Democrat-Led States Challenge Trump Administration's Student Loan Forgiveness Policy

Tue Nov 04 2025 03:26:39 GMT+0200 (Eastern European Standard Time)

A coalition of over 20 Democrat-led states has filed a lawsuit against a new policy implemented by the Trump administration that bans federal loan forgiveness for employees of certain organizations deemed to have a 'substantial illegal purpose'. This policy specifically targets nonprofits and government entities associated with immigration and transgender issues.

A group of more than 20 Democratic states has initiated a legal battle against the Trump administration's recent policy changes which restrict eligibility for the Public Service Loan Forgiveness Program. The states, led by New York, Massachusetts, California, and Colorado, argue that the new rules disproportionately affect nonprofit and government workers who provide critical services to marginalized communities. They categorize the changes as politically motivated and harmful to public sector employment. The administration, however, defends the policy as a necessary measure to prevent taxpayer funding from going to organizations involved in criminal activities.

More than 20 Democrat-led states are challenging a new Trump administration policy aimed at blocking federal student loan forgiveness for nonprofit and government workers if their employer is deemed to have a 'substantial illegal purpose'. This policy primarily targets organizations that assist immigrants and transgender youth.

The lawsuit, filed in Massachusetts, claims that the Trump administration has overstepped its authority by introducing new eligibility rules for the Public Service Loan Forgiveness (PSLF) program. The states argue that these rules will exacerbate job shortages in public sector roles, creating instability in essential services.

New York Attorney General Letitia James characterized the new regulations as a “political loyalty test disguised as regulation,” describing the action as unjust and unlawful. “Cutting off loan forgiveness for hardworking Americans based on ideology is deeply unfair,” she stated.

In addition to the states, a coalition that includes cities, nonprofits, and labor organizations has joined the legal challenge, alleging that the new rules unfairly penalize entities like Boston, Chicago, and San Francisco.

Responding to the lawsuits, Under Secretary of Education Nicholas Kent commented that it is unconscionable for plaintiffs to allegedly support criminal activities. He described the policy as a necessary reform to stop taxpayer dollars from supporting organizations purportedly involved in terrorism, child trafficking, and harmful medical practices. This explicitly includes actions labeled as 'chemical castration', a term referring to medical treatments in gender-affirming care.

Kent asserted, “The final rule will be enforced neutrally, without consideration of the employer’s mission or ideology.” Another expected lawsuit challenging this policy is set to be filed by human rights advocates and legal groups.

The PSLF program was created by Congress in 2007 to encourage graduates to enter lower-paying public service jobs, promising to forgive their federal student loans after 10 years of qualifying payments. Over 1 million Americans have benefited from this program.

The recent changes allow for the removal of employers from the program if they engage in specified illegal activities, raising concerns that entire sectors, including governments and hospitals, could be deemed ineligible based on vague criteria.

The lawsuit asks for a declaratory judgment to deem the policy unlawful, asserting that it could severely impact millions of public service workers dedicated to their communities.