Borrowers at nonprofits, schools, and public agencies keep their PSLF eligibility — for now.
A federal judge has thrown out the Department of Education's controversial new Public Service Loan Forgiveness rule, ruling it unlawful one day before it was scheduled to take effect.
In a 68-page decision issued June 30, 2026, U.S. District Judge Myong J. Joun of the District of Massachusetts (PDF File) held that the rule was "contrary to law," exceeded the Department's statutory authority, was "arbitrary and capricious," and violated the First Amendment.
His order vacated the rule entirely.
There's another case in the District of Columbia that's also about this same rule, still waiting on a ruling as of writing.
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The News
The decision resolves two consolidated lawsuits: Commonwealth of Massachusetts v. U.S. Department of Education and National Council of Nonprofits v. McMahon.
The challengers included 22 states, the District of Columbia, five cities and counties, five nonprofit employers, and five employee associations.
More than 100 amici filed briefs against the rule. As the judge pointed out, "Zero amici appeared in support of the defendants."
Why It Matters
PSLF forgives the remaining federal student loan balance for borrowers who make 120 qualifying payments while working full-time for 10 years at a qualifying public service employer, such as government agencies and 501(c)(3) nonprofits.
The rule the court struck down would have let the Department disqualify employers based on a new "substantial illegal purpose" standard. Borrowers at affected employers could have lost progress toward forgiveness through no fault of their own.
The court found the rule chilled protected activity at organizations serving immigrants, teaching diversity and inclusion content, and providing gender-affirming care.
The Details
The judge's central objection was that the rule tied PSLF eligibility to the administration's policy priorities rather than to settled law. Its definition of "substantial illegal purpose" reached beyond established criminal statutes. For example, creating its own definition of "trafficking" untethered to federal criminal law, and treating civil immigration violations as grounds for "aiding and abetting" liability.
"Administrations change with elections; criminal laws do not," Joun wrote. The court held the rule was unconstitutionally vague and effectively compelled employers to affirm the administration's view that all diversity, equity, and inclusion practices are illegal — "a belief, not settled law."
How This Connects
The rule had drawn scrutiny for months. Earlier in 2026, the Department attempted to add a perjury attestation to PSLF forms, and states pushed to block the employer rule before its July 1 effective date, as The College Investor previously reported. The change had also raised concerns that teachers, nurses, and other public-service staff could quietly lose PSLF status depending on their employer.
The ruling lands during an already turbulent stretch for borrowers. The SAVE plan has ended, and the new Repayment Assistance Plan (RAP) launches July 1, 2026, reshaping PSLF strategy for the year ahead.
This is a trial-court decision, so the Department of Education can appeal to the U.S. Court of Appeals for the First Circuit. For now, the rule is vacated nationwide and does not take effect.
Borrowers pursuing PSLF should continue certifying employment and confirming their payment counts through their federal loan servicer.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
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