Federal Court Vacates PSLF Final Rule on Employer Eligibility, Hours Before July 1 Effective Date
By Megan Walter, Senior Policy Analyst
A federal judge on Tuesday evening struck down the Department of Education’s (ED) final rule on Public Service Loan Forgiveness (PSLF) employer eligibility, vacating it entirely just hours before its scheduled July 1 effective date.
As a result, the PSLF Final Rule’s employer eligibility changes are terminated and will not take effect on July 1. The current PSLF regulations, including the “qualifying employer” definition, remain in effect, and PSLF will continue to be administered under those requirements.
As a reminder, in March 2025, President Donald Trump signed an executive order directing ED to revise PSLF eligibility criteria to ensure the definition of "public service" excludes organizations that engage in activities with a "substantial illegal purpose." ED went through a negotiated rulemaking session in summer 2025 with no consensus, giving it free rein to draft the final rule. ED finalized the rule on October 30, 2025, with an effective date of July 1, 2026.
The ruling resolves two consolidated lawsuits challenging the rule: one brought by the National Council of Nonprofits (NCN) and a coalition of cities, labor unions, and nonprofit and employee associations, and the other brought by Massachusetts and 21 other states, plus the District of Columbia. Both cases argued the rule was contrary to law and arbitrary and capricious; the NCN suit also raised a First Amendment claim.
The lawsuit challenging ED’s new PSLF employer eligibility rule had gained urgency over the past week as the department sought emergency clearance to revise the PSLF certification form before the July 1 effective date. The case was originally heard on June 3, 2026, prior to ED’s emergency clearance filing.
The plaintiffs argued that this development added urgency to the litigation because, if the court did not block the rule before July 1, the new form would go into effect simultaneously with the rule, and employers would be making perjury-level attestations beginning with the first PSLF certification form submission after that date.
In response, in the decision issued June 30, Judge Myong J. Joun ruled that the final rule is contrary to law, exceeds ED’s statutory authority, is arbitrary and capricious, and violates the First Amendment. The court ruled in favor of the plaintiffs on all counts and issued an order of dismissal the same day.
As of publication, ED had not yet responded to the court's order. The department retains the option to appeal the decision. NASFAA will continue to monitor this case and will provide updates as they occur in Today’s News.
Publication Date: 7/1/2026
Anthony M | 7/1/2026 9:57:42 AM
Finally, a ray of light.
You must be logged in to comment on this page.