WASHINGTON (AP) — The Trump administration is forging ahead with plans to eject some nonprofits from a popular student loan forgiveness program if their work is deemed to have a “substantial illegal purpose” — a move that could cut off some teachers, doctors and other public workers from federal loan cancellation.
New rules finalized Thursday give the Education Department expanded power to ban organizations from the Public Service Loan Forgiveness program. The Trump administration calls it necessary to block taxpayer money from lawbreakers. Critics say it turns the program into a tool of political retribution.
Set to take effect in July, the policy is aimed primarily at organizations that work with immigrants and transgender youth.
It grants the education secretary power to exclude groups from the program if they engage in activities including the trafficking or “chemical castration” of children, illegal immigration and supporting terrorist organizations. “Chemical castration” is defined as using hormone therapy or drugs that delay puberty — gender-affirming care common for transgender children or teens.
It amounts to a major reworking of a program that has canceled loans for more than 1 million Americans and was created by Congress in 2007 to steer more college graduates into lower-paying public sector jobs. The Trump administration has yet to identify specific groups it intends to target, but it estimates fewer than 10 would be barred per year.
“Illegal activity by its very nature runs contrary to the public good,” the Education Department wrote in a fact sheet. “Congress focuses on public service, and the Trump Administration will not direct taxpayer dollars from hardworking Americans to organizations that are breaking the law.”
The program has rewarded a wide range of public service careers
The program promises to cancel federal student loans for government employees and many nonprofit workers after they have made 10 years of payments. It has long been open to government workers, teachers, firefighters and employees of public hospitals. Eligibility rules laid out by Congress focus mostly on nonprofits’ tax status and their field of work.
The benefit has gone to workers at organizations across the political spectrum. Yet in a March action demanding new limits, President Donald Trump said it has “misdirected tax dollars into activist organizations that not only fail to serve the public interest, but actually harm our national security and American values, sometimes through criminal means.”
A central concern of critics is the wide latitude the department is giving itself to determine if an organization’s work should be considered to have a “substantial illegal purpose.”
Employers across state and local government as well as nonprofits can be expelled from the program if a state or federal court rules against them or if they agree to a legal settlement that includes admission of guilt. It appears that performing gender-affirming care in the 27 states that outlaw it, for example, could be grounds for expulsion.
Even without a legal finding, the education secretary will be able to independently determine that an organization should be barred. The secretary would weigh whether the “preponderance of the evidence” leans against the employer.
In completing the rule, the department dismissed concerns from many who said the standard of evidence is too low.
“It ensures decisions are grounded in fact, not speculation, and allows the Department to act promptly to protect both borrowers and taxpayers,” federal officials wrote.
Critics see an opening for decisions based on ideology
Among those opposing the proposal were prominent associations in higher education, health care and legal professions. In public comments submitted to the department, many called it an illegal overstep and said it would undermine an incentive that has helped address work shortages in high-demand fields.
The American Bar Association said it could decrease the ranks of public defenders and those in public interest law. Thousands of people will lose access to representation, the association said, “simply because those attorneys’ jobs were deemed politically unfavorable by the Secretary.”
The National Council of Nonprofits said the policy would allow future administrations from any political party to change eligibility rules “based on their own priorities or ideology.”
Rep. Tim Walberg, R-Mich., chair of the House Education and Workforce Committee, said the overhaul will prevent taxpayers from covering loan relief for employees at “radical organizations that violate state and federal laws.” “Aiding illegal immigration, supporting terrorism, or promoting child abuse through gender transitions is not ‘public service,’” Walberg said in a statement.
According to the new rules, employers can only be sanctioned for activities that take place on or after July 1, 2026. They would be notified and given a chance to review the evidence and respond to the department’s findings. Those barred from the program can reapply for eligibility after 10 years or rejoin sooner if they follow a “corrective action plan” approved by the secretary.
Documents from the department indicate that a single violation of the law may or may not be enough to get an employer barred, depending on the circumstances. Not all organizations that break the law have a “substantial illegal purpose,” the agency said, and it ultimately comes down to the secretary’s analysis of the evidence.
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