New York State Attorney General (NYSAG) Letitia James today led a coalition of 21 other attorneys general in suing the U.S. Department of Education (ED) and Secretary Linda McMahon for unlawfully restricting eligibility for the Public Service Loan Forgiveness (PSLF) program, which allows government and nonprofit employees to have their federal student loans forgiven after ten years of service.  Attorney General James and the coalition are challenging a new federal rule that would deem entire state governments, hospitals, schools, and nonprofit organizations ineligible for PSLF if the federal government unilaterally determines they have engaged in activities the administration disapproves of, such as support for immigrants, gender-affirming health care, or diversity programs.  The coalition argues that the sweeping new rule is unlawful, politically motivated, and targeted to punish states and organizations that the administration does not like.

“Public Service Loan Forgiveness was created as a promise to teachers, nurses, firefighters, and social workers that their service to our communities would be honored,” said Attorney General James.  “Instead, this administration has created a political loyalty test disguised as a regulation.  It is unjust and unlawful to cut off loan forgiveness for hardworking Americans based on ideology.  I will not let our federal government punish New York’s public servants for doing their jobs or standing up for our values.”

The PSLF program, established by Congress in 2007, ensures that those who dedicate their careers to serving their communities are not financially penalized for doing so.  By forgiving remaining federal student loan debt after ten years of qualifying public service, PSLF has enabled teachers, nurses, firefighters, social workers, and countless other essential workers to pursue public service careers that might otherwise be out of reach.  More than one million public servants nationwide have already received loan forgiveness through the program, including tens of thousands of New Yorkers.  For state governments, PSLF is a critical tool to recruit and retain qualified professionals in vital fields like education, health care, and law enforcement.  On October 31, ED finalized a new rule granting itself the power to unilaterally declare entire agencies or organizations ineligible for PSLF if the administration determines they have a “substantial illegal purpose,” a phrase that appears nowhere in the PSLF statute.  The attorneys general highlight that the Department’s limited definition of such “illegality” aligns neatly with the administration’s political targets, including:

• Supporting immigrants;
• Providing gender affirming care;
• Promoting diversity, equity, and inclusion; and
• Engaging in political protest.

The rule, scheduled to take effect in July 2026, would effectively transform PSLF into a political weapon against states and causes the administration does not like by allowing the federal government to deem them to be “substantially illegal” whenever it chooses.  Attorney General James and the coalition warn that this vague and sweeping authority could have devastating consequences nationwide.  Entire classes of public workers, such as teachers in states with inclusive curricula, health professionals providing gender-affirming care, or legal aid attorneys representing immigrants, could suddenly lose PSLF eligibility through no fault of their own.  The result would be widespread confusion, fear, and instability in the public workforce, forcing states to confront severe staffing shortages, higher turnover, and skyrocketing costs to maintain essential services.  The dangers are not hypothetical.  Earlier this year, the U.S. Department of Justice sued New York over its “Protect Our Courts Act” – a state law ensuring that immigration enforcement does not deter people from seeking justice in state courts.  Under the new PSLF rule, the attorneys general argue, the administration could claim that this duly enacted, court-upheld law constitutes a “substantial illegal purpose” and use it to deny loan forgiveness to thousands of New York public employees.  Attorney General James and the coalition emphasize that if this policy stands, hardworking teachers, nurses, social workers, and other public servants could wake up one day to find that they no longer qualify for PSLF because their employer has fallen out of favor with the current administration in Washington, D.C.  The attorneys general argue that the new rule is flatly illegal.  The law that created PSLF guarantees forgiveness for anyone who works full-time in qualifying public service; it does not grant ED discretion to carve out exceptions based on ideology.  In addition, the rule’s vague “substantial illegal purpose” standard is arbitrary and capricious, and therefore illegal under the Administrative Procedure Act, as it gives ED the unfettered power to target specific state policies or social programs while exempting federal agencies from scrutiny.  The attorneys general are asking the court to declare the rule unlawful, vacate it, and bar the Department of Education from enforcing or implementing it.

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