The Department of Education has rolled out new rules that limit employers’ eligibility for their employees to receive Public Service Loan Forgiveness. The change was first announced as part of a negotiated rulemaking process last summer, and was enacted at the beginning of October just as the latest government shutdown was beginning. The new rule blocks “taxpayer-funded PSLF benefits from being improperly provided to individuals who are employed by organizations that engage in activities that have a substantial illegal purpose.” Because the Department of Education isn’t usually responsible for determining who or what is illegal, many believed that this rule wouldn’t see the light of day. It has, however, and it’s already creating quite a stir. Two separate lawsuits, one led by a coalition of cities and nonprofits and another led by a coalition of state attorneys general, have been filed to block the new rules. The courts, however, will likely take some time before any verdicts are issued, and borrowers may still be affected in the meantime.
While we don’t expect that these rules will be widely implemented, borrowers should be watchful for any notice about their employer’s eligibility. The federal student loan system is immense—as is the number of companies for whom federal borrowers work—so it would be an enormous strain on the already stretched-thin Department of Education to evaluate all of them. It seems likely that the largest and most prominent organizations will be impacted first. Even if a particular company or organization is targeted by these rules, however, there will be a process that borrowers can expect.
The Department of Education is required to provide timely notification to both the employer and their employees who are borrowers. First, you’ll be notified when the employer’s eligibility is first under review, then throughout any determination process, and finally if and when a final decision is made. This regulatory process guarantees due process and an opportunity to respond before ineligibility is declared. Borrowers will also continue earning PSLF credit up to the month a final determination is issued; payments made up to that date remain valid.
If you or your employer receive any such notice, please contact us right away so we can immediately help you create an action plan, clarify all applicable timelines, and explore alternative pathways for your PSLF eligibility and next steps. We are also monitoring legal challenges and policy developments as these lawsuits unfold.
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