Public workers could be denied loan forgiveness if cities defy Trump, lawsuit alleges

"The cities of Albuquerque, N.M., Boston, Chicago and San Francisco are suing the Trump administration over changes it plans to make to the popular Public Service Loan Forgiveness program, or PSLF. The lawsuit, which also includes the nation's two largest teachers unions and the American Federation of State, County and Municipal Employees, comes less than a week after the U.S. Department of Education published a rule change to PSLF."

"Effective July 1, 2026, the department says the change will allow it to deny loan forgiveness to workers whose government or nonprofit employers engage in activities with a "substantial illegal purpose." The job of defining "substantial illegal purpose" will fall not to the courts but to the education secretary. PSLF was created by Congress in 2007, and signed by then-President George W. Bush, to cancel the federal student loan debts of borrowers who spend a decade working in public service, including teaching, nursing and policing."

"According to the lawsuit, filed Monday in the U.S. District Court for the District of Massachusetts, the plaintiffs fear that a city or county government's resistance to the administration's immigration actions, for example, or anti-DEI policies, could lead the secretary to exclude that government's public workers from loan forgiveness. They worry that a local nurse or first responder could be denied loan forgiveness because their local leaders defied the Trump administration."

Albuquerque, Boston, Chicago and San Francisco, joined by the nation’s two largest teachers unions and AFSCME, sued over a Department of Education rule change to the Public Service Loan Forgiveness program. Effective July 1, 2026, the rule would let the education secretary deny PSLF to workers whose government or nonprofit employers engage in activities with a “substantial illegal purpose,” with the secretary, not courts, defining that term. Plaintiffs warn the standard could be used to exclude public workers from forgiveness for policies opposing administration positions on immigration or DEI, potentially denying forgiveness to nurses, teachers or first responders. The complaint calls the rule politically motivated retaliation.

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