PSLF Under Threat: What Borrowers Need to Know

Public Service Loan Forgiveness Under Regulatory Threat: Analyzing the Proposed Rule on Employer Eligibility

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

The U.S. Department of Education has initiated a significant policy shift regarding the Public Service Loan Forgiveness (PSLF) program. A recent Notice of Proposed Rulemaking (NPRM) proposes an amendment that would restrict borrower access to PSLF based on a new standard for employer eligibility: having a “substantial illegal purpose.”

Updated on October 24, 2025.

Listen: The Professor’s Audio Briefing.

The Legal and Policy Challenge: Shifting Liability to the Individual

The Employer Misconduct Rule: This proposed rule includes, but is not limited to, employers found to be supporting terrorism, aiding discrimination, or violating immigration or child abuse laws.

The proposed rule introduces a critical and potentially unjust standard of liability by penalizing employees for the actions of their employers.

The main issue is this: Whether someone qualifies for student loan forgiveness, meant to reward their full-time service, would depend on the legal status of their employer, which is often something they can’t control or may not even know about.

Consider the following examples:

• If a high-ranking official in a police department is convicted of corruption, the individual officers of the rank-and-file do not lose their salaries or pensions.
• If a CEO is prosecuted for misuse of funds, the organization’s certified teachers or social workers do not forfeit their accrued employment benefits.

However, under this proposed PSLF rule, those same public servants who fulfilled every requirement of qualifying employment could be retroactively disqualified due to misconduct committed by the company’s leaders, even if the misconduct was entirely unknown to the employee.

This setup works like vicarious liability, but instead of money, it affects a benefit like student loan forgiveness. That means someone’s eligibility depends on their employer’s status, not just their own service, which goes against the whole point of PSLF. To put simply: guilty by association!

Implications for the PSLF Workforce

If enacted, this proposal introduces dangerous uncertainty into the calculus of public service employment:

1.  Retroactive Disqualification Risk:  Borrowers who have relied on a good-faith interpretation of their employer’s public service mission for years could face retroactive disqualification if a past illegal purpose is later uncovered, regardless of when the service occurred.

2.  Recruitment and Retention Deterrent: PSLF was created to attract skilled workers to lower-paying jobs in areas like education, government, and social work. But if people can lose loan forgiveness because of their employer’s status, that financial incentive disappears, making it harder to fill essential public service roles.

3.  Shifting the Blame: This rule changes the focus of the program. Instead of recognizing the individual’s public service, it now judges whether their employer committed criminal acts. That’s not just a small tweak; it’s a major change to how the program works and what it stands for.

Conclusion and Call to Action

PSLF currently honors individual public service. But the new rule could turn it into a legal maze, where loan forgiveness depends on what senior managers, possibly involved in criminal wrongdoing, have done, even if the employee had no part in it.

If you’re working toward PSLF, careful documentation is now more important than ever. It’s also worth reading the full Notice of Proposed Rulemaking and submitting comments during the open period to explain how this change could hurt public service workers.

The proposed rule is available via this link.

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