEMENTARY INFORMATION:
Executive Summary
The Department of Education (Department) is committed to ensuring
that taxpayer dollars are not used to support organizations engaged in
unlawful activities. To uphold this principle, the Secretary will
exclude organizations engaged in specific enumerated activities such
that they have a substantial illegal purpose from being considered
qualifying employers under the Public Service Loan Forgiveness (PSLF)
program. The activities indicative of a substantial illegal purpose
include aiding and abetting violations of Federal immigration laws,
supporting terrorism or engaging in violence for the purpose of
obstructing or influencing Federal Government policy, engaging in the
chemical and surgical castration or mutilation of children in violation
of Federal or state law, engaging in the trafficking of children to
another State for purposes of emancipation from their lawful parents in
violation of Federal or State law, engaging in a pattern of aiding and
abetting illegal discrimination, and engaging in a pattern of violating
State laws. This action aligns with President Trump's Executive Order
Restoring Public Service Loan Forgiveness, Executive Order 14235 (Mar.
7, 2025) directing the Department to revise PSLF eligibility criteria
to prevent Federal funds from subsidizing activities that undermine
national security and American values. The final rule clarifies the
definition of a qualifying employer, specifies activities constituting
a substantial illegal purpose, outlines the impact on borrower
eligibility, and ensures employers are notified and given an
opportunity to respond before any adverse decision by the Secretary.
These measures strengthen the integrity of the PSLF program and protect
American taxpayers from supporting organizations engaged in illegal
activities such that the organization has a substantial illegal
purpose.
Purpose of This Regulatory Action
Summary of the Major Provisions of This Regulatory Action
The final regulations--
* Amend Sec. 685.219(b) to modify the existing structure of the
subsection into the regulatory paragraph structure.
* Amend Sec. 685.219(b) to add definitions for: aiding or
abetting, chemical castration or mutilation, child or children, foreign
terrorist organizations, illegal discrimination, other Federal
Immigration laws, substantial illegal purpose, surgical castration or
mutilation, terrorism, trafficking, violating State law, and violence
for the purpose of obstructing or influencing Federal Government
policy.
* Amend Sec. 685.219(c) to establish that on, or after, July 1,
2026, no payment made by a borrower shall be credited as a qualifying
payment for PSLF for any month that a qualifying employer is no longer
eligible as a qualifying employer for the PSLF program. Borrowers will
receive full credit for work performed until the effective date of the
Secretary's determination that an employer engaged in illegal
activities such that it has a substantial illegal purpose under the
rule.
* Amend Sec. 685.219(e) to require the Secretary to notify
borrowers of a qualifying employer's status if the qualifying employer
is at risk of becoming or becomes ineligible to participate in the PSLF
program.
* Amend Sec. 685.219(g) to clarify that a borrower may not request
reconsideration of a determination by the Secretary that resulted in
the employer losing status as a qualifying employer because the
employer has a substantial illegal purpose.
* Add Sec. 685.219(h) to establish that the Secretary determines
by a preponderance of the evidence, and after notice and opportunity to
respond, and consideration of materiality, that a qualifying employer
has engaged in activities enumerated in paragraph (b)(30) on or after
July 1, 2026, such that the employer has a substantial illegal purpose.
Also, the Secretary will presume certain actions are conclusive
evidence that the employer engaged in activities such that it has a
substantial illegal purpose.
* Add Sec. 685.219(i) to establish that the Secretary will
initiate the process for determining whether a qualifying employer
engaged in activities such that it has a substantial illegal purpose
when (1) the Secretary receives an application in which the employer
fails to certify that it did not participate in activities that have a
substantial illegal purpose, or (2) the Secretary otherwise determines
that the qualifying employer engaged in such activities under the
standard set forth in Sec. 685.219(h). The Secretary made a minor
technical change from the NPRM to remove an extraneous word ``which''
from (i)(1)(ii). Further, paragraph (i)(2) clarifies that the Secretary
may consider organizations that share the same identification number or
other unique identifier to be separate entities if the organization is
operating separately and distinctly from another entity with the same
identification number (i.e., for the purpose of determining whether an
employer sharing such identifier is eligible).
* Add Sec. 685.219(j) to establish that an employer that loses
PSLF eligibility and desires to regain eligibility could regain
qualifying employer status either (1) 10 years from the date the
Secretary makes
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a determination under the process in subsection (i), or (2) after the
Secretary approves a corrective action plan.
* Add Sec. 685.219(k) to require that, if an employer regains
eligibility to participate in the PSLF program, the Secretary updates,
within 30 days, the qualifying employer list.
Background
The PSLF program was established by the College Cost Reduction and
Access Act of 2007 (CCRAA), Public Law 110-84, 121 Stat. 84. In
particular, the CCRAA amended section 455(m) of the Higher Education
Act of 1965, as amended (HEA), to allow for cancellation of remaining
loan balances for eligible Direct Loan borrowers after they made 120
monthly payments under a qualifying repayment plan while working in a
qualifying public service.
Following the enactment of the CCRAA, the Department promulgated
PSLF regulations at 34 CFR 685.219, which became effective on July 1,
2009. See Federal Perkins Loan Program, Federal Family Education Loan
Program, and William D. Ford Federal Direct Loan Program, 73 FR 63232
(Oct. 23, 2008).
Since its original promulgation, 34 CFR 685.219 has been amended
seven times. See 74 FR 55972 (Oct. 29, 2009); 77 FR 76414 (Dec. 28,
2012); 80 FR 67204 (Oct. 30, 2015); 85 FR 49798 (Aug. 14, 2020); 87 FR
65904 (Nov. 1, 2022); 88 FR 43064 (July 6, 2023); 88 FR 43820 (July 10,
2023).
Of these amendments, two amendments promulgated in 2020 and 2022,
respectively, have substantively changed the criteria for qualifying
employment for the purposes of participation in PSLF. In 2020, the
definition of ``public service organization'' was substantively changed
to allow employees of organizations engaged in religious activities
(regardless of whether the borrower's duties included religious
instruction, worship services, or any form of proselytizing) to be
eligible for PSLF. This change was made in response to the United
States Supreme Court decision in Trinity Lutheran Church of Columbia,
Inc. v. Comer, 582 U.S. 449 (2017), and the United States Attorney
General's October 7, 2017, Memorandum on Federal Law Protections for
Religious Liberty, https://www.justice.gov/archives/opa/press-release/file/1001886/dl. This memorandum was written pursuant to Executive
Order 13798 on Promoting Free Speech and Religious Liberty (May 4,
2017) and was intended to ensure that faith-based entities are not
discriminated against due to their religious beliefs and that borrowers
choosing to work for such entities (which met the definition of public
service organization) could gain the same benefits afforded to
borrowers working for non-faith-based entities. In 2022, the Department
changed the term ``public service organization'' to the term
``qualifying employer'' under 34 CFR 685.219 and substantively changed
the underlying way the definition functions. In these regulations,
subsection (v)(A) of the definition of qualifying employer referenced
another term: ``non-governmental public service.'' Previous iterations
of 34 CFR 685.219 provided a list of public services that, if provided
by a private organization, allowed it to qualify as a ``public service
organization,'' but did not offer any definition for the enumerated
public services (except for certain public health roles, which relied
on definitions provided by the Bureau of Labor Statistics). This list
aligned closely with section 455(m)(3)(B) of the HEA, which defines
``public service job.'' Although the 2022 rule incorporated the bulk of
previous version's list of public services into the definition of
``non-governmental public service,'' it also provided specific
definitions for each public service incorporated into that definition.
Furthermore, the 2022 rule clarified that private organizations
providing a non-governmental public service had to be nonprofit
organizations to be considered a qualifying employer for the purposes
of PSLF, substantially limiting employer eligibility.
The Department, in this final rule, establishes that to be
considered a qualifying employer for purposes of the PSLF program, an
organization must not engage in illegal activity such that it has a
substantial illegal purpose. Organizations that break the law such that
they have a substantial illegal purpose are actively harming the public
good. See Mysteryboy Inc. v. Comm'r, 99 T.C.M. (CCH) 1057 (T.C. 2010).
This rule prevents Federal funds from subsidizing harmful illegal
activities through a program designed to reward public service.
Below, we address the Secretary's broad authority to engage in
rulemaking on this topic and provide a brief discussion of the relevant
statutory authority regarding what type of organization constitutes a
qualifying employer for the purposes of PSLF, the implementation of
that authority, and relevant changes to 34 CFR 685.219 since its
original promulgation. Additionally, we discuss how the illegality
doctrine utilized by the Internal Revenue Service (IRS) serves as a
basis for the Department to promulgate regulations to exclude
organizations that have engaged in certain illegal activities from the
definition of qualifying employers.
The negotiated rulemaking committee that convened June 30 through
July 2, 2025, considered draft regulatory text and did not reach
consensus because one negotiator disagreed with the draft regulatory
language.
On August 18, 2025, the Secretary published a notice of proposed
rulemaking (NPRM). The NPRM included the Department's proposed
regulations, and these final regulations reflect and respond to the
public comments received on the regulatory proposals in the NPRM. These
final regulations also contain changes from the NPRM, which are fully
explained in the Analysis of Public Comments and Changes section of
this document, where applicable.
Cost and Benefits: As further detailed in the Regulatory Impact
Analysis (RIA), the final regulations will have meaningful implications
for borrowers, taxpayers, and the Department. The regulatory changes
outlined in this final rule are designed to strengthen the integrity of
the PSLF program by ensuring that only borrowers employed by
organizations engaged in lawful activities and legitimate public
service remain eligible for loan forgiveness. By excluding employers
engaged in activities such that they have a substantial illegal
purpose, the rule aims to better align PSLF eligibility with the
program's statutory intent: to encourage Americans to pursue public
service careers that improve their communities. Furthermore, the rule
will ensure that the Department is not indirectly subsidizing employers
engaged in activities that have a substantial illegal purpose that harm
fellow Americans.
For borrowers, the final rule will remove PSLF eligibility whenever
they are employed by organizations that do not qualify under the
revised criteria. In cases where an employer is deemed to have engaged
in activities that breach Federal or State law, affected borrowers will
no longer receive credit toward loan forgiveness for the months worked
after the determination date of ineligibility as made by the Secretary.
However, borrowers will receive full credit for work performed until
the effective date of the Secretary's determination that they are no
longer a qualifying employer for the purposes of the PSLF program.
Although this may delay or prevent loan forgiveness for a subset of
borrowers, the overall design of the regulations, including advance
notice, transparency around
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determinations, and employer recertification pathways, help prevent
unexpected or retroactive harm. These borrowers will retain the ability
to pursue PSLF through eligible employment elsewhere, thereby
preserving the program's intended purpose.
For taxpayers, the final rule reduces the risk of improper use of
taxpayer funds by ensuring that credit toward loan forgiveness is only
granted in circumstances where individuals are actually engaging in
lawful public service. Employers that engage in unlawful activity are
not serving the public interest because their actions harm their
communities and the public good. By limiting PSLF eligibility to
borrowers employed by organizations that do not engage in unlawful
conduct, the rule reinforces appropriate commonsense stewardship of
Federal funds. Although the exact budgetary impact will depend on the
number and size of employers that do not meet the revised definition in
this final rule, the regulations are expected to reduce PSLF-related
discharges in cases where forgiveness would otherwise go to borrowers
employed at organizations acting contrary to the public good.
For the Department, the rule introduces new administrative
responsibilities that include reviewing employer conduct, issuing
determinations, notifying borrowers of status changes, and entering
into and overseeing corrective action plans. Although these tasks will
require the reallocation of Department staff and system resources, the
use of existing standards, such as definitions grounded in Federal law
and doctrines adopted by other agencies, and processes, will allow the
Department to administer the regulations efficiently and consistently
to prevent improper payments. As in other regulations administered by
the Department, the final rule also codifies a clear evidentiary
framework, such as relying on court judgments or plea agreements, which
limit the need for new investigative and adjudicative processes.
Taken together, these regulations represent a necessary evolution
of PSLF oversight. The costs associated with employer review and
administration are modest and proportional to the benefits gained,
including reducing improper payments and increasing transparency,
program integrity, and taxpayer protection. Most importantly, this
final rule strengthens the fundamental purpose of PSLF--to encourage
borrowers to enter occupations that improve their communities and
advance the public good while also guarding against the diversion of
Federal benefits to organizations that harm their fellow Americans by
engaging in illegal conduct.
Implementation Date of These Regulations: These regulations are
effective on July 1, 2026. Section 482(c) of the HEA requires that
regulations affecting title IV programs be published in final form by
November 1, prior to the start of the award year (July 1) to which they
apply.
Public Comment: On August 18, 2025, the Secretary published an NPRM
for these regulations in the Federal Register; 13,989 parties submitted
comments on the proposed regulations.
Analysis of Public Comments and Changes
The Department has grouped issues according to the regulatory
section or subject and themes, with appropriate sections of the
regulations referenced where applicable. We discuss other substantive
issues under the sections of the regulations to which they pertain. In
instances where individual submissions appeared to be duplicates or
near duplicates of comments prepared as part of a write-in campaign,
the Department posted one representative sample comment along with the
total comment count for that campaign to www.Regulations.gov. We
considered these comments along with all the other comments received.
In instances where individual submissions were bundled together
(submitted as a single document or packaged together), the Department
posted all the substantive comments included in the submissions along
with the total comment count for that document or package to
www.Regulations.gov. Generally, we do not address minor, non-
substantive changes (such as renumbering paragraphs, adding a word, or
typographical errors) within this final rule. Additionally, we
generally do not address changes or comments recommended by commenters
that the statute does not authorize the Secretary to make (such as
forgiving all student loans), or comments pertaining to operational
processes. Analysis of the comments and of any changes in the
regulations since publication of the NPRM follows.
Process for Out-of-Scope Comments
We do not address comments that are out of scope. For purposes of
this final rule, out-of-scope comments are those that are not addressed
in the NPRM altogether. Generally, comments that are outside of the
scope of the NPRM are comments that do not discuss the content or
impact of the proposed regulations or the Department's evidence or
reasons for the proposed regulations.
Request To Extend Public Comment Period
Comments: Several commenters explicitly urged the Department to
extend the comment period. They argued that the proposed changes were
introduced without adequate opportunity for meaningful public
participation. Additionally, commenters argued that there was a lack of
transparency and stakeholder engagement. They suggested that the short
comment period undermined trust and fairness, claiming that important
legal aid, nonprofit, and advocacy groups had little chance to weigh
in.
Discussion: The Department disagrees with the commenters. The
Department fully complied with the Administrative Procedure Act (APA)
and requirements for negotiated rulemaking in the HEA. The comment
period provided through the initial public hearing, negotiated
rulemaking, and NPRM notice and comment process met the requirements
established in law, giving the public numerous opportunities to provide
feedback. Indeed, nearly 14,000 comments were received across diverse
stakeholder groups, including those referenced by the commenters,
within the established timeframe, demonstrating that interested parties
were aware of the proposed changes and able to share feedback. In
addition, the public engagement process, including the public comment
period referenced by commenters, that the Department followed here is
consistent with other title IV, HEA rulemakings. See e.g., Student
Assistance General Provisions, 87 FR 41878 (proposed July 13, 2022)
(providing for a 30-day comment period); Financial Value Transparency
and Gainful Employment, 88 FR 32300 (proposed May 19, 2023) (providing
for a 32-day comment period). The public has had ample opportunity to
engage and provide feedback throughout the Department's rulemaking
process. No substantive input has been ignored.
Changes: None.
Public Service Loan Forgiveness (Sec. 685.219)
General Comments
Comments: Several commenters provided overarching commentary on the
NPRM rather than commenting on specific provisions. Some commenters
expressed their opinion that the rule was poorly conceived and
duplicative of existing law, while others claimed that it will create
confusion and uncertainty
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for both borrowers and employers. A recurring theme was the perception
that the NPRM lacked clarity on how it will be implemented. Several
commenters questioned whether the proposed framework would be
administered fairly and consistently. Others stated that finalizing the
rule would undermine confidence in the whole Direct Loan program.
Discussion: The final rule is not duplicative because the
Department does not currently consider whether an otherwise qualifying
employer engages in illegal activities such that it has a substantial
illegal purpose for PSLF-eligibility purposes. The Department does not
agree that the rule will cause confusion because the Department will
provide notice to both borrowers and employers in the event an employer
is no longer eligible because the Department has determined it engaged
in illegal activities such that it has a substantial illegal purpose.
The Department does not think that the rule will undermine
confidence in the PSLF program because the rule will ensure that PSLF
benefits are only being received by employees of organizations that are
serving the public interest. By limiting eligibility in this way, the
rule ensures that taxpayer funds are only used to indirectly subsidize
employment at employers who are not breaking the law. As such, this
final rule should increase confidence in the PSLF program by reducing
improper payments to borrowers working for employers who are breaking
the law and harming their respective communities.
Changes: None.
General Support for the Regulations
Comments: Many commenters expressed gratitude and strong approval
for the Department's efforts to reform the PSLF program. They
characterized the program as historically confusing, plagued by denial
of benefits, and saw the proposed reforms as a long-overdue fix that
will restore trust and usability.
Discussion: The Department agrees with the commenters and
appreciates their support. The PSLF program has faced significant
challenges over the years, including high denial rates, administrative
barriers, and widespread confusion among borrowers. This final rule
delivers clarity, fairness, and accountability for borrowers and
qualifying employers under PSLF. It strengthens transparency and
ensures PSLF is restored to its intended focus on public service for
the betterment of communities. This final rule ends the subsidization
of employment at organizations that are not only failing to serve the
public interest but are actually doing harm by engaging in illegal
conduct.
Changes: None.
Comments: Some commenters highlighted that strengthening the
integrity of the PSLF program directly supports the recruitment and
retention of professionals in public service careers such as teaching,
nursing, social work, and government service. They emphasized that
these reforms make it more feasible for individuals to dedicate their
careers to public service without the burden of unmanageable debt.
Discussion: The Department agrees that the PSLF program makes it
easier for borrowers to pursue public service careers; however, the
rule is unlikely to materially alter those incentives like the
commenters suggest. This is because the rule does not expand
eligibility for the program and is thus unlikely to induce new
borrowers, who are not currently participating or would not otherwise
be inclined to participate, to work for a qualifying employer. We
agree, however, that strengthening the program's integrity will likely
improve public perception and support its long-term sustainability.
Changes: None.
Comments: Some commenters stressed that PSLF is not only beneficial
for borrowers but also for the communities they serve. By making it
possible for professionals to remain in public service roles, PSLF
helps stabilize organizations that provide education, healthcare,
safety, and social services. Several commenters noted that healthy,
stable public service organizations generate positive externalities for
the economy and society.
Discussion: The Department partially agrees with the commenters.
PSLF is clearly beneficial to borrowers and the organizations that
employ them, but it is also very costly for taxpayers who ultimately
must bear the cost of loan forgiveness. Although this rule ensures PSLF
has clear and consistent standards for qualifying public service
employers in communities across the country, in some cases the program
has created perverse incentives for colleges and universities to
increase tuition costs and load unsustainable levels of debt onto
students.\1\ Moreover, the waivers provided by the last
Administration--waiving payments specifically required by statute--
provided PSLF loan cancellation benefits to thousands of borrowers who
were sometimes years away from eligibility or who would never have been
eligible under the statutory requirements of the program.\2\ Unlike the
temporary and legally questionable actions taken by the last
Administration, this final rule addresses a key shortcoming of the PSLF
program--granting benefits for employment at organizations engaged in
illegal activities such that it has a substantial illegal purpose--
through the proper rulemaking process.
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\1\ Preston Cooper & Alexander Holt, Turn Public Service Loan
Forgiveness into a State Block Grant, Ctr. on Opportunity and Soc.
Mobility: AEIdeas (Apr. 17, 2025), https://cosm.aei.org/turn-public-service-loan-forgiveness-into-a-state-block-grant/.
\2\ Kaitlin Mulhere, It Just Got a Lot Easier to Qualify for
Public Service Loan Forgiveness, Money (Oct. 6, 2024), https://money.com/public-service-loan-forgiveness-changes-waiver/.
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Changes: None.
Comments: Several commenters emphasized that strengthening PSLF
will restore public trust, not only in the program itself, but also in
the Federal Government's ability to deliver on its promises to support
public service careers. They argued that years of denial, poor
communication, and unclear rules eroded faith in public service
initiatives, and that these reforms provide a chance to demonstrate
that government programs can work effectively, transparently, and
fairly.
Discussion: The Department agrees that strengthening the PSLF
program is essential for the restoration of taxpayer trust in PSLF.
This final rule ensures that PSLF benefits are not misdirected to those
working for organizations that are not serving the public interest.
Years of inconsistent administration, ill-conceived waivers, and
confusing standards have eroded public confidence in the PSLF program.
This rule reverses that trend and delivers much-needed clarity,
transparency, and accountability for borrowers and employers.
Changes: None.
Comments: Approximately 70 comments noted borrowers from
underrepresented and economically disadvantaged backgrounds are more
likely to pursue careers in public service as a result of the PSLF
program. Some comments cited a report commissioned by the National
Legal Aid & Defender Association to suggest borrowers are more likely
to struggle with student loan debt in the absence of the PSLF
program.\3\ They praised the PSLF program as a way to level the playing
field, enabling a more diverse and representative public service
workforce.
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\3\ National Legal Aid & Defender Association (NLADA), Public
Service Loan Forgiveness and the Justice System (Mar. 2025), https://www.nlada.org/pslf-and-justice.
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Discussion: The Department disagrees that PSLF advances equity and
inclusion efforts that improperly use
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racial goals. PSLF is race-neutral and was not designed with any
specific targeting of benefits to borrowers from underrepresented or
economically disadvantaged backgrounds. Rather, PSLF is intended to
provide financial incentives to borrowers from all backgrounds to work
in jobs in the public service sector with qualifying employers. In some
cases, the value of PSLF benefits to borrowers may help to incentivize
those borrowers to seek employment or to remain employed with PSLF
qualifying employers rather than seeking employment in other sectors.
This final rule supports this objective by ensuring that PSLF benefits
are not improperly granted to any borrower employed by an organization
that does not meet the definition of a qualifying employer, regardless
of the borrower's racial or socioeconomic background.
Changes: None.
General Opposition to the Regulations
Comments: Several commenters opposed the proposed rule in its
entirety. Some commenters expressed their distrust of the Department's
motives, suggesting that the rule was less about protecting program
integrity and more about restricting access to loan forgiveness. Others
feared that the rule will deter participation in public service jobs,
and ultimately harm both borrowers and the communities that rely on
them.
Discussion: The Department rejects the broad, unsubstantiated
claims by these commenters. The standards in this rule bring clarity,
consistency, and needed accountability to the PSLF program. The
Department's motives are not pretextual or designed to limit access to
PSLF beyond removing eligibility for organizations that engage in
illegal activities such that they have a substantial illegal purpose.
If an organization is found to have a substantial illegal purpose, any
borrower working for such an employer may look for alternative
employment with a qualifying employer if they wish to pursue PSLF. The
Department acknowledges that borrowers who remain with an employer that
loses eligibility will not receive credit toward loan forgiveness for
months of employment at that employer who would have otherwise
qualified prior to this final rule. These borrowers will have a choice
to seek employment with a different qualifying employer. However, the
Department believes that any harm to borrowers is outweighed by the
Federal Government's interest in not allowing PSLF benefits to flow to
borrowers who work for employers engaged in illegal conduct. The
Department agrees that this final rule will serve as a deterrent for
borrowers who may want to work for employers who are engaged in illegal
activities such that the employer has a substantial illegal purpose and
believes that kind of deterrence is appropriate as it creates
incentives for organizations to avoid engaging in illegal activity.
Furthermore, the Department emphasizes that this rule provides
borrowers with advance notice regarding the types of activities that
may constitute a substantial illegal purpose, thereby disqualifying an
employer under the PSLF program. This transparency enables borrowers to
make informed decisions about whether to begin or continue employment
with a given organization. Additionally, borrowers will have sufficient
time to assess their employment options and whether those options are
impacted by these final regulations.
Changes: None.
Comments: Several commenters observed that PSLF is already ``overly
complicated and poorly managed.'' They argued that adding what they
viewed as subjective eligibility rules may deepen borrower confusion,
making it harder for professionals in government and nonprofit work to
continue through the PSLF program. They argued that borrowers will be
penalized by their employer's activities rather than by their own
individual actions.
Discussion: The Department disagrees. Under this final rule,
borrowers will receive full credit for work performed until the
effective date of the Secretary's determination that an employer
engaged in illegal activities such that it has a substantial illegal
purpose. Borrower payments will not count toward time to forgiveness
when payments are made after a determination that an employer is an
ineligible employer for the PSLF program. The Department believes that
any confusion that may be created by this final rule will be outweighed
by the corresponding benefits to the integrity of the PSLF program and
reductions in indirect benefits to organizations engaged in illegal
activity. The focus of this rule is appropriately on employers, as
Congress requires the Department to ensure that borrowers are working
for a qualifying employer before providing PSLF benefits to a borrower.
This final rule is not intended to punish borrowers. The Department is
not taking away any credit toward loan forgiveness for any qualifying
payment that was made before their employer was deemed ineligible. A
determination that an employer is no longer an eligible employer within
the PSLF program has no bearing on a borrower's current or future
participation in loan forgiveness programs. However, the Department
acknowledges that some borrowers may lose access to PSLF benefits due
to their employer's unlawful actions--actions potentially beyond
borrowers' control but which the Department cannot overlook. The
Department believes this is necessary to prevent future benefits from
going to employees of employers that have engaged in illegal activities
such that the employer has a substantial illegal purpose.
Changes: None.
Comments: Many commenters argued that the NPRM lacked clear
standards, and that PSLF could be subject to shifting interpretations
depending on the political environment. They warned that this
uncertainty makes the program appear arbitrary and would leave both
employers and employees vulnerable to sudden disqualification. This
unpredictability, they argued, would undermine trust in PSLF and weaken
its intended role as a stable incentive for public service.
Discussion: The Department rejects the claim that PSLF is left open
to shifting political winds. This rule provides strong, clear standards
anchored in law, not ideology. That clarity provides certainty for
borrowers, confidence for employers, and accountability for taxpayers.
Qualifying employers will only face uncertainty if they decide not to
follow the law. Employers who follow the law will not be disqualified,
and because most organizations follow the law, the Department believes
the commenters' concerns about widespread changes in incentives to
enter public service as a result of the rule are significantly
overstated. By codifying objective standards, this final rule ties
forgiveness to lawful public service for purposes of the PSLF program.
Changes: None.
Comments: Commenters claimed that the rule does not explicitly
describe how determinations will be made, what counts as activity
contrary to law, or how appeals will function. They argued that the
absence of detail could create uncertainty for both borrowers and
employers.
Discussion: The Department rejects the claim that the rule lacks
clarity as to how determinations will be made. The Secretary will weigh
any evidence presented showing that an organization's activities
violated any laws and make a determination if those violations rise to
the level of substantial illegal purpose. The Secretary will look
[[Page 48971]]
to see if there is a pattern of behavior by the organization, the
gravity of the violation, and generally exclude evidence of technical
violations of law. When reviewing an employer's conduct, the Secretary
will consider any reliable evidence, including countervailing evidence
provided by the employer. This final rule also establishes a
reconsideration process for employers when they have been determined
ineligible. Employers may seek review, submit documentation, and
receive written explanations of the Secretary's determination. This
approach ensures transparency, protects taxpayers, and maintains
borrower confidence. Furthermore, the Due Process Clause of Fifth
Amendment ensures that all entities that are subject to a Departmental
adjudication are entitled to an unbiased adjudicator. This ensures that
all entities have an adjudicator who has not prejudged the law or the
facts, as applied, and that all decisions are supported by reliable
evidence.
Changes: None.
Comments: Some commenters noted that, when borrowers lose PSLF
benefits, it affects not just them but the communities they serve.
Professionals might leave public service for private-sector roles,
reducing the workforce available to meet urgent needs in education,
healthcare, and social services. Commenters expressed specific concerns
about borrowers employed in rural areas where finding another job may
be difficult in the event their employer loses PSLF eligibility. They
noted that alternative employment options in these areas may be rare,
and borrowers may be forced to relocate for other employment
opportunities in the event there are no other qualifying employers in
their area.
Discussion: The Department acknowledges that it is possible if a
borrower loses access to PSLF benefits due to this final rule that he
or she could leave public service to find a job in the private sector.
However, the degree to which this is likely to occur is speculative and
will vary widely based upon the borrower's skills and abilities, where
the borrower is living, other employment opportunities in the local
community, and whether the borrower wants to continue to work in public
service. The Department disagrees with the commenter that these
speculative equities outweigh the benefits of the rule, which has been
previously discussed.
The Department acknowledges there may be potentially fewer
qualifying employers in rural communities than in more urbanized areas;
however, as shown in Table 5.4 of the Regulatory Impact Analysis of
this final rule, over 1 million borrowers have received PSLF benefits
to date across more than 20 sectors of the economy. The Department must
balance concerns that disqualification of qualifying employers in an
area with few qualifying employers may result in fewer choices for
borrowers seeking to benefit from PSLF against its primary
responsibility to safeguard American taxpayer dollars and interests by
ensuring that PSLF benefits are only received for work at qualifying
employers that are serving the public interest.
The Department also disagrees with the assertion that this rule
will have a significant macroeconomic impact on labor markets in
education, healthcare, and social services in most areas. The commenter
did not provide sufficient evidence to support this claim, and the
Department finds no basis to conclude that such widespread effects are
likely. As noted in the Regulatory Impact Analysis, because we expect
most organizations to voluntarily comply with the rule, the Department
anticipates that it will take action to remove eligibility for less
than ten organizations per year. As presented in Table 5.2 of this
final rule, to date, approximately 30 percent of borrowers receiving
forgiveness through PSLF were employed by non-governmental entities.
Accordingly, the Department believes the commenters' assertion is
overstated and that this rule will not materially reduce the available
workforce in education, healthcare, and social services.
Changes: None.
Comments: Several commenters noted that nonprofits, advocacy
organizations, and religious institutions may self-censor or avoid
lawful but controversial work for fear that PSLF eligibility could be
withdrawn based on political interpretations. They stressed that PSLF
should not create disincentives for organizations to pursue their
missions independently, whether in areas like immigration, reproductive
health, or civil rights.
Discussion: The Department does not believe the rule will require
nonprofits, advocacy organization, or religious institutions to self-
censor to avoid losing eligibility as a qualified employer. This final
rule explicitly includes references to the U.S. Constitution relating
to protecting rights under the First Amendment. This final rule could
not, even without such explicit references, be enforced in a manner
that contravenes the First Amendment; therefore, commenters' concerns
that the Department will impede upon the First Amendment rights of
these organizations are overstated and not consistent with the
Department's own legal limitations. Lawful activity will not disqualify
an organization, no matter how controversial or unpopular it may be.
The Department will enforce the PSLF program neutrally and
transparently, consistent with the law. Nonprofits and advocacy groups
are free to pursue their missions without fear of interference from the
Department, provided their actions are lawful. This rule strikes an
appropriate balance between preserving independence, protecting
borrowers, and safeguarding taxpayers while keeping the PSLF program
focused on lawful, public service as the American people expect.
Changes: None.
Legal Authority
General Legal Authority To Change and Clarify
Comments: Some commenters questioned the Department's authority to
redefine or expand disqualification standards through regulation. They
emphasized that the PSLF program was created by Congress with specific
statutory language, and any meaningful change to qualifying employment
categories should come directly from amendments to the statute rather
than regulatory changes. They are worried that regulatory overreach
could invite legal challenges, create uncertainty, and ultimately
destabilize PSLF for borrowers. Also, some commenters stated that the
Department was overreaching its authority, politicizing the PSLF
program, and introducing unnecessary complexity into the program.
Discussion: The Department rejects the suggestion that this rule
exceeds its legal authority. The HEA grants the Secretary explicit
power to regulate title IV programs. PSLF is a title IV program, and
its proper administration requires clear, enforceable standards that
are often established and implemented through regulations issued by the
Secretary. Establishing objective standards through the rulemaking
process is not overreach and avoids politicizing the PSLF program. It
is a lawful and common exercise of authority delegated by Congress.
Borrowers deserve clarity and taxpayers deserve accountability, both of
which this final rule provides. Furthermore, under the illegality
doctrine, courts and the IRS have established that revocation of
statutory benefits to organizations engaged in illegal activities is
proper if its purposes and activities are illegal or otherwise contrary
to public policy. See
[[Page 48972]]
Bob Jones Univ. v. United States, 461 U.S. 574, 591 (1983); \4\ see
also Rev. Rul. 75-384, 1975-2 C.B. 204 (``[i]llegal activities, which
violate the minimum standards of acceptable conduct necessary to the
preservation of an orderly society, are contrary to the common good and
the general welfare of the people in a community and thus are not
permissible means of promoting the social welfare . . .'') Therefore,
this rule fulfills the Department's obligation to enforce PSLF
consistent with its statutory purpose--to only benefit those borrowers
working for organizations that truly serve a public purpose by helping,
not harming, their communities. This rule makes certain borrowers
receive forgiveness only for lawful public service by shielding
forgiveness from abuse. The Department is faithfully executing the law,
not expanding it.
---------------------------------------------------------------------------
\4\ Bob Jones University is frequently invoked when discussing
the so-called ``public policy doctrine,'' under which an
organization's Section 501(c)(3) tax-exempt status may be revoked
for engaging in conduct that is not specifically illegal. This
occurs where there ``can be no doubt that the activity involved is
contrary to a fundamental public policy.'' Bob Jones Univ., 461 U.S.
at 592. In Bob Jones University, the Court determined that this
standard was met, because the organizations' actions (i.e., the
maintenance of racially discriminatory admissions policies) ran
contrary to ``every pronouncement of this Court and myriad Acts of
Congress and Executive Orders.'' Id. at 593. Although the public
policy doctrine is similar to (and often discussed alongside) the
illegality doctrine, the evidentiary bar set in Bob Jones University
is different and applicable when revocation of an organization's
tax-exempt status is based on conduct which is not explicitly
illegal. Id. at 591 (``A corollary to the public benefit principle
is the requirement, long recognized in the law of trusts, that the
purpose of a charitable trust may not be illegal or violate
established public policy.'') (emphasis added). By contrast, the bar
for revoking an organization's Section 501(c)(3) tax-exempt status
for engaging in or encouraging illegal activity is different,
because actions that violate laws are inherently contrary to public
policy in that the political branches (legislative and executive
branches through bicameralism and presentment) have created positive
law to counter the conduct at issue. See I.R.S. Gen. Couns. Mem.
34631 (Oct. 4, 1971) (citing I.R.S. Gen. Couns. Mem. 31376 (Aug. 14,
1959)).
---------------------------------------------------------------------------
Changes: None.
Comments: Several commenters pointed specifically to 20 U.S.C.
1087e(m)(3)(B), which outlines definitions of public service job
categories, and questioned whether the Department has authority to
alter or clarify these categories through rulemaking. They argued that,
by creating new standards of disqualification, the Department may be
venturing beyond clarifying existing law into substantively redefining
the statute, a role they asserted belongs solely with Congress.
Discussion: The Department disagrees that the amendments made in
this final rule are ultra vires. Section 1087e(m)(3)(B) provides the
statutory categories, but it is the Department's responsibility to
interpret and apply those categories in a way that ensures PSLF
operates as the statute requires. This rule does not rewrite the
statute. It fills out the statutory scheme Congress placed under the
Department's supervision. In defining a public service job under the
HEA, Congress listed 18 distinct categories of jobs. Within four of
those categories (``public health,'' ``public interest law services,''
``early childhood education,'' and ``government''), Congress provided
parentheticals to provide some additional detail as to what types of
jobs within each of those categories they meant to include or exclude.
In addition, within the list of public service jobs, Congress included
employment at an organization that is described in Section 501(c)(3) of
the Internal Revenue Code. In the list of all 18 distinct categories,
there is considerable overlap among the categories. For example, the
categories of ``military service,'' ``law enforcement,'' ``public
library sciences,'' and ``public education'' are also included within
the ``government'' category. Likewise, there is overlap between
``public interest law services (including prosecution or public defense
or legal advocacy on behalf of low-income communities at a nonprofit
organization)'' and organizations that are described in Section
501(c)(3) of the Internal Revenue Code.
To make sense of these overlapping and arguably duplicative
categories, it is important to consider the level of generality at
which Congress approached the problem. Indeed, Congress provided for a
long list of eligible professions to broadly ensure that all
professions that advance the public interest were included in the list.
This provides an important clue in interpreting the underlying statute,
as the Department must presume that Congress would not want PSLF
benefits to be received by employees of organizations that the
Department knows are not serving the public interest. This includes
organizations that are breaking the law, which is contrary to the
public interest. Surely, Congress would not want to reward
organizations that break the law and have a substantial illegal purpose
by indirectly subsidizing their organizations by providing loan
forgiveness to their employees.
Furthermore, although it is possible that the IRS could take
independent action to revoke Section 501(c)(3) tax-exempt status from
an organization engaging in illegal conduct, that same organization
(absent action from the Department) could remain eligible for PSLF
(assuming it still met the requisite criteria for nonprofit
organizations) and continue to employ individuals in public service
jobs if those jobs meet another part of the definition under 20 U.S.C.
1087e(m)(3). For example, an organization that is organized as a
nonprofit and provides State-funded prekindergarten services could lose
Section 501(c)(3) status under the Internal Revenue Code but remain an
eligible employer under previous versions of the Department's
regulation. Similarly, an organization that the Department determines
has a substantial illegal purpose may continue to be exempt under
Section 501(c)(3) because its tax-exempt status has not been revoked, a
determination made by the IRS. This final rule provides that the
Department can act in these circumstances, removing eligibility when
the Department finds the organization has engaged in illegal activities
such that it has a substantial illegal purpose.
This rule advances the statutory scheme Congress created in section
455(m)(3)(B) of the PSLF statute in the HEA, which includes multiple
references to public service in defining public service job.
Changes: None.
Comments: A significant number of commenters argued that the
Department lacks statutory authority to apply a ``preponderance of the
evidence'' standard in making employer disqualification determinations.
Commenters claimed the ``preponderance of the evidence'' standard is
inappropriately low. They contended that such a standard is
inappropriate for decisions with major financial consequences and
instead urged exclusive reliance on final judicial or administrative
findings. Some commenters indicated that Congress needs to provide
explicit authorization for the Department to proceed with this
evidentiary framework.
Discussion: The Department rejects the claim that it lacks
authority to establish an evidentiary standard and has utilized this
same standard in other title IV regulations. This rule does not
preclude legal activities that assist groups mentioned by the
commenters. This includes any lawful work performed by legal aid
attorneys, nonprofit law offices, community legal clinics that provide
direct legal services, public defense, civil rights litigation and
advocacy organizations, and other
[[Page 48973]]
activity that support low-income or disadvantaged people.
The Department will solely enforce this rule against organizations
that participate in illegal activity such that they have a substantial
illegal purpose. Congress, through the HEA, granted broad authority to
regulate title IV programs. The preponderance of the evidence standard
is well established in administrative law for civil adjudications and
is fair and consistent with longstanding Federal practice. It ensures
decisions are grounded in fact, not speculation, and allows the
Department to act promptly to protect both borrowers and taxpayers.
Here, in applying the preponderance of the evidence standard to the
substantial illegal purpose test, the Secretary will need to find that
it is more likely than not that an organization's illegal activity is
more than an insubstantial part of its activities that advance an
illegal purpose. Plea agreements or admissions of illegal conduct in
settlements could provide sufficient proof of unlawful activity to
warrant program action, ensuring accountability without waiting for
final judicial or administrative findings that could otherwise delay
enforcement and allow misconduct to persist. The Department has the
responsibility to safeguard PSLF and ensure taxpayer funds are directed
only to encourage lawful public service. This evidentiary framework
provides the Department with discretion to act swiftly to ensure that
taxpayer resources are not wasted to ensure fairness for employers and
borrowers.
Changes: None.
Comments: Commenters raised concerns that PSLF program eligibility
could be used as a political tool to compel alignment with an
administration's priorities. They suggested that this could limit free
speech and advocacy while potentially undermining the independence of
public service groups.
Discussion: The Department rejects this unsubstantiated concern.
The standards for qualifying employment are not intended, nor do they
regulate policy preferences, advocacy, or discriminate based upon
viewpoint.
The standards are limited to ensuring that employers meet statutory
requirements for lawful public service activities. Organizations that
abide by Federal law and the laws of the State in which they operate
will not be subject to potential loss of eligibility. PSLF employer
eligibility is not conditioned on political alignment or conformity
with any administration policies. Determinations regarding whether an
organization has engaged in illegal activities such that it has a
substantial illegal purpose will be objective and based on evidence
such as judgments of State or Federal courts, guilty pleas of the
organization, or statements by the organization admitting that it
engaged in such conduct (such as in a settlement agreement). It will
not be colored by the policy preferences of an employer. Here, the
Department is not regulating viewpoint and will enforce the regulation
in a manner that does not take viewpoint into account. This approach
does not interfere with the policy preferences or advocacy efforts of
public service organizations and safeguards taxpayer funds by ensuring
benefits are delivered only to organizations that are not engaged in
illegal activities such that they have a substantial illegal purpose.
The Department will administer the PSLF program neutrally to keep the
program focused on its purpose of supporting careers in qualified
public service, notwithstanding the policy preferences or viewpoints of
the public service employer.
Changes: None.
Comments: Many commenters expressed concern that the Department
will apply the rule in a way that punishes organizations based on
political ideology or affiliation rather than on legitimate unlawful
conduct. They worried that nonprofit and advocacy organizations could
be stripped of PSLF eligibility because their missions or policy
stances differ from the administration.
Discussion: The Department will administer the PSLF program in a
manner that provides borrowers with the benefits required by statute,
while ensuring the responsible stewardship of taxpayer resources. As
discussed in the previous comment, the Department cannot take action
against an employer because of their viewpoint or policy preferences.
However, when employers break the law, such that the organization has a
substantial illegal purpose, the Department may take action to
safeguard the integrity of the PSLF program by removing eligibility
from that employer. The Department cannot and will not prejudge the
facts or the law with respect to specific employers, but organizations
that follow the law will not be subject to adverse action under this
final rule.
Changes: None.
Comments: Some commenters expressed concern that even if the
Department does not intend to use PSLF in a political way, the lack of
precise definitions and safeguards could create the perception of
arbitrary or politically motivated enforcement. They emphasized that
the appearance of bias can be as damaging as actual bias, eroding
public trust and discouraging organizations from engaging in lawful
advocacy work.
Discussion: The Department recognizes that it is possible that
enforcement under the regulation could be perceived as politically
motivated, but perceptions are not often reality. The perception of
some members of the public as to why the Department takes an action
should not control or impair the Department's ability to take action,
lest the Department become captive to popular perception of the
underlying motivation whether true or not. The Department does not
intend to take enforcement action based on pretextual grounds. Adverse
action will be taken only where the evidence demonstrates that an
organization has a substantial illegal purpose.
If the Department takes action under this regulation, impacted
entities will receive notice and an opportunity to respond prior to any
determination.
Changes: None.
Comments: Some commenters claimed that this rule is an overreach of
executive power and unconstitutional because it creates new
disqualification standards not explicitly authorized by Congress. Other
commenters argued that the proposed rule deals with a major question
under the Major Questions Doctrine and that the Department lacks a
clear congressional authorization to promulgate the rule.
Discussion: The Department disagrees that the rule is a form of
executive overreach or that it is unconstitutional. The HEA gives the
Secretary clear and broad authority to regulate title IV programs, such
as PSLF. This final rule is firmly within that authority.
The history surrounding the creation and use of the illegality
doctrine is instructive in assessing whether this rule is
unconstitutional or is a form of executive overreach. Indeed, courts
have upheld the use of the illegality doctrine in the context of
administering the Internal Revenue Code relating to organizations that
engaged in activities that are illegal or otherwise contrary to public
policy. See e.g., Bob Jones Univ., 461 U.S. at 591 (holding that an
organization may be denied tax-exempt status if its purposes or
activities are illegal or otherwise contrary to public policy), Church
of Scientology of Cal. v. Comm'r, 83 T.C. 381 (1984) (upholding
revocation of tax-exempt status for a religious organization because of
its conspiracy to defraud the United States, which violated established
public policy). These cases demonstrate that the Department is
implementing
[[Page 48974]]
established legal standards when determining whether organizations are
engaging in public service by examining whether they engage in
activities that are illegal such that they have a substantial illegal
purpose. These actions, like those taken by the IRS, are not
unconstitutional nor do they amount to executive overreach.
Furthermore, the Department disagrees that the rule is a major question
under the Major Questions doctrine. The doctrine generally requires
Congress to speak clearly if it wishes to assign to an agency decisions
of vast economic and political significance. West Virginia v. EPA, 597
U.S. 697, 716 (2022) (internal quotations omitted). There is not a
bright line standard for what constitutes a major question, but courts
look to the breadth of the authority asserted and its economic and
political significance. The Supreme Court has found that the Major
Questions Doctrine is implicated, for example, where the actions of an
agency impact the price of energy for nearly all Americans, where the
Secretary attempts to cancel upwards of $500 billion in Federal student
loan debt for millions of borrowers, and where millions of health
insurance subsidies would be impacted. See e.g., West Virginia, 597
U.S. at 716; Biden v. Nebraska, 600 U.S. 477, 505 (2023), King v.
Burwell, 576 U.S. 473, 135 (2015). Here, the Department estimates that
this final rule may impact less than ten employers per year across the
country. Furthermore, the rule makes no substantive changes to the
legality of certain actions but changes the consequences for breaking
the law where an employer has a substantial illegal purpose. The Major
Questions Doctrine, as articulated by the Supreme Court, is not
applicable when a rule impacts less than ten employers per year and
does not prohibit lawful conduct.
Changes: None.
Comments: Many commenters provided examples of organizations aiding
refugees and asylum seekers, which they believe to be lawful
activities. Commenters were concerned that depending on political
motivations, these actions could be deemed ``illegal.'' Commenters
believed that advocacy or humanitarian groups could face
disqualification despite acting within the law.
Discussion: The Department disagrees with the commenters' concerns.
In the first instance, Federal law prohibits individuals from aiding,
abetting, counseling, commanding, inducing, or procuring another to
commit a crime against the United States. 18 U.S.C. 2. Any individual
who engages in such practices to assist illegal immigrants in breaking
Federal law may violate 18 U.S.C. 2. Federal law does not prohibit
individuals from advocating for illegal immigrants or representing them
in Federal immigration court. Organizations that do not aid or abet in
criminal activity will not be disqualified from participating in the
PSLF program, while organizations that participate in unlawful behavior
may have a substantial illegal purpose depending on the nature of the
offenses. PSLF determinations under this final rule will not be made
based on the political views or policy preferences of the organization.
Rather, any decisions will be made based upon the factual record of the
underlying actions the organization has taken and whether such actions
violate the law. This rule does not preclude legal activities that
assist groups mentioned by the commenters. The Department will only
enforce this rule against organizations that participate in illegal
activity such that they have a substantial illegal purpose.
Changes: None.
Comments: Commenters argued that existing statutes governing
nonprofit conduct (for example, IRS regulations, State charity laws,
and criminal statutes) already prohibit organizations from engaging in
illegal activity. Creating additional rules through PSLF is seen as
duplicative and unnecessary. Commenters also argued that there may be
the potential for an irreconcilable conflict to arise for public
service professionals where actions mandated by laws like the
Individuals with Disabilities Education Act (IDEA), Emergency Medical
Treatment and Active Labor Act (EMTALA), and Family Educational Rights
and Privacy Act of 1974 (FERPA) or actions required by professional
code, could be subjectively misinterpreted as illegal activities that
have a substantial illegal purpose.
Discussion: The Department acknowledges that rules at the Federal
and State levels broadly prohibit nonprofit organizations from engaging
in illegal conduct, but the Department disagrees that this final rule
is duplicative of those efforts. Indeed, as explained previously,
Congress created a broad definition of public service job to capture a
broad array of public service employment. Even if the IRS or a State
takes action to revoke an organization's tax-exempt status, the
organization may still satisfy the definition of a public service
employer and, therefore, would remain eligible for participation in the
PSLF program. Accordingly, the Department would need to act to ensure
that any organization that engages in illegal activities such that it
has a substantial illegal purpose is not able, through its employees,
to benefit from the PSLF program.
The Department considered alternatives here, namely that because
the IRS could take independent action, it may not be necessary for the
Department to make the changes in this rule. However, just like all
executive branch agencies, the IRS has resource constraints that limit
its ability to act against organizations under the illegality doctrine
and must exercise some degree of prosecutorial discretion. This means
that, at least at times, the illegality doctrine will be underenforced.
In other words, there may be instances where some organizations that
have a substantial illegal purpose continue to have IRS tax-exempt
status.
The Department has a heightened interest in ensuring that the PSLF
program is administered in a manner that safeguards against improper
payments. Indeed, the median balance forgiven for borrowers through
PSLF is $65,000 so the Department has a significant monetary interest
in ensuring that only months of work in lawful public service
employment are counted toward forgiveness.\5\ The Department's interest
here stands separate and apart from any interest the IRS has in taking
action to revoke tax-exempt status, because Congress assigned the
Department the responsibility to administer and oversee the PSLF
program. Because of the Department's independent interest in preventing
misuse of taxpayer resources, as well as the fact that the IRS may not
always revoke the tax-exempt status of organizations engaging in
activities that amount to having a substantial illegal purpose, the
Department does not believe that this final rule is duplicative.
---------------------------------------------------------------------------
\5\ FY25 Department of Education Justifications of Appropriation
Estimates to the Congress, Volume II, Student Loans Overview, page
9.
---------------------------------------------------------------------------
With respect to the commenter's assertion that the rule is
duplicative because State taxing authorities or other parts of State
government may also act against organizations engaged in activities
that amount to having a substantial illegal purpose, the Department
disagrees. State action has no bearing on eligibility for the PSLF
program, so any State action will not necessarily impact employer
eligibility for PSLF, which necessitates the need for the Department to
be able to take independent action.
[[Page 48975]]
Regarding the comments raising the potential for the rule to
conflict with existing Federal laws or State professional codes, the
Department does not believe this rule conflicts with any laws. If there
were a conflict between Federal law and State law with respect to the
illegal conduct considered by the Secretary under this final rule,
ordinary principles of Federal preemption law would apply. See
McCulloch v. Maryland, 17 U.S. 316, 427 (1819) (holding that a State
law in conflict with Federal law is without effect). Nothing in this
final rule directly preempts State law, and instead broadly defers to
State law. The Department is not aware of any conflicts between this
final rule and existing Federal and State laws.
Changes: None.
Illegality Doctrine
Application of the Illegality Doctrine
Comments: Commenters argued that the Department's proposal
improperly utilizes the illegality doctrine developed by the IRS and
the courts by applying doctrines developed in a tax context to a
statutory loan forgiveness program. Some commenters also argued that
the Department has misconstrued the illegality doctrine to cover a much
wider range of conduct and activities than the doctrine has been
applied to by the IRS, which could open the door to political misuse,
disqualifying organizations based on contested interpretations of law
rather than clear violations. Additionally, some commenters questioned
the Department's authority to identify specific types of illegal
conduct as a basis for determining that an organization is not a
qualifying employer for the purposes of the PSLF program, instead of
considering all illegal conduct.
Discussion: The Department disagrees that it is improper for the
Department to rely on the illegality doctrine when determining whether
an employer qualifies for participation in the PSLF program. PSLF is a
statutory benefit designed to encourage public service. The illegality
doctrine provides a starting point for the Department to base the
concept of excluding organizations with a substantial illegal purpose
from PSLF, as the illegality doctrine provides a clear basis for
denying certain statutory benefits to organizations whose aims and
activities are harmful to the public interest. Furthermore, the
substantial amount of case law that has been generated regarding the
illegality doctrine demonstrates that courts have long recognized that
government benefits are not required to flow to organizations whose
purposes conflict with law. See, e.g., Bob Jones Univ., 461 U.S. at 591
(holding that an organization may be denied tax-exempt status if its
purposes or activities are illegal or otherwise contrary to public
policy); Church of Scientology, 83 T.C. at 506 (holding that denial of
an organization's Section 501(c)(3) tax-exempt status was proper where
the purpose of the organization was engaging in criminal tax fraud);
Mysteryboy, 99 T.C.M. (CCH) 1057 (holding that an organization that
promoted activities which are prohibited by Federal and State laws did
not qualify for tax-exemption under Section 501(c)(3)).
As mentioned above, the history surrounding the creation and use of
the illegality doctrine is instructive in assessing whether this final
rule is unconstitutional or is a form of executive overreach. Indeed,
courts have upheld the use of the illegality doctrine in the context of
administering the Internal Revenue Code to revoke tax-exempt status
from organizations that have a substantial illegal purpose. The
Department rejects the supposition that the illegality doctrine can
only be applied within the context of Section 501(c)(3) of the Internal
Revenue Code. The way the IRS interprets the Internal Revenue Code is
very similar to what the Department is doing in interpreting the phrase
``public service.'' See e.g., Rev. Rul. 75-384, 1975-2 C.B. 204
(finding that an organization which encouraged civil disobedience did
not qualify for tax-exemption as a Section 501(c)(4) organization
operated exclusively for the promotion of ``social welfare,'' on the
basis that ``[i]llegal activities, which violate the minimum standards
of acceptable conduct necessary to the preservation of an orderly
society, are contrary to the common good and the general welfare of the
people in a community and thus are not permissible means of promoting
the social welfare''). Courts and the IRS have established that denial
or revocation of an organization's tax-exempt status is appropriate
when its purposes and activities are illegal or otherwise contrary to
public policy. See Bob Jones Univ., 461 U.S. at 591; Rev. Rul. 75-384,
1975-2 C.B. 204. Both the amount of time and attention an organization
spends on the unlawful activities and the seriousness of the unlawful
activities are relevant considerations. See, e.g., I.R.S. Gen. Couns.
Mem. 34631 (Oct. 4, 1971)(stating, as an example, that ``[a] great many
violations of local pollution regulations relating to a sizable
percentage of an organization's operations would be required to
disqualify it from 501(c)(3) exemption'' but ``if only .01% of its
activities were directed to robbing banks, it would not be
exempt'').\6\ Taken together, the Department believes that the
illegality doctrine can clearly be applied in scenarios outside of just
those where the IRS has utilized it in the past, so long as it is used
to respond to conduct that is clearly unlawful and substantial in
nature.
---------------------------------------------------------------------------
\6\ The Department understands and acknowledges that IRS General
Counsel Memoranda (``GCMs'') do not represent binding precedent.
However, because GCMs demonstrate the way the IRS approached a
discrete situation, they include persuasive legal analysis which may
be applicable in analogous situations. The GCMs cited within this
final rule are cited only as examples that the Department looked to
while crafting this rule.
---------------------------------------------------------------------------
In crafting this rule, the Department looked to President Trump's
Executive Order on Restoring Public Service Loan Forgiveness, Executive
Order 14235 (Mar. 7, 2025), which identified the forms of unlawful
activity that would merit denying an organization qualifying employer
status for the purpose of the PSLF program. Although the Department
believes that it would be legally permissible for the Department to
deny qualifying employer status to organizations for a wider range of
unlawful conduct than those set forth in that Executive Order, the
Department believes that the Executive Order clearly indicates the
areas that the President has identified as being of greatest concern.
Furthermore, the Department's enumeration of specific forms of unlawful
activity is consistent with the broad powers of prosecutorial
discretion of the executive branch. See United States v. Nixon, 418
U.S. 683, 693 (1974) (citing Confiscation Cases, 74 U.S. 454 (1869);
United States v. Cox, 342 F.2d 167, 171 (5th Cir.), cert. denied sub
nom. Cox v. Hauberg, 381 U.S. 935 (1965)) (``[T]he Executive Branch has
exclusive authority and absolute discretion to decide whether to
prosecute a case . . .''); United States v. Fokker Servs. B.V., 818
F.3d 733, 741 (D.C. Cir. 2016) (citing Cmty. for Creative Non-Violence
v. Pierce, 786 F.2d 1199, 1201 (D.C. Cir. 1986); ICC v. Bhd. of
Locomotive Eng'rs, 482 U.S. 270, 283 (1987)) (``[J]udicial authority is
. . . at its most limited when reviewing the Executive's exercise of
discretion over charging determinations.'') (cleaned up); Wayte v.
United States, 470 U.S. 598, 607 (1985) (citing United States v.
Goodwin, 457 U.S. 368, 380, n. 11, (1982); Marshall v. Jerrico, Inc.,
446 U.S. 238, 248 (1980)) (``In our criminal justice system, the
Government retains
[[Page 48976]]
broad discretion as to whom to prosecute.'' (cleaned up)).
The Department understands the March 7, 2025, Executive Order as
being a directive from the President regarding how he would like the
Department to exercise our prosecutorial discretion in taking
enforcement actions where organizations are engaged in illegal conduct,
and this final rule is focused on specific illegal conduct that he has
determined that the Department should focus on. Finally, the Department
believes that the identification of specific forms of unlawful activity
will have the effect of reducing uncertainty for borrowers when
considering prospective employers and for employers when making
business decisions.
Changes: None.
Lack of Statutory Authority
Comments: Many commenters claimed the Department lacks statutory
authority under the HEA to impose new disqualification standards in the
PSLF program. They argued that Congress already defined ``qualifying
employment'' to include work at government entities, certain
nonprofits, and organizations exempt from tax under Section 501(c)(3)
of the Internal Revenue Code because they are described under Section
501(c)(3) and that the Department cannot narrow or redefine this scope
by regulation. Several commenters raised separation-of-powers concerns,
stating that only Congress, not an executive agency, can amend the PSLF
eligibility framework. Commenters warned that this expansion of
administrative discretion could destabilize the program.
Discussion: Commenters' claims that the Department lacks authority
under 20 U.S.C. 1087e are misplaced. Congress has expressly delegated
broad rulemaking authority to the Secretary under the HEA to administer
the title IV programs, including PSLF. That authority includes
clarifying employment qualifications and establishing conditions under
which loan forgiveness may be granted. Although Federal agencies may
not create new programs, they are charged with the implementation and
oversight of programs created by Congress. That authority includes
enumerating procedures for the program and providing clarity for
compliance and elimination of improper payment uses. In addition, as
stated above, the HEA authorizes the Department to take action to
prevent employees of organizations that have a substantial illegal
purpose from receiving benefits under the PSLF program. Congress would
not have wanted public funds to support employment that harms the
public because it advances illegal activity.
Changes: None.
Duplication of Existing Legal Regimes
Comments: Many commenters argued that existing regulatory regimes
already prohibit unlawful activity by nonprofits, charities, and public
service organizations. They pointed to IRS oversight, State charity
laws, and criminal statutes as sufficient safeguards. They argued that
layering additional PSLF-specific disqualification standards is
duplicative, unnecessary, and could create conflicting enforcement
regimes. Commenters warned that this approach risks burdening compliant
organizations and confusing borrowers, while doing little to improve
PSLF program integrity.
Discussion: The Department disagrees with the view that the PSLF
program should rely exclusively on other enforcement mechanisms and
other Federal agencies to enforce the provisions of programs enacted
under the HEA. As stated previously, tax exemption, State charity
oversight, and criminal prosecution all serve distinct purposes, but
none are designed to administer title IV loan forgiveness. PSLF is a
Federal benefit program, and it requires its own eligibility safeguards
to ensure taxpayer resources are not diverted to unlawful activity. The
Department cannot abdicate this responsibility to outside agencies.
This final rule complements, rather than duplicates, existing law. It
uses established legal definitions and works in tandem with the IRS,
State, and other Federal entities, while maintaining the Department's
independent responsibility to administer the PSLF program--a
responsibility that Congress clearly provided to the Department. A
determination by the Department regarding whether an organization
satisfies the requirements to be considered a qualifying employer for
the purposes of PSLF is not a determination by the Department regarding
that organization's tax-exempt status.
Borrowers deserve certainty and taxpayers deserve assurance that
their dollars are used to encourage lawful activities that promote the
public good. This framework delivers both by aligning PSLF with lawful
public service and protecting the program's integrity.
Changes: None.
Viewpoint Discrimination First Amendment--Free Speech and Association
Comments: Commenters asserted that the proposed rule violates the
First Amendment to the U.S. Constitution by conditioning PSLF program
eligibility on the political or ideological missions of employers. They
argued that excluding borrowers based on their employer's policy
positions constitutes impermissible viewpoint discrimination.
Commenters also expressed concern that the rule could reduce lawful
advocacy and infringe upon employees' rights to freely associate with
nonprofit organizations engaged in public service.
Discussion: The Department rejects the claim that this final rule
will result in a reduction of lawful advocacy and public service. The
United States Supreme Court has repeatedly emphasized that government
cannot condition access to public benefits on the surrender of
constitutional rights, including freedom of speech and association. See
e.g., Perry v. Sindermann, 408 U.S. 593, 597 (1972) (stating ``this
Court has made clear that even though a person has no right to a
valuable governmental benefit and even though the government may deny
him the benefit for any number of reasons, there are some reasons upon
which the government may not rely. It may not deny a benefit to a
person on a basis that infringes his constitutionally protected
interests--especially, his interest in freedom of speech.'') (cleaned
up).
The Department continues to assert that PSLF employer
determinations will not be based on the viewpoint or advocacy positions
of nonprofit or governmental employers or their employees. Instead, the
Department will anchor eligibility exclusively in lawful service to the
public, consistent with 20 U.S.C. 1087e(m)(3)(B), which defines
qualifying employment to include all government and Section 501(c)(3)
organizations. Borrowers and employers may continue to engage in lawful
advocacy without fear that PSLF will be used as a tool of ideological
enforcement.
Changes: None.
Due Process and Vagueness
Comments: Commenters voiced constitutional concerns under the Due
Process Clause of the Fifth Amendment to the U.S. Constitution,
specifically in relation to the phrase ``substantial illegal purpose.''
They described this language as vague, ambiguous, and subject to
shifting interpretation depending on political context. They
[[Page 48977]]
said the rule is unconstitutionally void for vagueness because key
terms are ambiguous, subjective, overly broad, ill-defined, lack
objective standards, and therefore fail to provide adequate notice of
prohibited conduct.
According to commenters, the absence of clear definitions deprives
borrowers and employers of fair notice and creates the risk of
arbitrary enforcement. Commenters also stated that granting broad
discretion to the Secretary without certain procedural safeguards could
undermine due process by enabling decisions that could be inconsistent,
opaque, or politically motivated.
Additionally, some commenters said the disqualification process
violates constitutional due process by failing to provide adequate
procedural safeguards and lacks a clear process for notice, a formal
hearing, or a meaningful appeal to a neutral adjudicator.
Other commenters stated that the rule is procedurally unjust
because it denies individual borrowers due process by failing to
provide a clear, sufficient, or accessible appeals process to challenge
an employer's disqualification. Commenters argued that employees are
more directly and personally harmed under the rule, and as such, they
should have recourse to correct potential errors, especially as some
employers may choose not to challenge their disqualification.
Discussion: The Department takes these due process concerns
seriously. Courts have long held that vague standards fail when they
create uncertainty and invite arbitrary enforcement. See e.g., Grayned
v. City of Rockford, 408 U.S. 104, 108 (1972) (``It is a basic
principle of due process that an enactment is void for vagueness if its
prohibitions are not clearly defined.''). A law can be considered void
for vagueness when an average citizen cannot generally determine what
persons are regulated, what conduct is prohibited, or what punishment
may be imposed. See Johnson v. United States, 576 U.S. 591, 595 (2015);
see also Kolender v. Lawson, 461 U.S. 352, 357-58 (1983) (stating that
a law is void unless it is defined with ``sufficient definiteness that
ordinary people can understand what conduct is prohibited and in a
manner that does not encourage arbitrary and discriminatory
enforcement''); Vill. of Hoffman Estates v. Flipside, Hoffman Ests.,
Inc., 455 U.S. 489, 498 (1982) (``A law that does not reach
constitutionally protected conduct and therefore satisfies the
overbreadth test may nevertheless be challenged on its face as unduly
vague, in violation of due process.''); Papachristou v. City of
Jacksonville, 405 U.S. 156, 162 (1972) (``Living under a rule of law
entails various suppositions, one of which is that (all persons) are
entitled to be informed as to what the State commands or forbids.''
(quoting Lanzetta v. New Jersey, 306 U.S. 451, 453 (1939) (cleaned
up)). This rule clearly defines to whom the requirements apply, the
conduct that is prohibited and the consequence of engaging in illegal
activities for an employer who qualifies in the PSLF program. This
final rule does not create new substantive prohibitions; it merely
changes the consequences for the organization that is engaging in
illegal activity such that it has a substantial illegal purpose. The
underlying legal prohibitions are broad, but broad prohibitions are
permitted so long as there is adequate notice of what is prohibited.
Furthermore, the clear and defined parameters of the rule will help the
Department avoid arbitrary enforcement of the rule, which is an
important goal of the void for vagueness doctrine.
The Department acknowledges that its original definition in the
draft regulations first presented to the negotiated rulemaking
committee was broader and less precise than what was proposed in the
NPRM. To ensure employers and borrowers have fair notice, and after
having discussed issues and concerns during negotiated rulemaking, the
Department refined the definition of ``substantial illegal purpose''
and several other definitions in the NPRM to better clarify the illegal
activities that could lead to an employer being disqualified from
participation in PSLF.
Additionally, under the process proposed in the NPRM, in section
682.219(j), employers will be provided with a notice, a transparent
record, and an opportunity to review, respond, and rebut the
Department's findings to a neutral adjudicator, thereby ensuring that
due process is afforded to all impacted stakeholders and applied fairly
and consistently. The rule also provides an opportunity for employers
to regain eligibility by following a corrective action plan to come
into compliance after a loss of eligibility. If the processes
established in this final rule do not resolve a concern, employers can
seek judicial review of the Department's decisions in Federal court.
The Administrative Procedure Act (APA) provides default rules
establishing procedures for judicial review of Federal agency actions.
5 U.S.C. 706. If an employer has exhausted the administrative remedies
established in this rule and meets all of the other legal requirements
to file a complaint, it can challenge the Department in Federal court.
Finally, the Department believes that employers are better situated
than borrowers to respond to preliminary findings from the Department
about the employer's eligibility. Employees may not have sufficient
information to provide the Department with a full evidentiary framework
to consider because they may not be privy to employer actions or
decisions. Employers may include information in their submissions
regarding the impact eligibility determinations may have on their
employees.
Changes: None.
Equal Protection Concerns
Comments: Several commenters raised concerns that the proposed rule
may violate the Fifth Amendment's Due Process Clause, asserting it
disproportionately targets organizations that serve marginalized
populations and could unlawfully deprive borrowers and employers of
PSLF benefits without adequate notice, procedural safeguards, or a
meaningful opportunity to be heard. Commenters argued that altering
program eligibility or redefining qualifying employment could
constitute an arbitrary or retroactive deprivation of benefits on which
participants had reasonably relied. Several other commenters also
asserted that the proposed rule violates the Due Process Clause of the
Fifth Amendment by altering PSLF eligibility criteria in a manner that
could deprive borrowers or employers of benefits without adequate
procedural safeguards. Some commenters further alleged that the rule
would have a disproportionate effect on nonprofit entities serving
marginalized or disadvantaged populations, raising concerns under both
due process and equal protection principles implicit in the Fifth
Amendment.
Approximately 50 commenters further contended that the rule would
disproportionately affect organizations serving marginalized or
disadvantaged populations, such as those providing legal services,
social support, and educational or healthcare access to low-income,
minority, and immigrant communities. These commenters asserted that
narrowing PSLF eligibility based on organizational mission or
activities could effectively exclude nonprofit employers that advance
equity and civil rights goals (e.g., in work related to immigrant
communities, LGBTQ+ individuals, or racial justice initiatives),
thereby compounding inequities the program was designed to mitigate.
[[Page 48978]]
Discussion: The Department agrees that the PSLF program must be
administered in a neutral manner, without targeting organizations
because of their viewpoint or activism. The Department would have no
basis to remove eligibility from nonprofits engaged in work related to
immigrant communities, LGBTQ+ individuals, or racial justice if those
organizations are following the law. As such, the Department disagrees
that this final rule would unfairly disadvantage the referenced types
of groups.
As discussed throughout, the Department promulgates this rule under
its authority in 20 U.S.C. 1087e(m) and HEA to administer the PSLF
program and ensure consistent, lawful application of its requirements.
In evaluating comments addressing constitutional issues, the Department
considered whether any aspect of this rule implicates procedural or
substantive rights under the Fifth Amendment.
The Department carefully considered concerns regarding the Fifth
Amendment and concludes that the rule is fully consistent with
constitutional requirements. The rulemaking process provides notice and
an opportunity for public comment, as required under the Administrative
Procedure Act (5 U.S.C. 553), satisfying the procedural component of
due process. This final rule applies prospectively and does not rescind
previously granted loan forgiveness or otherwise retroactively alter
qualifying employment determinations. Accordingly, it does not
implicate a constitutionally protected property interest. See Bd. of
Regents v. Roth, 408 U.S. 564, 577 (1972) (``To have a property
interest in a benefit, a person clearly must have more than an abstract
need or desire for it. He must have more than a unilateral expectation
of it. He must, instead, have a legitimate claim of entitlement to it.
It is a purpose of the ancient institution of property to protect those
claims upon which people rely in their daily lives, reliance that must
not be arbitrarily undermined.'')
With respect to the alleged disparate impact on organizations
serving marginalized populations, the Department emphasizes that PSLF
eligibility is determined according to statutory criteria established
in 20 U.S.C. 1087e(m). Eligibility determinations are made by
considering the activities employers engage in that are unlawful either
under Federal or State law, without respect to the impact it may or may
not have on individuals based upon any protected characteristics. This
final rule interprets those provisions in a neutral manner, without
regard to the employer's mission, ideological orientation, or the
population it serves. The mere disparate impact of a facially neutral
rule does not, without evidence of intentional discrimination,
establish a constitutional violation. See Washington v. Davis, 426 U.S.
229, 242 (1976) (holding that a law which is ``neutral on its face and
serving ends otherwise within the power of government to pursue,'' was
valid under the Equal Protection Clause despite the law adversely
impacting individuals from one race more than others).
The Department therefore finds that the rule neither infringes upon
due process rights nor results in an unlawful disparate treatment or
denial of equal protection under the Fifth Amendment.
Accordingly, the Department continues to assert that lawful
advocacy or provision of services to immigrant communities, LGBTQ+
individuals, or racial justice organizations does not disqualify an
employer from participating in the PSLF program. Only where a
determination has been made that an organization is engaging in illegal
activities such that it has a substantial illegal purpose will PSLF
eligibility be at issue.
Changes: None.
Contract Concerns
Comments: Some commenters felt that the rule violates the Contracts
Clause by unilaterally renegotiating the terms of existing agreements
with borrowers, which they argue breaks the trust of individuals who
made significant career and financial decisions in good-faith reliance
on the government's promise and allows the Department to withdraw
promised benefits based on its opposition to a borrower's work.
Similarly, some commenters argued the rule violates legal principles
like promissory estoppel, and that the government is legally and
morally obligated to honor its commitment after borrowers have upheld
their end of the agreement through years of service and payments.
Discussion: The Department rejects the contention that the rule
violates the Contracts Clause by unilaterally renegotiating the terms
of existing agreements with borrowers. In the first instance, the
Contracts Clause only applies to States, not the Federal Government.
Furthermore, the contractual instrument the Department uses when
originating loans, the master promissory note (MPN), explicitly
disclaims the notion that terms and conditions of Federal student loans
are fixed and cannot be changed through the legal process. When a
borrower signs an MPN, the MPN is valid for additional Federal student
loans the borrower takes out for ten years, with certain exceptions.
This means that borrowers may receive multiple or serial loans for up
to ten years from the date the borrower signed the MPN. By signing the
MPN, borrowers agree to the terms and conditions of the loans while
acknowledging that terms and conditions of those loans may be changed.
Specifically, the MPN explicitly states that its terms and conditions
``are determined by the HEA and other federal laws and regulations.''
\7\ MPN at 3. Section 1 of the Borrower's Rights and Responsibilities
Statement (BRR) provided with the MPN further clarifies that amendments
to the HEA and other Federal laws and regulations may amend the terms
of the MPN and cautions that ``[d]epending on the effective date of the
amendment, amendments to the [HEA or other federal laws and
regulations] may modify or remove a benefit that existed at the time
that you signed this MPN.'' MPN at 6. Therefore, by signing the MPN,
the borrower acknowledges the possibility that the terms of the
agreement between themselves and the Department can be changed and that
currently offered benefits may not be available in the future.
---------------------------------------------------------------------------
\7\ Master Promissory Note (MPN) Direct Subsidized Loans and
Direct Unsubsidized Loans William D. Ford Federal Direct Loan
Program, OMB No. 1845-0007 (retrieved Oct. 22, 2025), available at
https://studentaid.gov/mpn/subunsub/preview.
---------------------------------------------------------------------------
The Department rejects the contention that this rule is barred by
promissory estoppel. The doctrine of promissory estoppel is commonly
understood to be inapplicable in disputes between private parties and
the Federal Government. Michael J. Cole, Don't ``Estop'' Me Now:
Estoppel, Government Contract Law, and Sovereign Immunity if Congress
Retroactively Repeals Public Service Loan Forgiveness, 26.1 Lewis and
Clark L. Rev. 154, 169 (2022) (citing Hubbs v. United States, 20 Cl.
Ct. 423, 427-28 (1990), aff'd, 925 F.2d 1480 (Fed. Cir. 1991); Eliel v.
United States, 18 Cl. Ct. 461, 469 (1989), aff'd, 909 F.2d 1495 (Fed.
Cir. 1990); Schwartz v. United States, 16 Cl. Ct. 182, 185 (1989);
Ralph C. Nash & John Cibinic, Promissory Estoppel: A Theory Without a
Home in Government Contracts, 3 THE NASH & CIBINIC REP. ] 52 (July
1989)). Breach of contract disputes involving the Federal Government
are governed by the Tucker Act (28 U.S.C. 1491(a)(1)) and Contract
Disputes Act (41 U.S.C. 7101-7109), neither of which allow the private
parties to obtain relief
[[Page 48979]]
when they are harmed by the Federal Government's promises.
Even if promissory estoppel was applicable to the Department, the
required elements for a promissory estoppel claim could not be
satisfied by a borrower whose employer loses its qualifying employer
status as a result of this rule. The doctrine of promissory estoppel is
rooted in detrimental reliance and requires proof that there was a
promise or representation made, that the promise or representation was
relied upon by the party asserting the estoppel in such a manner as to
change his position for the worse, and that the promise's reliance was
reasonable and should have been reasonably expected by the promisor.
See L. Mathematics & Tech., Inc. v. United States, 779 F.2d 675, 678
(Fed. Cir. 1985). Here, the borrower would fail to satisfy the required
elements for a promissory estoppel claim because they expressly
acknowledged and agreed to the possibility of changes to benefits that
existed when they signed the MPN. The MPN disclaims the idea that the
terms and conditions of a Federal student loan are unalterable, meaning
that any reliance interest is not reasonable. Furthermore, such a
borrower would struggle to demonstrate that they were harmed as a
result of this reliance, as the borrower would still have received a
measurable benefit as a result of working for the formerly-qualifying
employer, as all qualifying payments made by the borrower before the
date of the organization's loss of qualifying employer status will
continue to be counted as such, meaning that the borrower will have
made progress toward loan forgiveness through PSLF as a result of their
employment.
Retroactivity Concerns
Comments: Several commenters expressed concerns that the rule is
impermissibly retroactive because it adds new requirements that impact
existing participants, creates uncertainty, and violates the holdings
of cases such as Landgraf v. USI Film Productions, 511 U.S. 244 (1994),
and Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988), which
require express Congressional authorization for rules with retroactive
effect. Other commenters argued that the rule improperly penalizes
organizations for lawful past conduct. A few commenters suggested that,
to prevent unfair outcomes and impermissible retroactivity, any new
restrictions must be applied prospectively to new borrowers, new loans,
or new employees who begin service after the rule's effective date.
Many commenters stated that current borrowers should not be impacted if
their employer loses eligibility to participate in PSLF as a result of
this rule.
Discussion: The Department disagrees that this final rule has
retroactive effect on any current qualifying employers or borrowers
employed by such organizations. An organization can only lose or be
denied qualifying employer status under this final rule if it engaged
in illegal activities such that it has a substantial illegal purpose on
or after July 1, 2026, the effective date of this final rule. Those
activities are all clearly enumerated within the final rule. The
Supreme Court has stated that ``considerations of fairness dictate that
individuals should have an opportunity to know what the law is and to
conform their conduct accordingly.'' Landgraf, 511 U.S. at 265. This
rule complies with that principle by identifying the prohibited
activities and providing that the conduct occurring before a future
date will not be a factor when the Department considers whether the
organization has a substantial illegal purpose. Both employers and
borrowers will have approximately eight months between the publication
of this final rule and its effective date, providing sufficient time to
understand the types of illegal conduct that could result in an
employer losing PSLF eligibility.
With regard to borrowers employed by organizations that are
currently qualifying employers, this final rule has no retroactive
effect because any qualifying payment that the borrower made during the
period of time that such employer was considered a qualifying employer
will continue to count as such, including any payments made during the
employer reconsideration process, even if the employer ultimately loses
that status. In any case, an organization cannot lose or be denied
qualifying employer status unless it engaged in illegal activities such
that it has a substantial illegal purpose on or after July 1, 2026,
meaning that payments made by borrowers employed by a qualifying
organization could not possibly cease to be considered qualifying
payments until the effective date of this final rule, at the very
earliest. Taken together, the rule cannot and does not have a
retroactive effect.
Furthermore, the Department rejects the argument that this final
rule conflicts with the Supreme Court's rulings in the Landgraf and
Bowen cases. In Landgraf, the Supreme Court rejected the plaintiff's
argument that new remedies created by the Civil Rights Act of 1991
should apply in a sexual harassment case, even though the harassment
and her resignation occurred before the legislation was passed, with
the Court concluding that statutes burdening private rights are not
presumed to have retroactive effect unless Congress clearly intended
such retroactive effect. See 511 U.S. at 270, 285, 286. In Bowen, the
Supreme Court found that the Secretary of Health and Human Services had
exceeded his rulemaking authority by promulgating a wage index rule in
1984 under which Medicare reimbursements paid to hospitals that had
been disbursed since 1981 would be recouped, because Congress did not
explicitly give the Secretary of Health and Human Services the power to
promulgate rules with retroactive effect. See 488 U.S. at 204, 210, and
211. This final rule is not in conflict with the Supreme Court's
rulings in Landgraf or Bowen because it only concerns conduct occurring
on or after July 1, 2026, and because payments made by borrowers
employed by the organization during the period it was a qualifying
employer will still be counted toward PSLF forgiveness, regardless of
whether the organization later loses its qualifying employer status.
Furthermore, the Department disagrees that this final rule
penalizes past lawful conduct. All the activities included within the
definition of ``substantial illegal purpose'' require a violation of
relevant State or Federal laws on or after July 1, 2026. An
organization will not, and cannot, be penalized for past lawful
conduct. To the extent that an organization engages in conduct which
later becomes illegal as a result of a change in State or Federal law,
only conduct occurring after the effective date of such a change could
be considered relevant when considering whether the organization has a
substantial illegal purpose, as the conduct was not illegal until that
point in time.
Finally, the Department rejects the argument that any new
restrictions on qualifying employment must only be applied to new
borrowers. The MPN signed by each borrower explicitly states that its
terms and conditions ``are determined by the HEA and other federal laws
and regulations.'' MPN at 3. Section 1 of the BRR that is provided with
the MPN further clarifies that that amendments to the HEA and other
Federal laws and regulations may amend the terms of the MPN and
specifically cautions that ``[d]epending on the effective date of the
amendment, amendments to the [HEA or other Federal laws and
regulations] may modify or remove a benefit that existed
[[Page 48980]]
at the time that you signed this MPN.'' MPN at 6. Because borrowers
have been forewarned about the possibility of such changes, the
Department believes it is unnecessary to grandfather in existing
borrowers, especially when such an approach could result in the
Department treating two borrowers differently when both are employed by
the same organization, at the same time, and both are making payments.
This result would be unfair to borrowers, would undermine the purpose
of this final rule, and pose practical difficulties in terms of
administration.
Definitions General (Sec. 685.219(b))
Comments: Commenters objected to the introduction of new, undefined
concepts such as ``substantial illegal purpose,'' ``aiding or
abetting,'' or ``violating State law.'' Without precise definitions,
they argued, these terms invite inconsistent application across States
and agencies.
Discussion: The Department disagrees that these terms are undefined
or not well understood. These terms are clearly defined in the
regulation, and in many instances are cross referenced to existing law
that prohibits the underlying conduct. The concept of aiding and
abetting is purposefully broad as it prohibits assisting in numerous
types of criminal activity, but it is well understood by courts and the
public. Likewise, the phrase ``violating State law'' is intentionally
broad and encompasses a wide array of conduct, but it is also
sufficiently clear and puts employers on notice that State law
violations may be considered when determining if an organization has a
substantial illegal purpose. Lastly, the term ``substantial illegal
purpose'' is also clearly defined in the regulation and puts
organizations on notice that the Secretary will consider any illegal
conduct from the enumerated list and weigh it to determine if the
organization has a substantial illegal purpose.
The purpose of using such terms is to set clear standards for PSLF
program eligibility, not to create new interpretations. The Department
will also rely on existing findings of unlawful activity by courts or
other regulators where appropriate. To the extent that State laws may
vary, the Department will defer to the judgments of State courts in
determining what constitutes unlawful activity within the jurisdiction
where the conduct occurs.
In instances where an organization has locations in more than one
State and only broke the law in one or a few States, the Department may
still find that the organization has a substantial illegal purpose by
weighing all the relevant evidence. However, the Department will not
find an organization to have engaged in illegal activity (and weigh
that evidence under the substantial illegal purpose test) if the
underlying conduct occurred in a State in which the conduct was legal.
In other words, unless the State where the conduct occurs prohibits
such conduct, the organization has not engaged in illegal conduct, and
the Department will not use that conduct as a basis for removing
employers from the PSLF program.
Changes: None.
Comments: Many commenters argued that the definitions provided in
the rule are either too vague or sweep too broadly, creating
uncertainty for both borrowers and employers. They worried that broad
terms could invite inconsistent or arbitrary application, leaving
organizations unclear about their eligibility status and borrowers
without reliable assurances. Other commenters emphasized that
definitions must be precise enough to avoid politicization but flexible
enough to cover genuinely unlawful conduct.
Discussion: The Department agrees that its definitions are broad
but disagrees that they are too vague to be clearly understood. As
mentioned above, this final rule establishes definitions that are
anchored in law, have precise meanings that provide sufficient notice,
are written in a manner in which they can be applied uniformly, and are
generally understood by the public.
Changes: None.
Aiding or Abetting (Sec. 685.219(b)(1))
Comments: Commenters expressed concern that extending PSLF
disqualification to organizations deemed to have ``aided or abetted''
unlawful activity would open the door to subjective interpretations.
They questioned what level of involvement or association constitutes
``aiding'' and were worried that entities providing indirect support,
such as legal advice, medical care, or humanitarian assistance, could
be unfairly swept into disqualification. Commenters additionally
expressed concern about the application of the definition of ``aiding
and abetting'' from 18 U.S.C. 2 to organizations, rather than
individuals, and argued that such application is improper because
corporations are legal concepts that do not have or share intent.
Additionally, commenters urged the Department to clarify that lawful
representation of a client accused of participating in substantial
illegal activity does not constitute participation in said illegal
activity, and requested the Department provide a `safe harbor' for the
activity representation.
Discussion: The Department rejects the idea that ordinary, lawful
assistance such as legal advice, medical care, or humanitarian support
could trigger PSLF disqualification. Attorneys do not break the law, or
adopt the views of their clients, by representing individuals in legal
proceedings. This includes representing clients who may be unpopular,
like terrorists. As such, the Department will not take action against
legal employers under this final rule who are lawfully representing
clients, including public defenders, or under the Legal Services
Corporation Act. The term ``aiding and abetting'' carries a settled
legal meaning: intentional participation in unlawful activity. It does
not cover lawful support or incidental association. As such, the
Department does not believe that it needs to provide a `safe harbor'
consideration for these instances, as they are representative of lawful
action undertaken by the eligible employer. Such actions are not
illegal and thus would not be considered when determining if an
employer has a substantial illegal purpose. The Department believes
that it is necessary to include the concept of aiding and abetting
within this final rule to address the issue that organizations that are
going beyond lawful support or incidental associations are enabling or
encouraging others to engage in certain unlawful activities. As such,
organizations are just as at odds with the public interest as an
organization that directly carries out unlawful activities. For
example, if an organization has numerous employees who, at the
direction of their employer, aided and abetted in acts of terrorism,
the Department could clearly move to disqualify the employer and
disallow PSLF benefits from flowing to its employees.
When considering, for PSLF eligibility purposes, whether an
organization has aided and abetted illegal discrimination or violations
of Federal immigration laws, the Department will carefully examine the
balance of the evidence to determine both whether certain unlawful
activities occurred and whether there is ``objective indicia'' that the
organization sought to further those unlawful activities. See e.g.,
Presbyterian & Reformed Pub. Co. v. Comm'r, 743 F.2d 148, 155 (3d Cir.
1984) (``The difficulties inherent in any legal standard predicated
upon the subjective intent of an actor are further compounded when that
actor is a corporate entity. In such circumstances,
[[Page 48981]]
courts forced to pass upon a potentially illicit purpose have looked
for objective indicia from which the intent of the actor may be
discerned.'' (footnote omitted)). The Department may look to
established legal standards associated with employer liability for acts
of employees when making these determinations. Isolated incidents of
unlawful conduct are unlikely to be sufficient to demonstrate that the
employer engages in activities that result in the culmination of it
having substantial illegal purpose. However, if there is a pattern and
practice where numerous employees have engaged in illegal conduct, at
the direction of or with the acquiescence of the employer, the
Department may weigh that evidence more strongly in determining if the
employer has a substantial illegal purpose, consistent with the
doctrine of respondeat superior. See e.g., Williams v. Clerac, LLC, 635
F. Supp. 3d 607, 613 (N.D. Ohio 2022) (stating that, under the
respondeat superior doctrine, ``if the employee tortfeasor acts
intentionally and willfully for his own personal purposes, the employer
is not responsible'' unless the action was ``calculated to facilitate
or promote the business for which the [employee] was employed,'' the
employer ``fails to take action where the employer knows or has reason
to know that one employee poses a risk to other employees,'' or if the
employer ``specifically and explicitly ratifies the employee's
[tortious] act and adopts it as the employer's own.'' (cleaned up));
Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 63 (4th Cir. 1993) (``[A]
corporation is liable for the criminal acts of its employees and agents
done within the scope of their employment with the intent to benefit
the corporation.'')
Changes: None.
Chemical Castration or Mutilation (Sec. 685.219(b)(3))
Comments: Several commenters stated the definition of ``chemical
castration or mutilation'' is especially unclear and controversial.
They noted that Federal and State law already regulate medical
procedures and questioned why the PSLF program should independently
define or police such conduct. Other commenters noted that, without
clarity, legitimate medical providers could be penalized simply for
offering lawful procedures that might be politically contested. Other
commenters recommended various amendments to the definition of
``chemical castration or mutilation.''
Discussion: The Department disagrees. The definition of chemical
castration or mutilation is not about lawful medical practices; it is
about ensuring that PSLF funds do not support the castration or
mutilation of children in violation of Federal or State law. Medical
providers performing activities within the bounds of Federal and State
law will not be affected. Only conduct that is prohibited by Federal
law, or State law in the State where the conduct occurs, is at issue.
The standard is anchored in law and will be applied narrowly, based on
clear evidence of illegality under Federal law or State law.
Consistent with President Trump's Executive Order on Protecting
Children from Chemical and Surgical Mutilation, Executive Order 14187
(Jan. 28, 2025), the Department will be guided by the definition of
``chemical and surgical mutilation'' outlined in that Executive Order.
As discussed in the NPRM, the Department searched for the most
appropriate definition of chemical castration or mutilation and located
the January 28, 2025, Executive Order, Protecting Children From
Chemical and Surgical Mutilation, which provides the basis for the
proposed definition. For further discussion and additional sources
regarding the rationale for this decision, see William D. Ford Federal
Direct Loan (Direct Loan) Program, 90 FR 40154, 40159-40160 (Aug. 18,
2025).
Changes: None.
Child or Children (Sec. 685.219(b)(4))
Comments: Commenters asked for clarification on how ``child'' is
defined for purposes of PSLF program eligibility. Some commenters
worried that the rule could be read inconsistently across different
contexts such as Federal law, State family law, or immigration law.
They urged the Department to adopt a uniform definition that would
purportedly avoid ambiguity and ensure fairness across all borrowers
and employers. Commenters also recommended the Department use
alternative definitions such as the ``age of majority'', the term ``18
years or younger'', or exempting emancipated minors no matter what
their age.
Discussion: The Department agrees that uniformity is important. The
definition of child in this final rule is tied to the Executive Order
on Protecting Children from Chemical and Surgical Mutilation, Executive
Order 14187 (Jan. 28, 2025), to avoid confusion across States or when
used in different contexts. This definition will be applied
consistently across the country to ensure fairness and prevent
inconsistent application.
Changes: None.
Foreign Terrorist Organizations (Sec. 685.219(b)(10))
Comments: Commenters supported excluding groups tied to terrorism
but urged the Department to anchor determinations strictly to Federal
law and formal designations. They feared that vague language could
allow future administrations to disqualify entities engaged in lawful
advocacy or international humanitarian work. Borrowers and employers
emphasized that PSLF program eligibility should track clear Federal
determinations, not discretionary judgments.
Discussion: The Department agrees that PSLF program eligibility
must follow formal Federal determinations. Organizations designated as
foreign terrorist organizations under U.S. law will be excluded from
the PSLF program. This final rule requires the Department to defer to
terrorist designations already established by the Federal Government.
Borrowers and employers will have certainty that decisions are neutral,
grounded in evidence, and tied directly to statutory authority.
Changes: None.
Illegal Discrimination (Sec. 685.219(b)(12))
Comments: Commenters stated that the definition of ``illegal
discrimination'' needs precision to avoid misuse. Commenters worried
that organizations accused of discrimination, but not formally found
liable, could be penalized. Others stressed that PSLF should not create
new anti-discrimination standards beyond what is already defined under
Federal or State law, to avoid layering duplicative or politically
influenced rules.
Discussion: The Department agrees that the PSLF program should not
create new discrimination standards. This final rule relies strictly on
established Federal law and allegations alone will not meet the
standard for disqualification. Only organizations found to have engaged
in unlawful discrimination will face disqualification.
Changes: None.
Other Federal Immigration Laws (Sec. 685.219(b)(17))
Comments: Commenters said referencing ``other Federal immigration
laws'' is too broad and risks sweeping in organizations providing
lawful assistance to immigrants, refugees, or asylum seekers. They
worried that work such as legal aid, housing support, or medical
services could be mischaracterized as unlawful under shifting political
climates. They
[[Page 48982]]
requested precise language to ensure only clear and adjudicated
violations of immigration law trigger disqualification.
Discussion: The Department disagrees that referencing ``other
Federal immigration laws'' is too broad or may sweep in legal conduct.
This final rule will not penalize an organization for providing lawful
assistance to immigrants, refugees, or asylum seekers. Disqualification
will only occur where it is determined the organization is engaged in
illegal conduct, and that conduct is material enough that the
organization has a substantial illegal purpose. The phrase ``Federal
immigration law'' is broad, but it is easily understood and only
applies to Federal law that regulates immigration.
Changes: None.
Qualifying Employer (Sec. 685.219(b)(27))
Comments: Commenters asked for greater clarity on which
organizations qualify as government, nonprofit, or public service
employers under Sec. 685.219(b)(27). Some argued that uncertainty
about whether certain nonprofits, quasi-governmental bodies, or
contractors qualify has long plagued the PSLF program. They stressed
that borrowers and employers alike need predictable criteria,
particularly where functions are performed through delegated
authorities, shared services, or nontraditional entities. Without
clearer boundaries, they argued, borrowers risk making career choices
under uncertainty, only to later discover their service does not
qualify for PSLF. Other commenters stated that they feared the new rule
would perpetuate confusion rather than resolve it, noting that there
was confusion over whether affiliates, contractors, or subcontractors
performing public service functions on behalf of government or
nonprofit entities count as qualifying employers. They warned that the
absence of clear treatment for affiliates, contractors, and
subcontractors invites inconsistent outcomes across service providers.
Discussion: The Department agrees that clarity is critical so that
borrowers can make informed decisions. This final rule does not change
the five types of organizations and agencies that are considered as a
qualifying employer under the current definition in 34 CFR
685.219(b)(27). Additionally, the government entities, nonprofits, and
public service organizations that currently are considered by the
Department as qualified employers are listed on the Department's
website.
Under this final rule, the Department will update this list only
after it takes action to remove an employer, and borrowers who work for
that employer will be unable to receive credit for their work toward
PSLF forgiveness only after the date of the Department's determination
under subsection (h) or after any reconsideration requests or actions
by the employer in accordance with subsection (j) of these regulations.
These determinations will not be made retroactively, meaning that
borrowers will receive credit for any work prior to the Department's
determination. This final rule will ensure that borrowers have notice
and will have an opportunity to change employers if they wish to
continue to make progress toward loan forgiveness through PSLF.
Additionally, for a borrower to receive credit toward PSLF, the
borrower must have a public service job working for a qualifying
employer. Affiliates, contractors, and subcontractors that are not
organizations or agencies meeting the definition of a qualifying
employer do not offer public service jobs, so borrowers will not
receive PSLF credit by working for those employers. This policy is not
changed by this final rule.
Changes: None.
Comments: Many commenters raised questions about organizations that
have both qualifying and non-qualifying functions, or that undergo
restructuring, mergers, or spin-offs. They worried that borrowers could
lose PSLF credit during employer transitions that are outside their
control. Several commenters urged continuity protections, rules for
partial qualifying service, and procedures to ensure that employer
restructuring does not unfairly strip borrowers of eligibility.
Discussion: The Department recognizes the risks created by
restructuring and mergers of service organizations. It is possible that
restructuring or mergers could change the eligibility of employers for
PSLF. Organizations must be qualifying employers under the regulation
for their employees to be eligible to participate in PSLF. If after
restructuring or a merger, the employer no longer meets the definition
of qualifying employer, its employees can no longer receive credit
toward loan forgiveness through PSLF. The Department's regulations
already account for this, and the Department is not proposing any
changes in this final rule to further address this issue.
The Department acknowledges that when employers undergo these types
of changes it may create uncertainty for borrowers; however, the PSLF
statute is clear when a job is no longer qualifying. To give borrowers
credit for working in jobs that do not qualify would violate the
statute, so the Department cannot make changes to the regulations to
address employers that transition out of their qualifying status.
Changes: None.
Comments: Commenters expressed uncertainty over how the PSLF
program should treat quasi-governmental entities such as special
districts, authorities, or instrumentalities. They pointed to wide
variations in how State law defines such bodies and asked the
Department to establish consistent Federal criteria.
Discussion: The Department understands that State law definitions
of governmental units vary. The definition of qualifying employer
includes ``A United States-based Federal, State, local, or Tribal
government organization, agency, or entity, including the U.S. Armed
Forces or the National Guard.'' This definition is broad and captures a
variety of organizations and instrumentalities that have been created
by State or local governments, so long as the organization is not
organized for profit and is not a labor union or a partisan political
organization.
Changes: None.
Comments: Commenters requested standardized documentation
requirements for nonprofit eligibility, such as reliance on IRS
determination letters, State registration records, or other verifiable
public filings. They urged the Department to avoid duplicative
documentation requests and align with existing Federal and State
oversight systems. Commenters also asked for clarity on whether
nonprofits under investigation that are not yet found in violation
remain eligible to participate in the PSLF program.
Discussion: The Department agrees that nonprofit employers must
have clear, standardized documentation requirements. Borrowers and
employers should not face duplicative requests or arbitrary standards.
The Department will continue to take into evidence objective,
verifiable records such as employer provided IRS determination letters
and State nonprofit filings. The Department acknowledges that the IRS
could only disclose this information pursuant to an exception under 26
U.S.C. 6103. Borrowers can also use the PSLF Help Tool on the
Department's website to find employers that the Department already
believes are qualifying employers.
Qualifying employers who are under review because they may have a
substantial illegal purpose will remain as qualifying employers until a
determination is made by the Secretary. This approach respects due
process while safeguarding the PSLF program from abuse.
Changes: None.
[[Page 48983]]
Substantial Illegal Purpose (Sec. 685.219(b)(30))
Comments: Many commenters said the phrase ``substantial illegal
purpose'' is inherently vague and creates risk of overreach. They asked
how the term ``substantial'' would be measured, whether it refers to
the primary purpose of the organization or any significant unlawful
activity, and how determinations would be documented. They emphasized
the need for precision to avoid penalizing lawful entities for isolated
or contested conduct.
Discussion: The Department rejects claims that the phrase
``substantial illegal purpose'' is too vague to be understood. The
activities that are included within this term are defined in this final
rule. Organizations that have engaged in an illegal activity are not
automatically considered to have engaged in an activity with a
substantial illegal purpose. Instead, the Secretary considers evidence
of activities and whether the materiality of those activities supports
a determination that the organization has engaged in illegal activities
such that it has a substantial illegal purpose. ``Substantial'' refers
to unlawful activity that is central to an organization's purpose or
operations, not incidental conduct. Determinations will be based on
objective evidence, not speculation.
Changes: The Department made changes to the standard and the
process in subsections (h), (i), and (j) for determining whether an
organization has a substantial illegal purpose to make clear that the
Secretary weighs evidence of illegal activity to determine whether that
illegal activity is so substantial that the organization has a
substantial illegal purpose.
Comments: Commenters asked how ``substantial'' would be measured in
practice. They worried that isolated incidents, ongoing investigations,
or unproven allegations could unfairly trigger PSLF disqualification.
Many argued that only sustained and adjudicated illegal activity
central to an organization's mission should be considered before
disqualification of the employer. They urged the Department to
establish multi-factor criteria that weigh scope, frequency, and intent
to ensure that disqualification is limited to genuinely unlawful
organizational purposes.
Discussion: The Department agrees that determinations must be based
on real and substantial unlawful activity, not speculation or unproven
allegations. This final rule makes clear that eligibility decisions
will rest on the materiality of any illegal activities or actions
central to the organization's mission, not incidental actions by
individuals acting outside the scope of their employment. The
Department may consider allegations as a basis to start an inquiry, but
the Department must develop the factual record to substantiate any
allegations. The Department may also consider evidence that another
entity, like a court, has adjudicated an issue when developing the
factual basis for any action. Organizations will receive notice of any
findings, an opportunity to respond, and an opportunity to rebut such
findings. The Department will use clear and objective standards to
measure ``substantial,'' weighing the scope, frequency, and intent of
the conduct.
Changes: The Department clarified the standard and made changes to
the process for determining whether an organization has a substantial
illegal purpose to make clearer that the Secretary weighs evidence of
illegal activity that is enumerated in paragraph (b)(30) to determine
whether that illegal activity is so substantial that the organization
has a substantial illegal purpose.
Terrorism (Sec. 685.219(b)(32))
Comments: Commenters agreed that organizations engaged in terrorism
should be excluded, but they stressed that the rule must be tightly
tied to statutory definitions and formal government determinations.
They warned that, without such anchoring, lawful advocacy groups could
be vulnerable to being labeled as terrorist-linked based on politics
rather than evidence.
Discussion: The Department agrees that the PSLF program must
exclude organizations engaged in terrorism, and thus eligibility
decisions will be tied strictly to statutory definitions and formal
government determinations. The Department will be unable to find that
an organization is engaged in terrorism if the organization's conduct
does not meet the elements necessary to show that they have engaged in
terrorism consistent with Federal law and formal designations. The
Department must develop factual evidence to support any finding, which
ensures that organizations will not be targeted under this provision
because of their viewpoint or political advocacy.
Changes: There are no substantive changes to the definition of
terrorism. The Department removed the phrase ``the Crime and Criminal
Procedure'' and the parenthesis around the citation to 18 U.S.C. 2331
for clarity.
Trafficking (Sec. 685.219(b)(33))
Comments: Commenters broadly supported excluding organizations
engaged in trafficking but asked for clear standards for how
determinations would be made. They worried that nonprofits providing
survivor support or harm reduction services could be swept in if the
definition of ``trafficking'' was too broad. They urged the Department
to ensure determinations rely on objective legal findings rather than
discretionary judgments.
Discussion: The Department agrees that PSLF must exclude employers
engaged in trafficking. Determination will be based on objective legal
findings, not speculation. The Department will be unable to find that
an organization is engaged in trafficking if the organization's conduct
does not meet the elements necessary to show that they have engaged in
such unlawful conduct. Nonprofits providing services to survivors or
harm reduction work will not be penalized so long as their conduct is
lawful. This final rule makes sure PSLF disqualification is narrowly
applied to unlawful trafficking.
Changes: None.
Violating State Law (Sec. 685.219(b)(34))
Comments: Many commenters noted that State laws vary widely and
could create inconsistent outcomes for employers across States. They
feared that nonprofits or local agencies might be disqualified based on
politically driven litigation in one State, even if their conduct would
be lawful elsewhere. They recommended that we limit this provision to
well-established violations adjudicated by courts rather than
allegations or unsettled disputes.
Discussion: The Department acknowledges that State laws vary
widely. PSLF disqualification will not rest on mere allegations or
politically motivated lawsuits. When the Department is considering
whether an employer has engaged in illegal activities such that it has
a substantial illegal purpose by virtue of having violated State law,
only final, non-default judgments against an employer for violations of
those State laws listed in the regulation may be used as evidence in
making that determination. This includes trespassing, disorderly
conduct, public nuisance, vandalism, and obstruction of highways.
The narrow scope of this provision limits its application and
provides clear notice to borrowers and employers.
Changes: None.
[[Page 48984]]
Violence for the Purpose of Obstructing or Influencing Federal
Government Policy (Sec. 685.219(b)(35))
Comments: Commenters strongly supported excluding organizations
engaged in violence but worried the definition could be applied too
broadly. They asked how the Department will distinguish between
unlawful violent activities and lawful protest or advocacy that might
involve civil disobedience. They stressed that only adjudicated
instances of unlawful violence should trigger PSLF disqualification, to
protect First Amendment rights while upholding statutory intent.
Discussion: The Department agrees that organizations engaged in
unlawful violence must be excluded from PSLF. Violence involves using
physical force to hurt, damage, or kill someone or something. The First
Amendment does not protect violence; it protects speech and the
expression of ideas. The Department will rely on court precedent to
distinguish between protected speech and expression and unlawful
violence. Even speech advocating for violence is protected, so long as
it is not directed to or used to incite imminent lawless action. See
e.g., Brandenburg v. Ohio, 395 U.S. 444 (1969) (holding that a state
may not forbid speech advocating the use of force or unlawful conduct
unless this advocacy is directed to inciting or producing imminent
lawless action and is likely to incite or produce such action). When
determining if an organization engages in illegal activities such that
it has a substantial illegal purpose, the Department will not weigh
evidence of lawfully protected speech or expression against an
employer. This ensures First Amendment rights are respected while
ensuring that PSLF benefits do not support employees of organizations
that engage in violent behavior.
Changes: None.
Borrower Eligibility (Sec. 685.219(c))
Comments: Many commenters argued that, without clear rules,
employees could lose PSLF benefits for reasons they could neither
foresee nor control. They argued that workers should not bear the
consequences of ambiguous employer classifications or administrative
reinterpretations. Commenters urged the Department to ensure that
credit continues for all periods of lawful public service, regardless
of later disputes about an employer's eligibility.
Discussion: The Department understands that employees need to be
informed when their employer loses eligibility for reasons that are
outside of their control or that were unforeseeable. The Department
will only determine that an organization has a substantial illegal
purpose if there is evidence that shows that they have engaged in
unlawful conduct. Organizations have the ability, and should have
controls in place, to ensure that they do not engage in unlawful
conduct. Nothing in this final rule changes the legality regarding the
underlying legal offenses, it simply changes the consequences for such
unlawful conduct. Where the unlawful conduct is material and meets the
other requirements of the regulation, the Department can remove
eligibility for PSLF. The Department does not believe Congress intended
to prop up and subsidize the unlawful behavior of organizations.
Employees will not lose PSLF credit for any payments that previously
qualified toward forgiveness before a determination is made. This final
rule makes clear that qualifying payments earned during periods of
public service will not be removed from the borrower's count toward
forgiveness provided those payments were made prior to the Secretary's
determination that the employer engaged in illegal activity such that
it has a substantial illegal purpose. It is only after the Department
has determined that an employer has lost eligibility as a qualifying
employer due to engaging in unlawful activities on or after July 1,
2026, that a borrower's payment will not be counted as a qualifying
payment. This approach protects workers by preventing retroactive
application and ensures that payments made before the Secretary's
determination continue to count toward forgiveness.
The PSLF program will honor public service, not penalize borrowers
for administrative disputes, and borrowers will retain the ability to
pursue employment at another qualified employer. Borrowers will be
protected, employers will be held accountable, and taxpayers will know
their dollars are used responsibly and in pursuit of lawful activities.
Changes: None.
Comments: Commenters stressed the need for reliance on protections
for those borrowers already serving in qualifying employment. They
urged that borrowers should not be penalized mid-service if their
employer is later disqualified. Several commenters recommended explicit
non-retroactivity provisions, transition rules, and that borrowers who
have earned PSLF credit may maintain that same credit when they move to
a new, qualifying employer. Additionally, a commenter believed that the
final rule should clarify that a borrower's payments continue to
qualify for PSLF until the final determination is made. They also
requested the borrower be given a grace period to find new qualifying
employment for the purposes of the PSLF program.
Some commenters wrote about specific borrowers who have long-term
employment contracts, including medical residents. Commenters expressed
the belief that medical residents, and extended term contract
employees, have additional restrictions surrounding their employment,
limiting their ability to switch jobs in the event their employer loses
PSLF eligibility. Some commenters went so far as to claim that losing
PSLF eligibility could have career ending consequences if transition
flexibility was not provided.
Discussion: The Department recognizes that borrowers in the PSLF
program have significant reliance interests. The PSLF program was
created by Congress in 2007 and requires borrowers to have certain
types of student loans, enroll in certain types of repayment programs,
and work for a qualifying employer for ten years. Many borrowers
structure their life plans around the program, in that they sometimes
decide to go to college and incur significant student loan debt in
reliance on the program to ultimately subsidize the cost of their
education. Furthermore, many borrowers may forgo higher-paying
occupations in the private sector to maintain eligibility for the
program. The Department believes that the rule appropriately balances
the reliance interests of borrowers against the interests of taxpayers
and the Federal Government in ensuring that the PSLF program is not
supporting illegal activity. In accordance with borrower reliance
issues, as explained previously, the Department is only taking action
against employers prospectively. Even if an employer has engaged in
unlawful conduct in the past, the Department's determination that an
organization engaged in activities such that it has a substantial
illegal purpose will not impact PSLF credit a borrower has received for
working for that employer in the past. And while employees who work for
these organizations may desire to continue to work for these
organizations, they will have clear notice and the opportunity to
change employers after the Department takes action against an employer.
The Department believes this appropriately balances the borrower's
substantial reliance interests against the Federal Government's
interest in not indirectly subsidizing illegal activity.
With respect to the commenter's request that we clarify that a
borrower's
[[Page 48985]]
payments continue to count toward PSLF until a final determination is
made, we note that under this final rule, a borrower remains eligible
for PSLF until the date of the Secretary's determination that employer
is no longer a qualifying employer. Additionally, after considering the
suggestion to include a grace period for a borrower to find new
qualifying employment if their employer has been determined to be
ineligible for PSLF, we believe that this would be inconsistent with
current policy for borrowers who cease employment with qualifying
employers for multiple other reasons or who change jobs between
qualifying employers. Moreover, under section 685.219(h) of this final
rule, borrowers will receive notice that the Secretary has initiated
the process to determine whether an employer has engaged in illegal
activities such that it could result in a determination that it has a
substantial illegal purpose. Although not yet a final determination of
employer eligibility, this final notice provides the borrower an
opportunity to seek employment with another qualifying employer if they
wish to continue to pursue PSLF without risk of interruption.
The Department acknowledges that there may be some medical resident
borrowers who may face heightened challenges in changing employers due
to the complex terms of their respective employment contracts. Although
the Department acknowledges that this puts some borrowers in a more
difficult situation, since the Department does not believe the
interests of these borrowers outweighs the Department's interests in
preserving the integrity of the PSLF program. Delaying the consequences
of disqualification would mean that taxpayers would continue to
indirectly subsidize the employment of individuals working for an
employer engaged in illegal activity. Providing a transition period
could reduce employers' incentives to comply with this final rule,
including by delaying the timely development and implementation of a
corrective action plan with the Department. As such, the Department
does not believe that providing a transition period is appropriate. At
the same time, the Department notes when an employer loses eligibility,
borrowers who work for that employer will receive credit for the month
in which eligibility is lost. For example, if an employer loses
eligibility on the third day of a given month, the borrower will
receive credit for that month.
Changes: None.
Comments: Commenters suggested that retroactive disqualification of
employers could harm borrowers who relied in good faith on their
employer's eligibility, creating unfairness and eroding trust in PSLF.
They stressed that borrowers should not be penalized for decisions
beyond their control.
Discussion: The Department agrees. As explained previously, this
final rule makes clear that all qualifying payments made while an
employer was considered eligible will continue to count, even if that
employer is found ineligible later. There will be no retroactive PSLF
disqualification of employers due to the reliance interests the
borrowers have, as the commenters identified. However, any payment made
after an employer is deemed no longer eligible for PSLF will not be
counted toward the number of payments to forgiveness. This safeguard
protects borrowers' reliance interests and ensures fairness while
allowing the Department to act prospectively to maintain program
integrity. This approach ensures that workers who have served in good
faith are not punished, while also protecting taxpayers by preventing
benefits from flowing to unlawful conduct in the future.
Changes: None.
Comments: Commenters warned that borrowers could lose PSLF
eligibility because of sudden employer disqualification, even though
workers themselves did nothing wrong. They argued that employees should
not be punished for decisions outside of their control.
Discussion: The Department acknowledges that there may be instances
where specific borrowers who work for employers the Department has
determined to have a substantial illegal purpose may not have directly
engaged in unlawful activity. The Department, however, must balance
that against our interest in ensuring that the PSLF program is not
indirectly subsidizing employment at organizations that have a
substantial illegal purpose. The Department believes if the employer
engages in illegal activities enumerated in paragraph (b)(30), such
that it has substantial illegal purpose, that the Department, through
the PSLF program, should not indirectly subsidize the employment of its
employees. Organizations with a substantial illegal purpose are tainted
by their illegal actions, even if some parts of the organization
continue to engage in lawful behavior. The concept of a substantial
illegal purpose appropriately balances the equities at hand by
distinguishing between organizations that engage in isolated or minor
legal violations and those whose core or predominant activities are
unlawful. If more than an insubstantial portion of the employer's
activities are unlawful, the organization may have a substantial
illegal purpose. The Department recognizes that some organizations may
have isolated misconduct where specific employees or segregable
components engage in illegal conduct without that conduct defining the
organization. In such cases, where unlawful activity is limited and not
central to the organization's primary mission or operations, the
employer would not be considered to have a substantial illegal purpose.
This approach ensures that the PSLF program does not penalize borrowers
for minor or isolated misconduct within their organizations, while
still preventing the program from indirectly subsidizing entities whose
principal or defining activities are unlawful.
Changes: None.
Application Process (Sec. 685.219(e))
Comments: Commenters stressed that timely notification of any
Departmental action to remove eligibility from an employer is critical
for borrowers to plan their careers and repayment strategies. They
warned that without immediate notice, borrowers could be blindsided by
sudden disqualification, left with little time to adjust, and placed at
risk of financial harm.
Discussion: The Department agrees that borrowers should receive
notice when the employers lose PSLF eligibility. This final rule
requires the Department to provide prompt notification whenever an
employer's eligibility changes based on the determination by the
Secretary. This protects workers and prevents unnecessary disruption.
By mandating clear and proactive communication, this final rule ensures
that borrowers have the information they need to make informed
decisions regarding their PSLF eligibility. As discussed above,
borrowers have significant reliance interests in the PSLF program, but
those reliance interests must be balanced against the Department's
interest in not indirectly subsidizing employers that have a
substantial illegal purpose. Prompt direct notification to the impacted
borrowers and broad disclosure on the Department's website are
important to mitigate the impact to borrowers.
Changes: None.
Comments: Commenters emphasized that notification is not just about
timing but also about substance. They requested that the notices
clearly
[[Page 48986]]
explain the reason for an employer's disqualification, the effective
date, the borrower's current credit status, and what steps borrowers
may take to continue to participate in the PSLF program. Without such
detail, commenters argued, notifications could create more confusion
than clarity.
Discussion: The Department agrees that its notification to affected
borrowers must be substantive and should include information about the
reason for an employer's disqualification, the effective date, the
borrower's current credit status, and what steps borrowers may take to
continue to participate in the PSLF program. The Department agrees with
commenters that this approach reduces confusion and will provide
helpful information to borrowers.
Changes: None.
Comments: Commenters urged the Department to use multiple
communication channels, including email, online borrower dashboards,
and paper mail to ensure that critical notifications reach all affected
borrowers. They warned that reliance on a single method could leave
some unaware of eligibility changes, particularly those borrowers with
limited internet access or outdated contact information.
Discussion: The Department agrees that notifying borrowers through
multiple mediums is appropriate to increase awareness among borrowers.
That is why this final rule requires the Department to use multiple
channels of communication, including secure electronic notices,
borrower dashboard updates, and paper mail where necessary, to ensure
all affected individuals and the public are informed about an
employer's PSLF eligibility.
Changes: None.
Comments: Several commenters suggested that the Department should
provide transparency for both current participants but also for
prospective borrowers considering careers in public service. They
recommended public-facing employer eligibility lists that are regularly
updated so that individuals entering the workforce can make informed
decisions about whether their potential employer qualifies.
Discussion: The Department agrees that both current participants
and the public should be informed regarding employer eligibility. By
informing the public, prospective participants and borrowers
considering public service careers will be informed of their options
for eligible employment. Accordingly, this final rule requires the
Department to maintain and regularly update a public-facing list of
employer eligibility determinations.
Changes: None.
Comments: Several commenters highlighted that new entrants into
repayment should be warned about the possibility of employer
disqualification and given transparent, accessible information about
how eligibility determinations are made. They stressed that prospective
borrowers must have the ability to make informed career and repayment
choices with full knowledge of PSLF risks.
Discussion: The Department agrees that prospective borrowers
deserve transparency regarding the eligibility process for the PSLF
program. However, the Department disagrees that we should display such
information as a ``warning.'' Employers that have a substantial illegal
purpose will lose PSLF eligibility, and the Department will inform
borrowers and the public of such determination. Because most employers
voluntarily comply with the law, and the Department does not expect
this final rule to impact the majority of eligible borrowers, we do not
think it is appropriate to label the process as a ``warning.''
Changes: None.
Borrower Reconsideration Process (Sec. 685.219(g)) and Employer
Reconsideration Process (Sec. 685.219(h))
Comments: Many commenters underscored that a robust reconsideration
process is essential to borrower confidence in the PSLF program. They
argued that determinations about qualifying employment carry life-
changing financial consequences and therefore must include a meaningful
right to challenge decisions. Commenters emphasized that
reconsideration should not be treated as a perfunctory administrative
step but as a genuine safeguard against error.
Discussion: It is important to note that the current borrower
reconsideration process is not changing in these final regulations. The
Department is, however, making it clear that a borrower may not submit
a reconsideration request when their employer is determined to no
longer be a qualifying employer for the purposes of the PSLF program.
This final rule establishes a clear employer reconsideration process
that gives employers the right to submit additional information and
seek review of determinations. This ensures decisions are not final
without all relevant evidence and arguments being considered. This
safeguard provides due process to ensure that the Department considers
all relevant information prior to taking action to remove employer
eligibility.
Changes: In the NPRM, the Department made clear that employers
would have notice and the opportunity to respond to any findings before
final action is taken. To avoid confusion, the Department inserted an
amendment to the regulatory text in a parenthetical in Sec.
685.219(h)(1), which makes it clear that the opportunity to respond is
called the ``employer reconsideration process.''
Comments: Many commenters argued that there is the need for greater
transparency in the reconsideration process. Commenters asked for clear
timelines on when and how reviews would be completed, as well as
published standards explaining the criteria applied in reconsideration
decisions. Commenters further stressed that the Department should
provide written reasons for its determinations, so borrowers understand
the basis for decisions.
Discussion: The Department partially agrees with the commenters.
The final rule requires that determinations be explained in writing and
supported by clear reasoning. The employer reconsideration process
exists to ensure that the Department has all the relevant information
and takes it into account when making decisions. If the Department
makes an error based upon the facts or the application of the
regulation, the employer reconsideration process will ensure that
organizations can bring that to the Department's attention prior to it
taking final action. The Department understands the interest borrowers
have in a definitive timeline for review of employer reconsideration
requests; however, the Department is unable to commit to a specific
timeline. Among other things, the Department needs to preserve
flexibility to make certain that we have adequate time to consider all
the relevant evidence. The Department expects that some employer
reconsideration requests will be straightforward and will be able to be
processed in a relatively short period of time. On the other hand, some
employer reconsideration requests may be complex and involve
significant amounts of new information. Complex reconsideration
requests will take more time for the Department to process and may
require elevated levels of approval. As such, given the complexity that
may be involved, the Department is not making changes that would commit
the Department to a temporally limited review period. As noted above, a
borrower would not be affected by an adverse determination regarding an
employer until the employer
[[Page 48987]]
reconsideration process is complete. Accordingly, if it takes six
months for the Department to reach a final determination that an
employer has a substantial illegal purpose, a borrower's qualifying
payments made during that six-month period would continue to count
toward loan forgiveness.
Changes: None.
Comments: Commenters expressed concern that delays in the
reconsideration process could disadvantage borrowers, particularly if
their PSLF progress is frozen during review. Several commenters urged
that borrowers should continue accruing PSLF credit while
reconsideration is pending so that they are not financially harmed by
administrative timelines outside their control.
Discussion: The Department agrees. This final rule makes clear that
all qualifying payments made while an employer was considered eligible
will continue to count, even if the employer's eligibility is under
review. Borrowers will continue to be eligible to receive credit toward
PSLF if they make qualifying payments while waiting for the Department
to complete the employer reconsideration process and make a
determination.
Changes: None.
Comments: Many commenters argued that while reconsideration is an
important safeguard, the process remains incomplete without a clear and
well-defined appeals mechanism. They raised concerns that, without
explicit standards for appeals, determinations may lack legitimacy,
leaving borrowers with limited recourse if they believe an error has
occurred. Commenters suggested that the Department establish clear
appeal pathways with independent review, binding timelines, and
published rationales to ensure confidence in outcomes.
Discussion: The Department agrees that employer reconsideration is
an important procedural step that ensures that due process is provided.
For this reason, this final rule includes a reconsideration process.
Like all agencies that provide informal adjudications, the Department
must provide a process that is consistent with the requirements of the
Due Process Clause of the Fifth Amendment to the U.S. Constitution
because of the property interests involved in the PSLF program. See
e.g., Pension Ben. Guar. Corp. v. LTV Corp., 496 U.S. 633, 653-56
(1990) (holding that courts cannot require agencies to provide process
beyond what is provided for in the underlying statute or the U.S.
Constitution). The Department does not believe an additional internal
reconsideration process is necessary to ensure that the Department
makes reasoned decisions. As is generally true with informal
adjudications under the APA, the Department's final agency action with
respect to PSLF eligibility can be challenged in Federal district
court. See Dep't of Homeland Sec. v. Regents of Univ. of Cal., 591 U.S.
1, 16 (2020) (``The APA establishes a basic presumption of judicial
review for one suffering legal wrong because of agency action.''
(cleaned up)).
Changes: None.
Comments: Commenters expressed concern that reconsideration
outcomes might vary depending on which office or staff member handles a
case, leading to inequities. They emphasized that a standardized
process with uniform evidentiary thresholds, transparent procedures,
and publicly available examples would promote consistency and fairness.
Borrowers want assurance that reconsideration decisions will not hinge
on individual discretion but instead follow predictable and published
standards.
Discussion: The Department agrees that all employers should be
treated in an even-handed manner. The results from the reconsideration
process should not turn upon the specific staff involved but should
instead focus on the facts and how they apply to the regulation. The
Department has internal reviews and controls in place with all agency
adjudications to prevent variation across staff and minimize the risk
of arbitrary and capricious decision-making.
Changes: None.
Standard for Determining Whether a Qualifying Employer Has a
Substantial Illegal Purpose (Sec. 685.219(h))
Comments: Many commenters claimed the Department should anchor
determinations in objective, evidence-based findings rather than
administrative discretion. Suggestions included requiring a final
judicial or administrative finding of illegality before
disqualification, limiting the scope of review to the unit directly
involved in misconduct, and applying a clear evidentiary threshold that
prevents speculative or politically motivated judgments. Commenters
stressed that such standards would promote fairness, reduce
uncertainty, and insulate the program from political manipulation.
Discussion: The Department agrees that determinations must be
anchored in objective evidence, not speculation or politics. This final
rule makes clear that employer disqualification requires the Department
to find that an employer has a substantial illegal purpose by a
preponderance of the evidence after weighing the employer's illegal
conduct, narrowly focusing on only the illegal conduct enumerated in
the regulation. A determination by the Department that an employer
engaged in illegal activities such that it has a substantial illegal
purpose only represents the Department's conclusion that the
organization is not a qualifying employer for the purposes of
participation in PSLF and does not represent a determination regarding
the organization's tax-exempt status by the IRS. Only the IRS, not the
Department, makes determinations regarding tax-exempt status. The
Department decided to use the preponderance of the evidence standard
because it is a well-established standard in informal agency
adjudications and it ensures decisions are based on reliable evidence,
not speculative allegations. See e.g., Student Assistance General
Provisions, 84 FR 49788 (Sept. 23, 2019). At the same time, the
Department does not believe that it is appropriate to only rely on
final judicial or administrative rulings before taking action. As
discussed, the Department has significant interest in preserving
taxpayer resources and preventing PSLF benefits from indirectly
subsidizing employers who have a substantial illegal purpose. When the
Department finds that an organization's activity is material enough
that it has a substantial illegal purpose, we believe that it is the
appropriate time to remove PSLF eligibility. Waiting until another
entity acts would create unnecessary delays, cost taxpayers more, and
make the Department captive to third parties who may or may not have an
interest in protecting the Federal fiscal interest. Congress charged
the Department with the responsibility to administer the PSLF program.
Fully delegating the responsibility for program integrity to a third
party and thereby relinquishing the Department's role in safeguarding
that integrity would constitute an abdication of its statutory duty.
The Department has amended the regulatory provisions under this section
to provide clarity that the materiality of any illegal activity is
weighed when considering whether an organization has a substantial
illegal purpose. An illegal activity alone does not automatically mean
an organization has a substantial illegal purpose.
Changes: Amended Sec. 685.219(h) to include clarifying language
for the standard for determining a qualifying employer has a
substantial illegal purpose to include the distinction of illegal
activity and substantive illegal purpose.
[[Page 48988]]
Comments: Commenters raised the concern that legal standards vary
widely across States, particularly in areas such as marijuana laws,
reproductive health regulations, and immigration enforcement. They
argued that, without a Federal baseline, an employer deemed lawful in
one jurisdiction could be disqualified in another, leaving borrowers
subject to arbitrary geographic disparities. Commenters asked the
Department to establish uniform Federal standards or explicitly preempt
conflicting State interpretations to ensure equitable treatment for
borrowers nationwide.
Discussion: The Department recognizes that State laws differ and
appropriately drafted the rule to account for variation across States.
Organizations will not be penalized if their actions are legal in the
State in which they are operating. Although uniform standards would
make the adjudication process more streamlined, such standards would
not account for the differences across States in our Nation's system of
vertical federalism. At the same time, if the Secretary determines that
an employer has engaged in activities such that it has a substantial
illegal purpose due to illegal conduct in one or more States, the
Department may remove eligibility for the entire organization. Where an
employer is operating under the same employer identification number
(E.I.N.), but a part of the organization is actually separate and
distinct, this final rule gives the Department flexibility to divide
the employer into separate organizations for the purposes of PSLF
eligibility.
With respect to immigration law, the Department disagrees that
there is wide variation in immigration law across the country. The
Federal Government has broad powers to regulate immigration law, and
the immigration laws are uniform on the national level. See e.g.,
DeCanas v. Bica, 424 U.S. 351, 354 (1976) (stating that the ``[p]ower
to regulate immigration is unquestionably exclusively a federal
power''); Arizona v. United States, 567 U.S. 387, 394 (2012) (stating
that ``[t]he Government of the United States has broad, undoubted power
over the subject of immigration and the status of aliens'' and holding
that several Arizona laws concerning immigration were invalid because
they conflicted with Federal immigration laws or intruded on areas
where Congress left no room for States to regulate).
Changes: None.
Comments: Many commenters argued that adjudicatory determinations
must be accompanied by published standards, detailed explanations, and
clear timelines. Commenters argued that, without these safeguards, PSLF
eligibility decisions risk appearing arbitrary and may erode borrower
confidence. Many commenters recommended that the Department provide
written rationales for each disqualification decision and establish
public-facing guidance that borrowers and employers can rely upon to
anticipate outcomes.
Discussion: The Department agrees that transparency is essential.
Borrowers and employers must know how decisions are made, what
standards apply, and how to anticipate outcomes. This final rule
requires written explanations for disqualification determinations,
published standards, and clear timelines so the process is predictable,
consistent, and accountable. By providing detailed rationales and
public-facing guidance, the Department will ensure that determinations
are not hidden, arbitrary, or influenced by politics. Borrowers will
know their rights, employers will know their responsibilities, and
taxpayers will know the PSLF program is administered with integrity.
Transparency strengthens confidence and protects lawful public service.
Changes: None.
Comments: Commenters argued that PSLF determinations would
inevitably reflect politics and that organizations could be punished
for their views rather than unlawful conduct. They feared the
Department could use this rule to target groups unpopular with those in
power.
Discussion: The Department disagrees with commenters' argument.
Under this final rule, PSLF employer eligibility determinations are
based on objective, content-neutral evidence that an organization has
engaged in illegal activities such that it has a substantial illegal
purpose. All the activities included within the definition of
substantial illegal purpose are explicit violations of either State or
Federal law, and as such, are actions which inherently do not serve the
public good. By basing the components of the definition of substantial
illegal purpose on State and Federal law, this final rule protects
borrowers from arbitrary or politically motivated disqualification. It
safeguards taxpayer funds, improves confidence in the program and
ensures PSLF provides benefits for only lawful public service.
Changes: None.
Process for Determining When a Qualifying Employer Engaged in
Activities Such That It Has a Substantial Illegal Purpose (Sec.
685.219(i))
Comments: Commenters objected to the idea that an entire
organization could be disqualified because of misconduct by a small
unit or a few individuals. They argued that blanket determinations
would unfairly harm borrowers serving in lawful roles who had nothing
to do with the misconduct.
Discussion: The Department agrees that broad disqualification could
be unfair in certain circumstances, especially when the underlying
illegal activity is immaterial or minor, is a result of a rogue
employee, or does not rise to a pattern or practice. If more than an
insubstantial portion of an organization's conduct and activities are
illegal; however, the Department considers that organization to no
longer be a qualifying employer for the purpose of PSLF eligibility.
And as such, it would be inappropriate to continue to provide PSLF
benefits to employees of such an organization. Although isolated and
immaterial acts, even if illegal, may not be sufficient to withdraw
eligibility because of the reasons commenters identify, if such conduct
becomes a substantial part of the organization, the organization ceases
to provide a public service and, therefore, the conduct becomes
sufficient for the Department to cease providing PSLF benefits. When
weighing these instances of illegal conduct, the Department will weigh
the frequency in which they have occurred and the seriousness of the
offense. In some cases, where the illegal conduct is material and very
serious, such as acts of terrorism, the Department may not need to see
a pattern of behavior. One act of supporting terrorism may be
sufficient to remove eligibility. On the other hand, if the
organization has engaged in less serious violations, the Department may
need to see a pattern and practice of consistent violations to find
that the organization has engaged in activities such that it has a
substantial illegal purpose. See I.R.S. Gen. Couns. Mem. 34631 (Oct. 4,
1971) (stating, as an example, that ``[a] great many violations of
local pollution regulations relating to a sizable percentage of an
organization's operations would be required to disqualify it from
501(c)(3) exemption'' but ``if only .01% of its activities were
directed to robbing banks, it would not be exempt''). Courts have
upheld this approach in the context of the Internal Revenue Code,
because they have recognized the common-sense principle
[[Page 48989]]
that if an organization is engaged in a substantial amount of criminal
activity, it is not advancing a tax-exempt purpose. See e.g., Church of
Scientology, 83 T.C. at 586(stating, in affirming the IRS's denial of
tax-exempt status to an organization that had engaged in tax fraud,
``[w]ere we to sustain petitioner's exemption, we would in effect be
sanctioning petitioner's right to conspire to thwart the IRS at
taxpayer's expense''). Here, the Department is taking a similar
approach to ensure that only organizations that are providing a public
service are qualifying employers. We reiterate that the process
envisioned under Sec. 685.219(i) is for determining when an employer
has a substantial illegal purpose for the purposes of PSLF. The process
in Sec. 685.219(i) does not make a determination of the employer's tax
status under the Internal Revenue Code.
Changes: None.
Comments: Commenters stated that terms like ``substantial illegal
purpose'' are not sufficiently defined, leaving room for subjective
interpretation. They warned this vagueness could open the door to
excessive enforcement and uncertainty for nonprofits and public service
organizations that operate in politically sensitive areas. Some urged
the Department to narrowly define the term, limiting it only to cases
where the organization's primary mission is unlawful activity.
Discussion: The Department rejects the idea that ``substantial
illegal purpose'' is not sufficiently clear enough to be understood.
Organizations that engage in illegal activity do not automatically have
a substantial illegal purpose under this final rule. As explained
above, the Department will weigh the seriousness of offenses and the
frequency with which they occurred when determining if an organization
engages in activities enumerated under paragraph (b)(30) such that it
has a substantial illegal purpose for PSLF eligibility purposes. Even
one instance of an organization supporting terrorism may be sufficient
to make such a finding; however, for less serious offenses, the
Department will look more generally to see if there is a pattern and
practice of illegal behavior. The Department believes if more than an
insubstantial amount of illegal conduct is occurring at an organization
that it is no longer providing a public service, and its employees
should no longer receive PSLF program benefits.
Changes: The Department made clarifying changes to the process for
determining whether an organization has a substantial illegal purpose
to make clear that the Secretary weighs evidence of illegal activity as
described in paragraph (b)(30) to determine whether that illegal
activity is so substantial that the organization has a substantial
illegal purpose.
Comments: Many commenters pressed the Department to draw a clear
distinction between an organization's unlawful activities and lawful
work performed by its other units or employees. They argued that,
absent this protection, borrowers could lose PSLF credit even if their
service was in fully compliant divisions of a larger entity. Commenters
emphasized that fairness requires shielding employees from
organizational misconduct they neither directed nor participated in.
Additionally, commenters mentioned that it was unclear how standards
would apply to separate entities sharing the same E.I.N. or how partial
disqualification would be managed to ensure that eligible employees
were not negatively impacted.
Discussion: The Department agrees that for PSLF eligibility
purposes that it may be appropriate for the Department to have unique
identifiers, in certain circumstances, when separate and distinct
entities share the same E.I.N., and are operated in a separate and
distinct manner. Such unique identifiers will only be necessary if the
Secretary determines that a qualifying employer has engaged in illegal
activities such that it has a substantial illegal purpose. If multiple
qualifying employers share the same E.I.N., the Department will
determine the specific employer that is ineligible for PSLF and assign
a unique identifier to that organization if the organization is
operating separately and distinctly.
At the same time, the Department disagrees with commenters that a
component's illegal actions cannot taint the entire organization. For
example, an organization that supports terrorism, but also provides
food to low-income individuals, likely has a substantial illegal
purpose. Providing food to low-income individuals, as admirable as it
may be, does not necessarily immunize the organization from its other
illegal conduct. The Department acknowledges that this approach may
mean that certain borrowers that work for organizations that have a
substantial illegal purpose will become ineligible for PSLF, even in
instances where the borrower is not engaged in illegal activity.
However, the Department believes that its interest in protecting
taxpayer resources from going to organizations that harm the public
good because they have a substantial illegal purpose outweighs the
interests of borrowers in these narrow circumstances.
Changes: None.
Comments: Many commenters pointed out that the proposed standard
for PSLF eligibility does not clarify what level of involvement
qualifies as ``engagement'' in illegal activity. Commenters feared this
vagueness could allow ideological misuse, targeting organizations for
political reasons rather than unlawful conduct.
Discussion: The Department disagrees with commenters' suggestion
and criticism. The term ``engage'' in the context of the regulation
means the organization is taking part in the activity. In other words,
it refers to direct participation or purposeful involvement in unlawful
conduct by the organization itself. See Engage: Merriam-Webster.com
Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/engage. Accessed 7 Oct. 2025. Because this word is
sufficiently clear in the context in which it is used, the Department
does not think changes to the rule are needed to provide clear notice
as to what conduct this final rule seeks to address.
Changes: None.
Comments: Several commenters suggested that it would be more
practical for the Secretary to simply reject incomplete applications
rather than treating a failure to certify as conclusive evidence for
disqualification, as the risks and costs of the current proposal
outweigh any administrative benefit.
Discussion: The Department agrees that it will reject individual
incomplete applications where an employer fails to certify that it did
not participate in activities that have a substantial illegal purpose.
Operationally, the Department will reject an individual application if
the section about the employer's certification that it did not engage
in substantial illegal activities is omitted or missing. The
Department, via the borrower, will provide the employer an opportunity
to correct the application and provide the requested information.
However, when an employer consistently fails or refuses to provide a
certification on multiple applications, the Department may consider
disqualifying the employer per the process outlined in Sec.
685.219(i).
Changes: None.
Regaining Eligibility as a Qualifying Employer (Sec. 685.219(j))
Comments: Several commenters argued that once an organization
corrects unlawful practices or demonstrates compliance, it should
[[Page 48990]]
have a clear pathway to regain PSLF program eligibility. Without this
option, they argued, employers could be permanently tainted, unfairly
harming employees who continue to perform lawful public service.
Commenters recommended corrective action plans, time-limited
disqualifications, and procedures for reinstating borrower credit once
eligibility is restored.
Discussion: The Department recognizes the importance of a clear
pathway for employers to regain PSLF program eligibility once unlawful
practices are corrected. The goal of this final rule is not permanent
exclusion but to ensure that benefits from the PSLF program do not
indirectly support employers who have engaged in certain illegal
activities. Organizations that take corrective action, demonstrate
compliance, and return to lawful operations should have the opportunity
to be reinstated as an eligible employer. This final rule provides for
10-year time-limited disqualification and the possibility of
restoration. The Department believes the temporal disqualification
strikes the right balance and ensures that organizations can regain
eligibility. In addition, if the Secretary approves a corrective action
plan for the organization, it can regain eligibility on an expedited
timeline. Organizations that want to avoid ineligibility altogether may
suggest a corrective action plan to the Secretary in tandem with any
submission under the employer reconsideration process.
Changes: None.
Comments: Commenters argued that borrowers and employers could face
disqualification without adequate notice or the ability to contest
decisions. Some acknowledged that prior qualifying payments would still
count, but most said that safeguard alone was not enough.
Discussion: The Department disagrees that employers could face
disqualification without adequate notice. This final rule requires
employers receive notice and the opportunity to respond through the
employer disqualification process. This process will ensure notice is
provided in advance of any action to disqualify the employer from the
PSLF program. Borrowers will be notified directly if they are working
for an employer who is no longer eligible because the Department has
determined that the organization has a substantial illegal purpose. In
addition, the Department will post this information on its website to
inform the public. In addition, borrowers will retain credit for all
qualifying payments made before an employer's status changes. This
protection shields workers from any harm prior to a determination of
employer ineligibility being made by the Secretary.
Changes: None.
Borrower Notification of Regained Eligibility (Sec. 685.219(k))
Comments: Commenters strongly supported requiring the Department to
notify borrowers right away when an employer's eligibility changes.
They stressed that, without timely notice, borrowers could be
blindsided, undermining trust in the PSLF program and causing serious
financial harm.
Discussion: The Department agrees. Timely notification is not
optional, it is essential. This final rule requires prompt notice so
borrowers know immediately when their employer's eligibility status
changes.
Changes: None.
PSLF Program Administration
Comments: Many commenters questioned whether loan servicers
currently have the expertise and staffing to administer this rule
accurately. They pointed to past problems with inconsistent guidance,
long call center delays, and errors in processing borrower accounts.
Some commenters argued that, without significant investments in
servicer training and oversight, the new rules could worsen confusion
and lead to wrongful denials. Others emphasized that servicers should
receive standardized guidance and be held accountable for ensuring
determinations are applied uniformly.
Discussion: The Department acknowledges that servicers have faced
challenges in administering certain aspects of the PSLF program in the
past. However, the Department does not believe that its servicers will
be unable to carry out new responsibilities under this final rule,
given the limited scope of those responsibilities. The Department
expects that it will only take action to remove PSLF program
eligibility for less than ten employers per year. Servicers will have
the ability to handle that volume of employer eligibility changes. The
Department's Office of Federal Student Aid will ensure that its staff,
who handle eligibility determinations, and its servicers, who handle
processing, will be trained, monitored, and held accountable for
accuracy.
Changes: None.
Comments: Commenters highlighted concerns that the additional
layers of review and determination introduced by the rule could cause
lengthy delays in processing applications, reconsiderations, and
employer status updates. Commenters worried that they might be left in
limbo for months or even years, undermining the value of the PSLF
program as a dependable benefit. Some recommended the Department set
strict timelines and performance metrics for application and employment
certification form processing to prevent backlogs from eroding
confidence in the program.
Discussion: The Department rejects the notion that this final rule
creates unnecessary delays. The Department is creating internal
performance expectations and oversight mechanisms so that applications,
reconsiderations, and employer determinations move as quickly and
predictably as possible. As explained previously, some reviews for
substantial illegal activity will be straightforward and will be
quickly processed, while other matters may be more complex and will
need several layers of review before an informed decision can be
reached. As such, the Department is unable to commit to specific
timelines for different parts of the adjudicatory process. At the same
time, qualifying employers and their employees will remain eligible to
participate in the PSLF program throughout the review process. Only
after the Secretary has determined that an organization has engaged in
activities such that it has a substantial illegal purpose will
borrowers no longer receive monthly PSLF credit for payments made.
Changes: None.
Comments: Commenters stressed that PSLF must be administered
consistently regardless of which servicer handles a borrower's loans.
They noted that inconsistent application of standards has been a long-
standing problem, with some servicers approving payments or employers
that others reject. Commenters urged the Department to adopt uniform
servicing protocols, detailed written guidance, and stronger oversight
mechanisms to ensure equal treatment across the program.
Discussion: The Department agrees that the PSLF program, including
regulations under this final rule, must be administered uniformly.
Through its ongoing oversight mechanisms, the Department will ensure
that both Department staff and vendors adhere to consistent protocols,
written guidance, and oversight standards. Borrowers deserve equal
treatment, and taxpayers deserve confidence that the PSLF program is
administered consistently and fairly.
Changes: None.
[[Page 48991]]
Other Notable Public Comments
Comments: Commenters asked for more detail on how the rule will be
implemented, including why certain organizations are excluded and how
determinations will be documented. They said clearer terms would give
borrowers and employers greater predictability and confidence.
Discussion: The Department agrees that clarity is essential. This
final rule establishes the overarching regulatory framework, and the
Department will continue to provide additional information, such as
through guidance documents, as necessary to ensure that borrowers and
employers understand how eligibility standards are applied. This
approach promotes consistency, fairness, and transparency in all
determinations. By doing so, the Department strengthens trust in the
program, protects borrowers, and safeguards taxpayer interests. It
ensures that the PSLF program operates under clear rules, with neutral
enforcement, and strong accountability.
Changes: None.
Comment: A commenter asserted that the final rule failed to address
scenarios where a State law changed after a qualifying employer was
found to have violated that State law and that violation of State law
was used as evidence by the Secretary to determine that an employer has
a substantial illegal purpose. The commenter believed that in such
cases an employer's eligibility for PSLF should be restored, payments
made by borrowers during the period when the employer was disqualified
from PSLF should be credited toward PSLF, and the Department should be
required to initiate a new process for determining when an employer
should be disqualified.
Discussion: The Department disagrees with the commenter. Changes to
State law do not change the underlying issue that the organization's
action were illegal at the time the action was taken. The Department's
rule is designed, in part, to deter organizations from engaging in
unlawful behavior by creating additional adverse consequences for
engaging in that conduct. Consequences that flow from engaging in
illegal activity are not automatically nullified if the underlying law
is modified, and the Department thinks it would be inappropriate to
alter the consequences for that illegal activity automatically here.
The final rule provides disqualified employers with a streamlined
pathway to regain eligibility as a qualifying employer for PSLF in
section 685.219(j). Under that section, the employer has an opportunity
to certify that it is no longer engaging in illegal activities under
this final rule, and to provide evidence acceptable to the Secretary to
support the compliance certification.
Changes: None.
X. Regulatory Impact Analysis
Executive Orders 12866, 13563, and 14192
Under Executive Order 12866, the Office of Management and Budget
(OMB) must determine whether this regulatory action is ``significant''
as defined by that Executive Order and, therefore, subject to the
requirements of the Executive Order and subject to review by OMB.
Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as an action likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities;
(2) Create serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
The Department estimates the net budgetary impacts to be -$1.616
billion from reductions in transfers from the Federal Government to
borrowers who no longer receive credit toward loan forgiveness under
PSLF. Quantified economic impacts include annualized transfers of -$179
million at 3 percent discounting and -$191 million at 7 percent
discounting, and annual quantified costs of $0.3 to $0.4 million
related to compliance costs and administrative updates to government
systems. Additionally, the Department expects to allocate a portion of
current full-time equivalent employment (FTE) to support the systems,
compliance, and oversight functions of this final rule on a continuing
basis. The Department estimates that a total of 10 FTEs will be
allocated annually on an ongoing basis to systems, compliance, and
oversight activities associated with this final rule, with a possible
reduction in later outyears as noncompliant employers are disqualified
and the expected deterrent effects of the final rule are realized. It
is also important to note that given that the average PSLF loan
forgiveness payment amount to date, as shown in Table 5.4, is $75,900
per borrower, such a shift of current staff resources from performing
lower value activities to preventing and deterring improper payments in
the PSLF program is likely to result in lower overall net costs of
these staff resources than without the final rule. Therefore, based on
these estimates, the Office of Information and Regulatory Affairs
(OIRA) has determined that this final action is ``economically
significant'' under section 3(f)(1) and subject to OMB review under
section 6(a)(3) of Executive Order 12866.
We have also reviewed these regulations under Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent permitted by law, Executive Order
13563 requires an agency to:
(1) Propose or adopt regulations only on a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor its regulations to impose the least burden on society,
consistent with obtaining regulatory objectives and considering, among
other things and to the extent practicable, the costs of cumulative
regulations;
(3) Choose among alternative regulatory approaches and select those
approaches that maximize net benefits (including potential economic,
environmental, public health and safety, and other advantages;
distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives rather
than the behavior or manner of compliance a regulated entity must
adopt; and
(5) Identify and assess available alternatives to direct
regulation, including economic incentives, such as user fees or
marketable permits, to encourage the desired behavior, or provide
information that enables the public to make choices.
Executive Order 13563 also requires an agency ``to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible.'' OIRA has emphasized
that these techniques may include ``identifying changing future
compliance costs that might result from technological innovation or
anticipated behavioral changes.''
The Department finds that the benefits of this final rule outweigh
and will justify their costs. In choosing
[[Page 48992]]
among alternative regulatory approaches, we selected those approaches
that maximize net benefits. In this RIA, we discussed the need for
regulatory action, potential costs and benefits, net budget impacts,
and the regulatory alternatives we considered.
Elsewhere in this section under the Paperwork Reduction Act, we
identify and explain burdens specifically associated with information
collection requirements.
President Trump's Executive Order on Unleashing Prosperity Through
Deregulation, Executive Order 14192 (Jan. 31, 2025) directs Federal
agencies to manage and reduce regulatory costs while promoting economic
growth. It emphasizes reviewing existing regulations and minimizing
unnecessary burdens on the public. This rule is not an Executive Order
14192 regulatory action because it does not impose any more than de
minimis regulatory costs.
1. Major Rule Designation
Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996, also known as the Congressional Review Act (5
U.S.C. 801 et seq.), OIRA designated this rule as a ``major rule,'' as
defined by 5 U.S.C. 804(2).
2. Need for Regulatory Action
The Department has identified a critical and urgent need for
targeted regulatory reform within the PSLF program. The PSLF program,
established to encourage public service careers by offering loan
forgiveness to eligible borrowers, has faced several operational
challenges, eligibility concerns, and administrative burdens that
undermine its effectiveness. Despite the program's intent, the current
regulatory framework does not restrict eligibility if an organization
has a substantial illegal purpose unless the organization ceases to
qualify for another reason, such as having its tax-exempt status
revoked by the IRS. As a result, the Department is currently indirectly
subsidizing employers who are not engaged in public service because
they are engaged in illegal activity and have no independent mechanism
to remove such employers from the program.
In response to these challenges, the Department implements targeted
regulatory changes designed to strengthen the program's integrity by
limiting benefits to borrowers employed by organizations that meet the
established public service criteria, including working for employers
who perform a public good. This final rule refines the requirements for
qualifying employers and makes certain that PSLF benefits are
distributed only to those working for organizations that provide a
public service, aligned with the goals of the HEA and consistent with
the intent of Congress.
3. Summary
Table 3.1--Summary of Key Changes in the Final Regulations
------------------------------------------------------------------------
Description of
Provision Regulatory section proposed provision
------------------------------------------------------------------------
Public Service Loan Forgiveness
------------------------------------------------------------------------
Definitions................. Sec. 685.219(b)... Will add definitions
of ``aiding or
abetting'';
``chemical
castration or
mutilation'';
``child or
children'';
``foreign terrorist
organizations'';
``illegal
discrimination'';
``other Federal
immigration laws'';
``substantial
illegal purpose'';
``surgical
castration or
mutilation'';
``terrorism'';
``trafficking'';
``violating State
law''; and
``violence for the
purpose of
obstructing or
influencing Federal
Government
policy''. Will
revise the
definition of
``qualifying
employer''.
Borrower Eligibility........ Sec. 685.219(c)... Will exclude from a
credit as a
qualifying payment
any month where ED
has determined that
a qualifying
employer engaged in
activities such
that it has a
substantial illegal
purpose.
Application Process......... Sec. 685.219(e)... Will create a
borrower
notification of
employers that are
at risk of or have
lost PSLF
qualifying status.
Borrower reconsideration Sec. 685.219(g)... Will prohibit a
process. borrower from
requesting
reconsideration if
their employer lost
eligibility due to
engaging in
activity such that
it has a
substantial illegal
purpose.
Standard for determining Sec. 685.219(h)... Will create a
whether a qualifying standard by which
employer has a substantial the Secretary
illegal purpose. determines that the
qualifying employer
has a substantial
illegal purpose,
including but not
limited to
reviewing the
preponderance of
the evidence and
basing decisions on
materiality of the
activities that
have a substantial
illegal purpose.
Also, it will
provide the
employer an
opportunity to
respond except in
cases where there
is conclusive
evidence (see
discussion or
regulatory language
for more
information) that
the employer
engages in
activities such
that it has a
substantial illegal
purpose.
Process for determining when Sec. 685.219(i)... Will establish that
a qualifying employer the Secretary
engaged in activities such determines that a
that it has a substantial qualifying employer
illegal purpose. has a substantial
illegal purpose
when the Secretary
receives that self-
certified
information on the
Public Service Loan
Forgiveness
Certification and
Application (PSLF
Form) or makes his
or her own
determination,
unless a corrective
action plan is
submitted prior to
issuance of the
determination. Will
also note the
Secretary's
authority to
separate entities
operating under one
identification
number.
Regaining eligibility....... Sec. 685.219(j)... Will allow a
qualifying employer
to regain
eligibility after
ten years from the
date the Secretary
determines it has a
substantial illegal
purpose or when the
Secretary approves
a corrective action
plan signed by the
employer.
Borrower notification....... Sec. 685.219(k)... Will require the
Secretary to update
the qualifying
employer list
within 30 days if
an employer regains
lost eligibility.
------------------------------------------------------------------------
4. Discussion of Costs and Benefits
The PSLF program is a component of Federal student loan policy that
provides benefits to individuals who enter and continue in public
service employment by offering cancellation of remaining Direct student
loan balance(s) after 120 qualifying monthly payments and at least 10
years of full-time employment in qualified public service jobs, which
are both required under the PSLF program. However, over time, the
[[Page 48993]]
program has faced challenges, including the disbursement of benefits to
borrowers employed by organizations whose activities do not align with
the program's public service objectives. To address these issues, the
Department proposed a series of regulatory changes through the
negotiated rulemaking process. These final regulations aim to
strengthen the program's integrity, improve its efficiency, and ensure
that taxpayer funds are allocated appropriately. Although these changes
are expected to generate certain costs, the long-term benefits are
substantial, making the program more effective, transparent, and
accountable. Below is an analysis of both the costs and benefits of
these regulations.
Costs of the Regulatory Changes:
The Department acknowledges that implementing the regulations will
generate costs. These costs primarily fall into three categories:
Department administrative costs, compliance costs for employers, and
potential disruptions for borrowers. However, these costs must be
viewed in the context of the long-term benefits that the regulations
will provide.
One of the immediate costs associated with these regulatory changes
will be the need for the Department to update its systems, train staff
and vendors, and implement new compliance and monitoring processes. The
Department will also need to enhance communication systems to notify
employers and borrowers of any changes to a qualifying employer's
status in the PSLF program. These changes will require new costs for
minor system changes and for changes and increases in customer service
activities.
Initial estimates suggest that the administrative costs for the
Department will range from $1.5 million to $3 million annually during
the first two years of implementation. These funds, from appropriated
Student Aid Administration account funds, will be used to ensure that
the Department can effectively manage the new employer eligibility
determination process, update systems, and conduct necessary training
for staff and stakeholders. Also, as noted earlier, on a continuing
basis the Department estimates that a total of 10 FTEs will be
allocated annually, with a possible reduction in later outyears as
noncompliant employers are disqualified and the expected deterrent
effects of the final rule are realized.
In general, the Department believes that most employers will
already be complying with the requirements of the rule because the
employers already have an existing obligation to follow the law. Some
employers may need to make changes to ensure that they follow the law
and meet the new eligibility criteria under the regulations if they
want to participate in the PSLF program. This will involve reviewing
their activities to ensure they are not engaged in any actions that
will disqualify them from participating in the PSLF program. For some
employers who are not currently following the law, especially smaller
organizations or those with limited resources, this process may
necessitate consultation with legal counsel or operational adjustments.
Compliance costs for employers are expected to vary by
organization, depending on the organization's size and complexity.
Larger organizations, such as hospitals or universities, who are not
currently complying with the law may incur higher costs as they assess
their practices and make any necessary changes to align with this final
rule. These costs primarily result from the costs of legal counsel,
restructuring efforts, and changes to the organization's documentation
processes. At the same time, many organizations are accustomed to
attesting to the fact that they are not violating Federal and State law
as a condition to participate in other government or non-governmental
programs. In circumstances like these, organizations may not need to
exert any additional effort, or at most will need to dedicate a de
minimis amount of additional resources, in order to comply under this
final rule. Rather, such organizations will rely on their existing
compliance efforts to comply with the rule.
The most significant impacts on borrowers may stem from potential
misunderstandings of the final rule that may lead to borrower confusion
that delays application of the forgiveness benefit. Borrowers who are
employed by organizations disqualified under the new rule will no
longer be eligible to receive credit toward loan forgiveness while
working for that employer, except in certain circumstances described in
the rule. These borrowers would need to transition to qualifying
employers to continue receiving credit for their payments. Borrowers
who misunderstand the new rule may apply for forgiveness without
knowing or understanding the implications of this final rule on their
former or current employer, as they may no longer be a qualifying
employer.
Benefits of the Regulatory Changes:
Despite the initial and ongoing costs, the long-term benefits of
this final rule include increased integrity and long-term savings for
taxpayers. The most significant benefit of the regulations is the
improvement in the integrity of the PSLF program. By excluding
employers engaged in illegal activities such that they have a
substantial illegal purpose from the program, the Department affirms
taxpayer dollars are only used to support borrowers working for
organizations that are engaged in lawful public service. This change
will directly address concerns about improper disbursements and misuse
of Federal funds. This change also addresses concerns that the
Department is indirectly subsidizing illegal activities that the
Federal Government broadly aims to prevent.
The PSLF program provides generous benefits to individuals in
public service, and these changes will improve the integrity of the
program. By revising the PSLF program regulations to only reward
service with organizations engaged in lawful activities, the Department
expects to achieve substantial savings, as presented in the budget
impacts of this final rule.
One of the most important benefits of the regulations is the long-
term savings they will generate for taxpayers. By eliminating improper
payments, the Department estimates that these regulations will save
taxpayers $1.616 billion over the next ten years, resulting from a
reduction in PSLF tied to illegal activity. The expected reduction in
disbursements will ensure that taxpayer dollars are spent more
efficiently and effectively because the benefits borrowers receive are
not indirectly supporting organizations engaged in activities such that
it has a substantial illegal purpose.
The regulatory changes for the PSLF program aim to enhance the
program's integrity and transparency. The regulations will help reduce
improper payments and ensure that the program supports individuals
employed by eligible organizations that genuinely provide a public
service. With these changes, the PSLF program will be more accountable
and transparent.
5. Net Budget Impact
Table 5.1 provides an estimate of the net Federal budgetary impact
of these regulations that are summarized in Table 3.1 of this RIA. This
includes both the effects of a modification to existing loan cohorts
and costs for loan cohorts from 2026 to 2035. A cohort reflects all
loans originated in a given fiscal year. Consistent with the
requirements of the Credit Reform Act of 1990, budget cost estimates
for the student loan programs reflect the estimated net present value
of all future non-administrative Federal costs associated with a cohort
of loans. The approach to estimating the net
[[Page 48994]]
budget impact of these final regulations did not change from the NPRM.
The primary change in the scores for the final rule is that the
baseline for estimating the cost of this final rule is the President's
Budget for 2026 (PB2026) as modified for the One Big Beautiful Bill
Act, Public Law 119-21, 139 Stat. 72 signed into law on July 4, 2025.
As it relates to the estimated impacts of this final rule to PSLF
transfers, the most important change is the introduction of the
Repayment Assistance Plan (RAP) and changes to eligibility for existing
income-driven repayment (IDR) plans.
Table 5.1--Estimated Budget Impact of the Final Rule
[$ in millions]
----------------------------------------------------------------------------------------------------------------
Modification
Section Description score (1994- Outyear score Total (1994-
2025) (2026-2035) 2035)
----------------------------------------------------------------------------------------------------------------
Sec. 685.219(h)..................... Amended definition of -$842 -$774 -$1,616
qualifying employer.
----------------------------------------------------------------------------------------------------------------
This final rule defines several terms related to qualifying
employment for PSLF and amends the definition of a qualified employer
to exclude organizations that engage in activities such that it has a
substantial illegal purpose. This is consistent with President's
Trump's Executive Order, Restoring Public Service Loan Forgiveness,
Executive Order 14235 (Mar. 7, 2025). Pursuant to subsection
685.219(h), the Secretary will determine based on a preponderance of
the evidence, and after notice and opportunity to respond, whether
employers have engaged in activities enumerated in paragraph (b)(30) of
the final rule on or after July 1, 2026, such it has a substantial
illegal purpose. The Department will presume that any of the following
is conclusive evidence that the employer engaged in activities
enumerated in paragraph (b)(30) on or after July 1, 2026:
1. A final judgment by a State or Federal court, whereby the
employer is found to have engaged in activities that have a substantial
illegal purpose;
2. A plea of guilty or nolo contendere, whereby the employer admits
to having engaged in activities that have substantial illegal purpose
or pleads nolo contendere to allegations that the employer engaged in
activities that have substantial illegal purpose; or
3. A settlement that includes admission by the employer that it
engaged in activities that have a substantial illegal purpose.
Employer qualification will be linked to the E.I.N. used for
reporting to the IRS, therefore, employees in one area or agency may be
affected by the activities of employees in other organizations under
the same E.I.N. Government agencies may have many service areas under a
single E.I.N.
The PSLF application data includes variables that distinguish non-
profit employers and government employers, as well as the level of
government employers. Table 5.2 summarizes the split between all
borrowers who have received PSLF in the Department's data as of
September 25, 2025, whose greatest time in qualifying employment was
with government or non-profit organizations.
Table 5.2--Number of Borrowers Receiving PSLF and Average Forgiveness by Employment Sector
----------------------------------------------------------------------------------------------------------------
Number of borrowers who
Employment sector have received Average forgiveness
forgiveness amount
----------------------------------------------------------------------------------------------------------------
Government.................................................... 694,900 $73,100
Nonprofit..................................................... 305,500 82,200
-------------------------------------------------
Total..................................................... 1,000,400 75,900
----------------------------------------------------------------------------------------------------------------
Note: The total number of borrowers whose loans were forgiven may be less than most recent Department estimates
due to timing, data availability, and data cleaning. Borrowers are sorted into the sector with the maximum
time working toward forgiveness. The number of borrowers and average forgiveness amounts are rounded to the
nearest hundred. The total represents the weighted average of the number of borrowers and average forgiveness
amount across all borrowers who received PSLF through September of 2025. Totals are rounded to the nearest
hundred of the employment sectors and may not equal the total due to rounding. Data extracted September 25,
2025, and represents all borrowers who have received PSLF forgiveness up until that date.
Table 5.3 splits the government category into Federal, State, and
local levels. We assume that Federal agencies will comply with the law
and do not expect a reduction in forgiveness for Federal employees.
Table 5.3--Number of Borrowers Receiving PSLF and Average Forgiveness by
Government Subsector
------------------------------------------------------------------------
Number of
borrowers who have Average
Government subsector received forgiveness amount
forgiveness
------------------------------------------------------------------------
Federal Government.............. 100,400........... $72,000
Local government................ 425,500........... 71,200
State government................ 166,600........... 78,600
Unknown......................... 2,400............. 75,300
---------------------------------------
[[Page 48995]]
Total....................... 694,900........... 73,100
------------------------------------------------------------------------
Note: The total number of borrowers who have received forgiveness may be
less than most recent Department estimates due to timing, data
availability, and data cleaning. Borrowers are sorted into the sector
with the maximum time working toward forgiveness. The number of
borrowers and average forgiveness amounts are rounded to the nearest
hundred. The total represents the weighted average of the number of
borrowers and average forgiveness amount across all borrowers who
received PSLF through September of 2025. Totals are rounded to the
nearest hundred of the employment sectors and may not equal the total
due to rounding. Data extracted September 25, 2025, and represents all
borrowers who have received PSLF forgiveness up until that date.
Based on the activities identified in this final rule, it is likely
that organizations in some fields are more likely to be affected than
others, either by loss of eligibility, the deterrent effect on their
activities, difficulty recruiting employees, or by their employees not
being granted PSLF forgiveness and seeking alternate employment.
Regardless of the type of employer, service areas that could be most
affected by the regulation include, but are not limited to, legal
services, governance, social work, healthcare, K-12 education, and
higher education. Existing data on employers of borrowers who received
forgiveness does not include a service category and employer names do
not always indicate what an organization does, but the Department
analyzed this data to estimate what share of borrowers who have
achieved forgiveness fall into certain service areas and their average
forgiveness.\8\ This was done by matching keywords from various
subsectors to employer names. For example, for healthcare, the keywords
included ``hospital,'' ``health,'' ``medical,'' and ``clinic''.
---------------------------------------------------------------------------
\8\ Turner, J., Blanchard, K., & Darolia, R. (2025, January).
Where Do Borrowers Who Benefit from Public Service Loan Forgiveness
Work? NEA. https://www.nea.org/sites/default/files/2025-03/where-do-borrowers-who-benefit-from-pslf-work.pdf.
---------------------------------------------------------------------------
A portion of employers cannot be classified because some employer
names give no indication to their service area, contain misspellings,
or have names that do not contain any of the keywords matched. These
E.I.N.s are categorized as ``Other''. Approximately 91 percent of
borrowers who have received PSLF were categorized into a subsector
category, leaving 9 percent in the ``Other'' category. In this
analysis, we assume that the distribution of borrowers and subsectors
in the future will reflect that of those who have received forgiveness.
Table 5.4 summarizes the results by service area.
Table 5.4--Number of Borrowers Receiving PSLF and Average Forgiveness by Employment Subsector
----------------------------------------------------------------------------------------------------------------
Number of borrowers who
Employment subsector have received Average forgiveness
forgiveness amount
----------------------------------------------------------------------------------------------------------------
Agriculture................................................... 3,400 $64,600
Arts.......................................................... 2,900 62,200
Early Childhood............................................... 1,500 63,000
Environmental................................................. 2,700 61,400
Fire Rescue................................................... 1,200 52,800
Governance.................................................... 161,000 67,200
Healthcare.................................................... 163,900 89,400
Higher Education.............................................. 108,200 84,500
International................................................. 1,300 74,900
K-12 Education................................................ 303,500 72,500
Law Enforcement............................................... 20,500 66,400
Legal......................................................... 14,100 109,200
Military...................................................... 49,900 70,200
Other......................................................... 84,900 72,300
Philanthropy.................................................. 5,500 74,300
Religious..................................................... 14,400 69,600
Research...................................................... 1,600 65,600
Social Services............................................... 48,600 75,400
Transportation................................................ 5,700 61,500
Utilities & Infrastructure.................................... 2,500 60,500
Workforce & Labor............................................. 3,000 80,400
-------------------------------------------------
Total..................................................... 1,000,400 75,900
----------------------------------------------------------------------------------------------------------------
Note: The total number of borrowers who have received forgiveness may be less than most recent Department
estimates due to timing, data availability, and data cleaning. Borrowers are sorted into the sector with the
maximum time working toward forgiveness. The number of borrowers and average forgiveness amounts are rounded
to the nearest hundred. The total represents the weighted average of the number of borrowers and average
forgiveness amount across all borrowers who received PSLF through September of 2025. Totals are rounded to the
nearest hundred of the employment sectors and may not equal the total due to rounding. Data extracted
September 25, 2025, and represents all borrowers who have received PSLF forgiveness up until that date.
[[Page 48996]]
As we expect most employers to certify that they do not engage in
activities with a substantially illegal purpose, the information in
Table 5.4 informed our estimates of potential reductions in qualifying
employers for PSLF but does not directly translate to the percentage of
borrowers assigned to achieve forgiveness in our assumptions for the
regulation. We also recognize that employers in other employment
subsectors could engage in an activity that results in a loss of
eligibility but estimate that these will be anomalies or very small
percentages. Therefore, we have included a percentage for all other
categories, and some sensitivity runs that are described in the
Methodology for Budgetary Impact section of this analysis.
Methodology for Budgetary Impact
The Department estimated the budgetary impact of the provisions in
this final rule through changes to the PSLF assignment within the
Department's IDR assumption. PSLF is randomly assigned to borrowers in
our IDR model sample based on percentages that vary by the cohort range
in which they enter repayment and highest education level as presented
in Table 5.5.
Table 5.5--Change in Assignment of PSLF for Final Rule
----------------------------------------------------------------------------------------------------------------
Percentage of borrowers assigned PSLF
-----------------------------------------------------------------------------------------------------------------
Enter repayment cohort range 2-Year (%) 4-Year (%) Graduate (%)
----------------------------------------------------------------------------------------------------------------
PB2026 Baseline Scenario
----------------------------------------------------------------------------------------------------------------
2016 to 2020.................................................... 10.46 18.05 21.96
2021 and later.................................................. 14.65 28.88 30.74
----------------------------------------------------------------------------------------------------------------
Final Regulatory Scenario
----------------------------------------------------------------------------------------------------------------
2016 to 2020.................................................... 10.25 17.69 21.52
2021 and later.................................................. 14.35 28.30 30.13
----------------------------------------------------------------------------------------------------------------
Alternate Regulatory Scenario
----------------------------------------------------------------------------------------------------------------
2016 to 2020.................................................... 9.83 16.96 20.64
2021 and later.................................................. 13.77 27.14 28.90
----------------------------------------------------------------------------------------------------------------
We expect the regulations to have a deterrent effect, reducing the
likelihood of qualifying employers engaging in illegal activities.
Additionally, borrowers have the option of shifting employers to
complete their 120 months of qualifying payments. Therefore, we do not
expect a large reduction in borrowers achieving PSLF forgiveness,
although savings of $1.6 billion over ten years is significant. We have
not increased the effect for future cohorts of loans because, while
potential ineligibility starts with July 1, 2026, the effective date of
this final rule, employers' ability to appeal and get reinstated and
employees' ability to shift positions means the pattern is not
necessarily a continued increase in ineligibility.
The changes made in Table 5.5 were derived from applying reductions
between 0-5 percent to the employment subsectors identified in Table
5.4 as being most likely to be affected by the regulation (legal,
healthcare, social work, higher education, K-12 education, and
governance). This results in an estimated total reduction of
approximately 0-2 percent.
As explained in the Paperwork Reduction Act section, the Department
believes that there will be fewer than ten employers affected annually.
Within the universe of borrowers who have received forgiveness,
approximately 6 percent were employed for their longest time toward
forgiveness in the top ten E.I.N.s by forgiven borrower count,
excluding Federal employers who are assumed to comply. Therefore, we
also ran an alternate high-impact sensitivity that changed the
reductions up to 6 percent, see ``PSLF Alternate'' in Table 5.6.
The combined effect of the changes to the percentages in Table 5.5
reduces the number of borrowers achieving PSLF in our IDR assumption
and results in the cost savings presented in Table 5.6.
Table 5.6--Net Budget Impact of Changes to PSLF
------------------------------------------------------------------------
$ mns PSLF primary PSLF alternate
------------------------------------------------------------------------
Modification...................... -$842 -$2,326
Outlays for Cohorts 2026-2035..... -774 -2,220
-------------------------------------
Total......................... -1,616 -4,546
------------------------------------------------------------------------
Accounting Statement:
As required by OMB Circular A-4, we have prepared an accounting
statement showing the classification of the expenditures associated
with the provisions of these regulations. Table 5.7 provides our best
estimate of the changes in annual monetized transfers that may result
from these regulations. Expenditures are classified as transfers from
the Federal Government to affected student loan borrowers.
[[Page 48997]]
Table 5.7--Accounting Statement: Classification of Estimated
Expenditures
[In millions]
------------------------------------------------------------------------
------------------------------------------------------------------------
Category Benefits
------------------------------------------------------------------------
Reduction in taxpayer costs Not quantified.
supporting loan forgiveness
of those at organizations
determined to have a
substantial illegal purpose.
Deterrence of activities with Not quantified.
a substantial illegal
purpose done by non-profit
or governmental
organizations.
------------------------------------------------------------------------
Category Costs
------------------------------------------
3% 7%
------------------------------------------------------------------------
Costs of compliance with $0.0 $0.0
paperwork requirements.
------------------------------------------
Costs incurred by Not quantified.
organizations to ensure
compliance with regulations.
------------------------------------------
Administrative costs to 0.3 0.4
Federal Government to update
systems and contracts to
implement the regulations.
------------------------------------------------------------------------
Category Transfers
------------------------------------------
3% 7%
------------------------------------------------------------------------
Increased transfers from -179 -191
borrowers to Federal
Government due to reductions
in borrowers achieving PSLF
forgiveness.
------------------------------------------------------------------------
6. Alternatives Considered
In the interest of ensuring that these final regulations produce
the best possible outcome, we considered a broad range of proposals
from internal sources as well as from non-Federal negotiators and
members of the public as part of the negotiated rulemaking process.
However, the ideas presented during negotiated rulemaking largely
mirrored the suggestions that the Department received in public
comments. As discussed throughout the preamble and accompanying the
discussion of each proposed regulatory provision, the Department
believes the final rule will prevent taxpayer-funded PSLF benefits from
being improperly provided to individuals who are employed by
organizations that engage in activities such that it has a substantial
illegal purpose, improve the integrity of the PSLF program, and provide
protection for taxpayers.
Among some of the key themes discussed was the establishment of
standards anchored in objective, evidenced-based findings. This final
rule clarifies definitions of qualifying employers and provides a clear
standard of determination. This rule makes clear that employer
disqualification requires the Department to find that an employer has
engaged in activities such that they have a substantial illegal purpose
by a preponderance of the evidence after weighing the employer's
illegal conduct, narrowly focusing on only the illegal conduct
enumerated in the rule. Commenters also sought to broaden or clarify
which entities qualify as ``public service organizations'',
particularly in edge cases such as nonprofit contractors, hybrid
organizations, and religious nonprofits. The Department has carefully
considered these requests but remains bound by the statutory language
defining a ``public service organization''. The Department believes
this final rule preserves flexibility to recognize a wide range of
nonprofit and governmental employers while ensuring that the core
purposes of the PSLF program are preserved.
7. Regulatory Flexibility Act
The Secretary certifies, under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), that this final regulatory action will not have a
significant economic impact on a substantial number of ``small
entities.'' For the purposes of this certification, the Department of
Education defines small entities to include: (1) nonprofit
organizations that are independently owned and operated and not
dominant in their field, as defined in 5 U.S.C. 601(4); and (2) local
educational agencies (LEAs), school districts, or local governments
serving populations of fewer than 50,000, consistent with 5 U.S.C.
601(5). For-profit companies, of any size, are not eligible as
qualifying employers under PSLF, and therefore small businesses are not
included here as small entities.
This regulatory action does not impose new reporting requirements
or compliance burdens on these entities. Any potential effects are
minimal, indirect, or result from voluntary participation in a Federal
program. Therefore, the Department concludes that this rule will not
have a significant economic impact on a substantial number of small
entities, in accordance with 5 U.S.C. 605(b).
These regulations are focused on arrangements between the borrower
and the Department. As noted in the Paperwork Reduction Act section,
the burden related to the final regulations will be assessed in a
separate information collection process.
8. Analysis of Public Comments and Changes
Comments: Several commenters expressed concern that the
Department's RIA did not adequately account for the administrative and
compliance costs borne by nonprofit organizations, hospitals, schools,
and government employers involved in certifying employment for PSLF.
Commenters, including Counsel for Justice and Candidly, asserted
that the Department's cost estimates ($1.5-3 million) underestimate the
true burden of annual employment verification, staff training, and data
management. They further suggested that the Department's approach
diverges from prior economic analyses and omits recurring employer
costs. Two anonymous commenters referenced specific sections of the RIA
(Discussion of Costs and Benefits and Methodology for Budgetary Impact)
to argue that the Department provided insufficient empirical support
for its assumptions and did not identify data sources or methodologies
to substantiate employer compliance estimates.
[[Page 48998]]
Discussion: The Department disagrees. The RIA provides reasonable
and appropriate cost estimates. Although some employers may need to
make administrative adjustments, those costs are outweighed by the
benefits strengthening integrity and transparency that protects
borrowers and safeguards taxpayer investment. This rule delivers
certainty and strengthens oversight within the PSLF program. The
Department is committed to fair implementation that protects both the
public servants who rely on PSLF and the taxpayers who fund it.
Following the discussion of costs to borrowers and the Federal
Government, the Department also considered potential administrative and
compliance costs that may be incurred by employers participating in the
PSLF program.
Several commenters asserted that the Department's analysis did not
fully account for the administrative and compliance costs that
nonprofit organizations, hospitals, schools, and government employers
may face in assisting borrowers with PSLF employment certification.
Commenters referenced the Discussion of Costs and Benefits and
Methodology for Budgetary Impact sections of the proposed rule and
suggested that the Department's estimated costs ($1.5-3 million)
understated the true administrative workload associated with employment
verification and recordkeeping. In response, the Department carefully
reviewed the assumptions underlying its cost estimates and continues to
find them reasonable and consistent with both prior rulemakings and
current operational practices. The Department's methodology
incorporates existing reporting obligations and employer processes
already used to certify employment under PSLF and therefore reflects
only incremental administrative costs directly attributable to this
rule. Although commenters expressed general concern regarding
compliance burdens, the Department did not receive quantitative data or
supporting documentation sufficient to revise its estimates.
The Department concludes that any incremental employer burden
associated with this final rule is expected to be minimal and does not
represent a significant economic impact on small entities or affected
sectors. As a result, no changes have been made to the RIA based on
these comments.
Changes: None.
Comments: A recurring theme was concern that additional
administrative burden and uncertainty may deter professionals from
entering or remaining in public service roles. Commenters stressed that
PSLF was designed to attract and retain public service workers, and
that overly complex or costly rules could undermine this purpose.
Discussion: The Department does not agree with this claim. This
final rule strengthens the PSLF program by clarifying eligibility
standards and improving transparency so that borrowers and employers
understand how the program is administered. These improvements give
public service professionals greater confidence to remain in qualifying
employment. The PSLF program must be reliable. Borrowers need
certainty, and taxpayers require accountability. This rule supports
both by keeping the program focused on rewarding lawful public service,
consistent with the statute.
Changes: None.
Comments: A smaller number of commenters noted broader ripple
effects if participation in PSLF declines. They suggested that reduced
forgiveness would leave borrowers with higher debt burdens and less
disposable income, limiting their ability to purchase homes, invest
locally, or support their communities. Others argued that attrition in
public service roles could weaken schools, healthcare providers, and
local governments.
Discussion: The Department does not agree with the assertion that
this rule will have a significant adverse impact on the economy.
Rather, the rule enhances the PSLF program by restoring clarity and
consistency in its administration. Borrowers will gain increased
confidence in the program, which supports long-term participation in
public service employment. This stability helps retain skilled
professionals in critical service roles and ensures that PSLF benefits
continue to reach those engaged in lawful public service. The rule
advances the Department's goal of ensuring responsible use of taxpayer
funds.
Changes: None.
Comments: Commenters highlighted that small nonprofits, community
health centers, and local government units lack the infrastructure to
absorb compliance costs at the same level as large institutions. They
argued that the Department's cost analysis treated all employers
uniformly, failing to recognize the disproportionate impact on small
entities that operate with limited budgets and staff. These groups
feared that compliance requirements could force them to reduce services
or reconsider participation in the PSLF program altogether.
Discussion: The Department acknowledges that small nonprofits,
community health centers, and local government units often operate with
limited budgets and have a difficult time with regulatory compliance.
However, the Department rejects the claim that this rule imposes
disproportionate burdens as the rule does not add new legal
requirements. Rather, the rule creates new consequences for failing to
abide by existing law. The RIA already accounts for compliance
adjustments across a wide range of employer types, and the requirements
are narrowly tailored to ensure accountability without excessive
paperwork. This rule does not create unnecessary red tape. It creates
clarity, consistency, and fairness so borrowers know that only public
service will be counted to ensure that taxpayer resources are
protected. Accountability applies to all entities receiving the benefit
of Federal loan forgiveness.
Changes: None.
Comments: Some commenters argued that beyond administrative costs,
the Department did not fully consider how compliance demands could
reduce organizational capacity to deliver essential services. For
example, schools and hospitals could be forced to reallocate staff from
direct service roles to compliance functions, potentially reducing
classroom instruction or patient care. Commenters warned that these
indirect costs may be more damaging than direct compliance expenses.
Discussion: The Department acknowledges that some organizations
that are breaking the law will need to significantly change their
existing compliance practices if they want to come into compliance with
the rule. However, even in those circumstances, the Department does not
believe that compliance requirements will weaken schools, hospitals, or
other public service employers. If these organizations are not
following the law, they have an independent reason outside of the PSLF
program to spend necessary funds to stop violating the law. This final
rule is designed to strengthen confidence in the PSLF program, not
siphon resources away from public service providers. This rule's
administrative safeguards are straightforward, proportional, and
necessary to ensure that Federal benefits are delivered only to
borrowers working for organizations engaged in lawful activities.
Changes: None.
Comments: A subset of commenters cautioned that the cumulative
effect of compliance costs, administrative risk, and uncertainty could
discourage some employers from participating in PSLF at all. They
argued that, if organizations
[[Page 48999]]
perceive the program as unpredictable or too resource-intensive, they
may avoid advertising PSLF benefits to employees or disengage entirely.
They argue this would directly undermine the program's intended purpose
of expanding access to public service careers.
Discussion: The Department acknowledges that some employers may no
longer wish to participate in the program or may cease advertising to
employees and prospective employees about how working for the
organization could lead to PSLF forgiveness. At the same time,
employers that voluntarily cease participation in PSLF may do so
because they are engaging in activities with a substantial illegal
purpose. In these circumstances, the Department believes that voluntary
withdrawal is appropriate. Other employers who do not engage in
activities with a substantial illegal purpose may also withdraw from
PSLF participation. The Department believes that any risks associated
with withdrawal by employers who would be eligible is outweighed by the
benefits of enhanced integrity to the PSLF program that come from the
rule. This final rule ensures all qualified employers are treated
consistently, strengthens trust in the program, and makes PSLF a more
accountable and transparent program.
Changes: None.
Comments: A few commenters expressed concern that the cost estimate
included in the RIA was unsubstantial or otherwise in conflict with the
Department's assertions with respect to the final rule's impact. They
also argued that assertions regarding streamlining the PSLF process and
anticipated growth in public service recruitment and retention
contradicted the Department's projected savings under the rule, and
requested the Department reconcile these conflicts.
Discussion: The Department acknowledges commenters' concerns
regarding the conflict between projected savings under the final rule
and anticipated growth in public service employment and made changes to
address the inconsistency by reducing the Department's assumption about
the anticipated growth in public service employment through the final
rule.
Changes: Amended preamble language in the RIA section.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department provides the public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that the public
understands the Department's collection instructions, respondents can
provide the requested data in the desired format, reporting burden
(time and financial resources) is minimized, collection instruments are
clearly understood, and the Department can properly assess the impact
of collection requirements on respondents.
Section 685.219(i) of these regulatory changes will require an
update to the currently approved Public Service Loan Forgiveness
Certification and Application, OMB #1845-0110 (PSLF Form). The
Department will amend the PSLF form to include the ability for a
qualifying employer to certify that it has not engaged in activity that
has a substantial illegal purpose. The burden on this information
collection will not significantly change for the borrower to complete
the form. This form update will be completed and made available for
comment through a full public clearance package before being made
available for use by the effective date of the regulations. Any burden
changes will be assessed to OMB #1845-0110, Public Service Loan
Forgiveness Certification and Application. The amendments to the
regulation do not significantly change the estimated number of
respondents or responses for individuals in this collection. The
Department estimates that there will be a nominal change in the number
of borrowers completing the PSLF Form. The Department expects that
borrowers who currently work for non-qualifying employers will likely
submit a form to either switch employers or because they are uncertain
about their employer's eligibility status.
Section 685.219(j) of the final regulation will allow an employer
to re-establish eligibility for PSLF if the Secretary approves a
corrective action plan. The Department believes that, annually, there
will be less than ten employers responding to the Department's notice
of an initiated action and/or seeking approval of a corrective action
plan. No additional burden has been assessed based on this final rule
as the anticipated number of annual respondents falls below ten, which
is the minimum required for OMB approval of an information collection.
A Federal agency may not conduct or sponsor a collection of
information unless OMB approves the collection under the PRA and the
corresponding information collection instrument displays a currently
valid OMB control number. Notwithstanding any other provision of law,
no person is required to comply with or is subject to a penalty for
failure to comply with a collection of information if the collection
instrument does not display a currently valid OMB control number.
Analysis of Public Comments & Changes
Comments: Several commenters argued that the proposed requirements
could trigger additional reporting and documentation obligations that
may not comply with the PRA. They emphasized that duplicative or
unclear reporting burdens would impose unnecessary strain on
organizations and potentially violate statutory limits. Commenters
asked the Department to explicitly evaluate and minimize any new
paperwork requirements.
Discussion: The Department acknowledges the importance of the PRA
and will comply fully with its requirements. However, the claim that
this final rule creates duplicative or unlawful reporting burdens is
misplaced. The rule does not impose unnecessary or redundant reporting
obligations. It aligns PSLF program documentation with existing Federal
and State oversight systems and streamlines requirements where possible
to avoid duplication. The Department is committed to minimizing burden
while preserving accountability. The Department's commitment to
promoting sound financial stewardship of government programs, including
the PSLF program, while alleviating unnecessary regulatory burdens, is
informed in part by President Trump's Executive Order on Unleashing
Prosperity Through Deregulation (Jan. 31, 2025). PRA review will ensure
that any reporting is necessary, clear, and efficient. Borrowers and
taxpayers alike deserve a program that is transparent, fair, and
protects Federal investment. The Department will enforce the law
firmly, while making sure compliance is efficient, lawful, and aligned
with statutory obligations.
Changes: None.
Intergovernmental Review
This program is subject to Executive Order 12372 and the
regulations in 34 CFR part 79. One of the objectives of Executive Order
12372 is to foster an intergovernmental partnership and strengthen
Federalism. The Executive Order relies on processes developed by State
and local governments for coordination and review of proposed Federal
financial assistance.
This document provides early notification of our specific plans and
actions for this program.
[[Page 49000]]
Federalism
Executive Order 13132 requires us to provide meaningful and timely
input by State and local elected officials in the development of
regulatory policies that have Federalism implications. ``Federalism
implications'' means substantial direct effects on the States, on the
relationship between the National Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. The regulations do not have Federalism implications.
Accessible Format: On request to the program contact person(s)
listed under FOR FURTHER INFORMATION CONTACT, individuals with
disabilities can obtain this document in an accessible format. The
Department will provide the requestor with an accessible format that
may include Rich Text Format (RTF) or text format (txt), a thumb drive,
an MP3 file, braille, large print, audiotape, or compact disc, or
another accessible format.
Electronic Access to This Document: The official version of this
document is the document published in the Federal Register. You may
access the official edition of the Federal Register and the Code of
Federal Regulations at www.govinfo.gov where you can view this
document, as well as all other documents of this Department published
in the Federal Register, in text or Adobe Portable Document Format
(PDF). To use PDF, you must have Adobe Acrobat Reader, which is
available free at the site.
You may also access documents of the Department published in the
Federal Register by using the article search feature at
www.federalregister.gov. Specifically, through the advanced search
feature at this site, you can limit your search to documents published
by the Department.
List of Subjects
34 CFR Part 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Nicholas Kent,
Under Secretary of Education.
For the reasons discussed in the preamble, the Secretary of
Education amends part 685 of title 34 of the Code of Federal
Regulations as follows:
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
0
1. The authority citation for part 685 is revised to read as follows:
Authority: 20 U.S.C. 1070g, 1087a, et seq., unless otherwise
noted.
0
2. Amend Sec. 685.219 by:
0
a. Adding paragraphs (b)(1) through (b)(35);
0
b. Revising paragraphs (c)(2)introductory text and(c)(4); and
0
c. Adding paragraphs(e)(9) and (10),(g)(7), and (h) through (k).
The additions and revisions read as follows:
Sec. 685.219 Public Service Loan Forgiveness Program (PSLF).
* * * * *
(b) * * *
(1) Aiding or abetting has the same meaning as defined under 18
U.S.C. 2.
(2) AmeriCorps service means service in a position approved by the
Corporation for National and Community Service under section 123 of the
National and Community Service Act of 1990 (42 U.S.C. 12573).
(3) Chemical castration or mutilation means:
(i) The use of puberty blockers, including GnRH agonists and other
interventions, to delay the onset or progression of normally timed
puberty in an individual who does not identify as his or her sex; and
(ii) The use of sex hormones, such as androgen blockers, estrogen,
progesterone, or testosterone, to align an individual's physical
appearance with an identity that differs from his or her sex.
(4) Child or children for the sole and specific purpose of this
section means an individual or individuals under 19 years of age.
(5) Civilian service to the military means providing services to or
on behalf of members, veterans, or the families or survivors of
deceased members of the U.S. Armed Forces or the National Guard that is
provided to a person because of the person's status in one of those
groups.
(6) Early childhood education program means an early childhood
education program as defined in section 103(8) of the Act (20 U.S.C.
1003).
(7) Eligible Direct Loan means a Direct Subsidized Loan, a Direct
Unsubsidized Loan, a Direct PLUS Loan, or a Direct Consolidation Loan.
(8) Emergency management means services that help remediate,
lessen, or eliminate the effects or potential effects of emergencies
that threaten human life or health, or real property.
(9) Employee or employed means an individual:
(i) To whom an organization issues an IRS Form W-2;
(ii) Who receives an IRS Form W-2 from an organization that has
contracted with a qualifying employer to provide payroll or similar
services for the qualifying employer, and which provides the Form W-2
under that contract;
(iii) who works as a contracted employee for a qualifying employer
in a position or providing services which, under applicable State law,
cannot be filled or provided by a direct employee of the qualifying
employer.
(10) Foreign Terrorist Organizations mean organizations on the list
published under paragraph (a)(2)(A)(ii) under the Immigration and
Nationality Act (8 U.S.C. 1189).
(11) Full-time means:
(i) Working in qualifying employment in one or more jobs--
(A) A minimum average of 30 hours per week during the period being
certified,
(B) A minimum of 30 hours per week throughout a contractual or
employment period of at least 8 months in a 12-month period, such as
elementary and secondary school teachers and professors and
instructors, in higher education, in which case the borrower is deemed
to have worked full time; or
(C) The equivalent of 30 hours per week as determined by
multiplying each credit or contact hour taught per week by at least
3.35 in non-tenure track employment at an institution of higher
education.
(12) Illegal discrimination means a violation of any Federal
discrimination law including, but not limited to, the Civil Rights Act
of 1964 (42 U.S.C. 1981 et seq.), Americans with Disabilities Act (42
U.S.C. 12101 et seq.), and the Age Discrimination in Employment Act of
1967 (29 U.S.C. 621 et seq.).
(13) Law enforcement means service that is publicly funded and
whose principal activities pertain to crime prevention, control or
reduction of crime, or the enforcement of criminal law.
(14) Military service means ``active duty'' service or ``full-time
National Guard duty'' as defined in section 101(d)(1) and (d)(5) of
title 10 in the United States Code and does not include active duty for
training or attendance at a service school.
(15) Non-governmental public service means services provided by
employees of a non-governmental qualified employer where the employer
has devoted a majority of its full-time equivalent employees to working
in at
[[Page 49001]]
least one of the following areas (as defined in this section):
emergency management, civilian service to military personnel, military
service, public safety, law enforcement, public interest law services,
early childhood education, public service for individuals with
disabilities or the elderly, public health, public education, public
library services, school library, or other school-based services.
Service as a member of the U.S. Congress is not qualifying public
service employment for purposes of this section.
(16) Non-tenure track employment means work performed by adjunct,
contingent or part time faculty, teachers, or lecturers who are paid
based on the credit hours they teach at institutions of higher
education.
(17) Other Federal Immigration laws mean any violation of the
Immigration and Nationality Act (8 U.S.C. 1105 et seq.) or any other
Federal immigration laws.
(18) Other school-based services mean the provision of services to
schools or students in a school or a school-like setting that are not
public education services, such as school health services and school
nurse services, social work services in schools, and parent counseling
and training.
(19) Peace Corps position means a full-time assignment under the
Peace Corps Act as provided for under 22 U.S.C. 2504.
(20) Public education service means the provision of educational
enrichment or support to students in a public school or a public
school-like setting, including teaching.
(21) Public health means those engaged in the following occupations
(as those terms are defined by the Bureau of Labor Statistics):
physicians, nurse practitioners, nurses in a clinical setting, health
care practitioners, health care support, counselors, social workers,
and other community and social service specialists.
(22) Public interest law means legal services that are funded in
whole or in part by a local, State, Federal, or Tribal government.
(23) Public library service means the operation of public libraries
or services that support their operation.
(24) Public safety service means services that seek to prevent the
need for emergency management services.
(25) Public service for individuals with disabilities means
services performed for or to assist individuals with disabilities (as
defined in the Americans with Disabilities Act (42 U.S.C. 12102)) that
is provided to a person because of the person's status as an individual
with a disability.
(26) Public service for the elderly means services that are
provided to individuals who are aged 62 years or older and that are
provided to a person because of the person's status as an individual of
that age.
(27) Qualifying employer means:
(i)(A) A United States-based Federal, State, local, or Tribal
government organization, agency, or entity, including the U.S. Armed
Forces or the National Guard;
(B) A public child or family service agency;
(C) An organization under Section 501(c)(3) of the Internal Revenue
Code of 1986 that is exempt from taxation under Section 501(a) of the
Internal Revenue Code;
(D) A Tribal college or university; or
(E) A nonprofit organization that--
(1) Provides a non-governmental public service as defined in this
section, attested to by the employer on a form approved by the
Secretary; and
(2) Is not a business organized for profit, a labor union, or a
partisan political organization; and
(ii) Does not include organizations that engage in activities such
that they have a substantial illegal purpose, as defined in this
section.
(28) Qualifying repayment plan means:
(i) An income-driven repayment plan under Sec. 685.209;
(ii) The 10-year standard repayment plan under Sec. 685.208(b) or
the consolidation loan standard repayment plan with a 10-year repayment
term under Sec. 685.208(c); or
(iii) Except for the alternative repayment plan, any other
repayment plan if the monthly payment amount is not less than what will
have been paid under the 10-year standard repayment plan under Sec.
685.208(b).
(29) School library services mean the operations of school
libraries or services that support their operation.
(30) Substantial illegal purpose means:
(i) aiding or abetting violations of 8 U.S.C. 1325 or other Federal
immigration laws;
(ii) Supporting terrorism, including by facilitating funding to, or
the operations of, cartels designated as Foreign Terrorist
Organizations consistent with 8 U.S.C. 1189, or by engaging in violence
for the purpose of obstructing or influencing Federal Government
policy;
(iii) Engaging in the chemical and surgical castration or
mutilation of children in violation of Federal or State law;
(iv) Engaging in the trafficking of children to another State for
purposes of emancipation from their lawful parents in violation of
Federal or State law;
(v) Engaging in a pattern of aiding and abetting illegal
discrimination; or
(vi) Engaging in a pattern of violating State laws as defined in
paragraph (b)(34) of this section.
(31) Surgical castration or mutilation means surgical procedures
that attempt to transform an individual's physical appearance to align
with an identity that differs from his or her sex or that attempt to
alter or remove an individual's sexual organs to minimize or destroy
their natural biological functions.
(32) Terrorism is defined under 18 U.S.C. 2331.
(33) Trafficking means transporting a child or children from their
State of legal residence to another State without permission or legal
consent from the parent or legal guardian for purposes of emancipation
from their lawful parents or legal guardian, in violation of applicable
law.
(34) Violating State law means a final, non-default judgment by a
State court of:
(i) Trespassing;
(ii) Disorderly conduct;
(iii) Public nuisance;
(iv) Vandalism; or
(v) Obstruction of highways.
(35) Violence for the purpose of obstructing or influencing Federal
Government policy means violating any part of 18 U.S.C. 1501 et seq. by
committing a crime of violence as defined under 18 U.S.C. 16.
(c) * * *
(2) Except as provided in paragraph (c)(4) of this section, a
borrower will be considered to have made monthly payments under
paragraph (c)(1)(iii) of this section by--
* * * * *
(4) Effective on or after July 1, 2026, through a standard as
described in paragraph(h)of this section, no payment shall be credited
as a qualifying payment for any month subsequent to a determination
that a qualifying employer engaged in activities enumerated in
paragraph (b)(30) such that it has a substantial illegal purpose, as
described in this section.
* * * * *
(e) * * *
(9) If the Secretary has notified the borrower's employer that the
employer may no longer satisfy the definition of qualifying employer
set forth in paragraph (b)(28) of this section, pending a determination
made under paragraph (h) of this section, the Secretary notifies the
borrower of the potential change in the employer's status.
[[Page 49002]]
(10) If the Secretary has determined the borrower's employer has
ceased to be a qualifying employer as a result of a determination made
under paragraph(h) of this section, the Secretary notifies the borrower
of the change in the employer's status.
* * * * *
(g) * * *
(7) Notwithstanding paragraph (g)(1) of this section, a borrower
may not request reconsideration under this paragraph (g) based on the
Secretary's determination that the organization lost its status as a
qualifying employer due to engaging in activities that have a
substantial illegal purpose under the standard described in paragraph
(h) of this section.
(h) Standard for determining whether a qualifying employer has a
substantial illegal purpose.
(1) The Secretary determines by a preponderance of the evidence,
and after notice and opportunity to respond (which is referred to as
the ``employer reconsideration process''), that a qualifying employer
has engaged on or after July 1, 2026, in illegal activities such that
it has a substantial illegal purpose by considering the materiality of
any illegal activities or actions as described in paragraph (b)(30) of
this section. In making such a determination, the Secretary shall
presume that any of the following is conclusive evidence that the
employer engaged in activities enumerated in paragraph (b)(30):
(i) A final judgment by a State or Federal court, whereby the
employer is found to have engaged in illegal activities that have a
substantial illegal purpose;
(ii) A plea of guilty or nolo contendere, whereby the employer
admits to have engaged in illegal activities that have a substantial
illegal purpose or pleads nolo contendere to allegations that the
employer engaged in illegal activities that have substantial illegal
purpose; or
(iii) A settlement that includes admission by the employer that it
engaged in illegal activities that have a substantial illegal purpose
described in paragraph (h) of this section.
(2) Nothing in this paragraph (h)(2)shall be construed to authorize
the Secretary to determine an employer has a substantial illegal
purpose based upon the employer or its employees exercising their First
Amendment protected rights, or any other rights protected under the
Constitution.
(i) Process for determining when a qualifying employer engaged in
activities such that it has a substantial illegal purpose.
(1) The Secretary will determine that a qualifying employer
violated the standard under paragraph (h) of this section when the
Secretary:
(i) Receives an application as referenced under paragraph (e) of
this section in which the employer fails to certify that it did not
participate in activities that have a substantial illegal purpose; or
(ii) Determines that the qualifying employer engaged in activities
such that it has a substantial illegal purpose under paragraph (h) of
this section, unless, prior to the issuance of the Secretary's
determination, the Secretary includes the factors set forth in
paragraph (j)(2) of this section.
(2) Notwithstanding paragraph (i)(1) of this section, the Secretary
shall, in the event an employer is operating under a shared
identification number or other unique identifier, consider the
organization to be separate if the employer is operating separately and
distinctly, for the purposes of determining whether an employer is
eligible.
(j) Regaining eligibility as a qualifying employer. An organization
that loses eligibility for failure to meet the conditions of paragraph
(b)(27) of this section may regain eligibility to become a qualifying
employer after--
(1) 10 years from the date the Secretary determines the
organization engaged in activities such that it has a substantial
illegal purpose in accordance with paragraph (h) of this section, if,
at or after that time, the organization certifies on a borrower's
subsequent application that the organization is no longer engaged in
activities that have a substantial illegal purpose as defined in
paragraph (b)(30) of this section; or
(2) The Secretary approves a corrective action plan signed by the
employer that includes--
(i) a certification by the employer that it is no longer engaging
in activities that have a substantial illegal purpose as defined in
paragraph (b)(30) of this section;
(ii) a report describing the employer's compliance controls that
are designed to ensure that the employer does not continue to engage in
activities that have a substantial illegal purpose as defined in
paragraph (b)(30) of this section in the future; and
(iii) any other terms or conditions imposed by the Secretary
designed to ensure that employers do not engage in actions or
activities that have a substantial illegal purpose.
(k) Borrower notification of regained eligibility. If an employer
regains eligibility under paragraph (j) of this section, the Secretary
shall update the qualifying employer list, which is accessible to
borrowers for purposes of certification or application.
[FR Doc. 2025-19729 Filed 10-29-25; 8:45 am]
BILLING CODE 4000-01-P