By Maria Carrasco, NASFAA Staff Reporter ,  Megan Walter, Senior Policy Analyst

The Department of Education (ED) reconvened its negotiated rulemaking (NegReg) committee on Tuesday with newly proposed provisions for its Public Service Loan Forgiveness (PSLF) issue paper, which were sent to negotiators on Monday evening. 

The department provided amended language included provisions that would not authorize ED’s Secretary to determine whether an employer has a substantial illegal purpose based upon the employer or its employees exercising their First Amendment-protected rights, as well as how and when borrowers and employers will be notified of loss of eligibility. ED also included a new language outlining how an employer could regain eligibility as a qualifying employer after losing their PSLF-eligible status. 

The new section would allow employers who had previously lost PSLF eligibility to regain eligibility after completing a few steps, after a five year probationary period from the date they lost eligibility. After that date, the employer would certify on borrowers' applications that the organization is not engaged in activities that have a substantial illegal purpose and agree to a corrective action plan dictated in conjunction with ED. The federal negotiators declined to include what a correction action plan would consist of in the proposed language, as they plan to issue subregulatory guidance and would be case-by-case.

The conversation switched to subsection (b)(30) of the proposed rules, which focused on the definitions of “substantial illegal activities.” The first definition included “aiding or abetting violations of 8 U.S.C. 1325 or other Federal immigration laws”. Negotiators' comments highlighted a significant concern regarding the proposed rule's potential impact on First Amendment rights, particularly at universities.

Faisal Sulman, from Student Veterans of America (SVA), representing U.S. military service members and veterans, initiated this discussion, warning of a "slippery slope" where public universities could be penalized for upholding students' right to protest.

“With the massive school protests that happened the last several years regarding the Palestine issue … if we're going down this route, I foresee this as a slippery slope for universities … that allowed these protests to happen to be disqualified from loan forgiveness,” Sulman said. 

Jacob Lallo, legal counsel for ED, acknowledged that an institution would become ineligible only if it received a final criminal judgment against it for such activity. However, he stressed that the department's intent is not to curb First Amendment rights. He clarified that the language explicitly targets an institution's "pattern of violations of state law" and requires a criminal determination against the school, distinguishing this from situations where individual students, but not the university, are charged for their actions during a protest.

“This is not meant to be a bludgeon,” Lallo said. “It's meant to basically curb bad behavior. So again, we don't want to punish organizations that are only technically involved with something. We are looking for patterns of bad behavior, particularly when we were talking about state tort law and severe or material conduct.”

The third clause “(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;”, brought up concerns from legal aid organizations that they could be penalized for representing clients accused of immigration crimes.

Abby Shafroth, from the Student Loan Borrower Assistance Project, representing civil rights organizations, consumer advocates, and legal assistance organizations that represent students and/or borrowers, said ED’s current proposed language still provides a lot of discretion to ED’s Secretary to make independent determinations without it having to be adjudicated in a court. Ultimately, Shafroth warned of this language having a “chilling impact,” with fewer people pursuing public service fields that are really important to communities nationwide. 

Lallo offered a direct rebuttal, saying there is "general longstanding precedent" that an attorney is distinct from their client and is not tied to their client's alleged actions. He clarified that the professional act of representing someone in a criminal procedure would not incriminate the attorney or their organization. 

However, he drew a distinction, suggesting this protection applies specifically to an attorney's official duties, implying that activities taken on behalf of a client apart from legal representation could be viewed differently. 

Regarding “(iii) engaging in the chemical and surgical castration or mutilation of children or the trafficking of children to states for purposes of emancipation from their lawful parents, in violation of applicable law”, negotiators expressed significant confusion and concern around three main issues. 

First, multiple negotiators challenged the age limit of "under 19," arguing it was inconsistent to use a federal standard when the legality of medical care itself would be judged state-by-state, where 18 is the common age of majority. ED defended the age limit as a standard used in other federal contexts to cover a "transitional period." 

Second, in response to a direct question, Lallo clarified that the qualifier "in violation of applicable law" was intended to apply to both the medical procedures and the child trafficking clause, not just the latter, protecting actions taken in states where this type of care is not criminalized. 

Finally, negotiators voiced strong concerns about the rule's breadth, questioning if it would inadvertently penalize hospitals for providing legal gender-affirming care or for performing medically necessary, life-saving procedures like a mastectomy, prompting ED to agree to review the language to avoid penalizing legitimate medical decisions, but also reminding negotiators that the language includes references to “in adverse to the child's sex”, so surgeries like mastectomies for example, would generally not apply. 

Shafroth ended the conversation surrounding this section by saying, “I don't think that the folks assembled to be part of this rulemaking were assembled for their medical expertise,” Shafroth said. “I think we're here with student loan expertise, and so I would feel very uncomfortable setting a new legal definition for these medical terms.”

Tamy Abernathy, the federal negotiator for this Neg Reg committee, then outlined the provisions dealing with "(iv) engaging in a pattern of aiding and abetting illegal discrimination,” focused specifically on the definition of illegal discrimination. Abernathy said the definition of illegal discrimination is a violation of any federal antidiscrimination law, including, but not limited to, the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act of 1967.

Shafroth pointed out that this provision could have an adverse effect and inadvertently increase employment discrimination. Specifically, Shafroth said, employees facing discrimination would be less inclined to report their employer because the employee could potentially be penalized and lose their PSLF progress, as well as their colleagues' progress, if their employer is found to be engaging in illegal discrimination practices. 

Before the lunch break, the non-federal negotiators asked for a 30-minute caucus before the afternoon session restarted, which Abernathy granted. As a reminder, the negotiators who call for the caucus can choose who is invited, and recording and/or live streaming of the conversation is not allowed. 

The committee resumed with a question from Betsy Mayotte, from The Institute of Student Loan Advisors, representing civil rights organizations, consumer advocates, and legal assistance organizations that represent students and/or borrowers, centered on whether ED has the statutory authority to disqualify 501(c)(3) or government employers from the PSLF program. 

Lallo and Abernathy argued that the ED Secretary possesses broad authority to regulate its programs. They clarified that ED is not attempting to revoke an organization's 501(c)(3) status — a power belonging to the IRS — but is instead creating additional eligibility rules specifically for PSLF. They contend that ED can disqualify employers engaged in illegal activity without waiting for the IRS to act due to overlapping duties and a specific directive [re: Trump’s Executive Order] to protect the program's integrity. Mayotte challenged this position, asserting that the proper process is to let the IRS, which has established procedures, handle the removal of a fraudulent entity's tax-exempt status. She suggests that ED should refer the case to the IRS if it identifies a problematic employer. 

Mayotte concluded by questioning the legality of the department's method, stating, “I feel like that executive order was requesting an outcome, not a path, and I'm suggesting that the path that you are taking, you don't have the authority to take.”

As discussions wrapped up for the day, Heather Boutell, of Vanderbilt University, representing private non-profit institutions, and Sarah Doran, of St. Vrain Valley Schools, representing student loan borrowers in repayment, raised a critical concern for borrowers locked into multi-year employment contracts, such as doctors in residency or teachers. 

They argued that these individuals are unfairly penalized when their employer's status is suddenly deemed ineligible for PSLF, as they cannot leave their jobs without facing significant financial penalties to break their contracts, or sometimes can’t leave at all. In response, Abernathy and Jeff Andrade, ED’s deputy assistant secretary for policy, planning, and innovation, explained that they have taken steps within these rules to prevent an employer's "sudden loss" of eligibility by working with them to stay compliant and avoid having a lapse of eligibility. 

ED noted that creating exceptions based on private employment contracts would be challenging. They confirmed that the rules as written have no flexibility to accommodate borrowers contractually bound to an employer who becomes ineligible, but they will take the concern back for discussion. 

The session once again ended with in-person public comments. The committee will reconvene for the final day of the session on Wednesday at 9 a.m. ET.

Publication Date: 7/2/2025

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