What the New Final Rule on Public Service Loan Forgiveness Means for Nonprofits -- Independent Sector

# 01-02-2026 04:56 PM
nancy.wolanski@unitedwayri.org	What the New Final Rule on Public Service Loan Forgiveness Means for Nonprofits On August 18, 2025, the U.S. Department of Education (ED) published a Notice of Proposed Rulemaking (NPRM) proposing revisions to the Public Service Loan Forgiveness (PSLF) Program. The NPRM was issued in response to a March 2025 Executive Order instructing ED to revise eligibility criteria to exclude organizations with a “substantially illegal purpose” from qualifying as eligible employers under the program. Independent Sector submitted formal comments opposing the proposed rule on the grounds that the statute establishing PSLF clearly defines all 501(c)(3) nonprofit organizations as qualifying employers, and that ED lacks statutory authority to narrow that definition. Despite widespread opposition from nonprofit, labor, and public-sector stakeholders, ED finalized the rule on October 30, 2025, with an effective date of July 1, 2026. The final rule grants ED new authority to exclude certain nonprofit employers it deems to have a “substantial illegal purpose,” raising significant questions about the scope of ED’s discretion, the rule’s legality, and its potential impact on nonprofit employees who rely on PSLF. Read more Edited 01-02-2026 04:56 PM

# 01-02-2026 04:56 PM

What the New Final Rule on Public Service Loan Forgiveness Means for Nonprofits

On August 18, 2025, the U.S. Department of Education (ED) published a Notice of Proposed Rulemaking (NPRM) proposing revisions to the Public Service Loan Forgiveness (PSLF) Program. The NPRM was issued in response to a March 2025 Executive Order instructing ED to revise eligibility criteria to exclude organizations with a “substantially illegal purpose” from qualifying as eligible employers under the program. Independent Sector submitted formal comments opposing the proposed rule on the grounds that the statute establishing PSLF clearly defines all 501(c)(3) nonprofit organizations as qualifying employers, and that ED lacks statutory authority to narrow that definition.

Despite widespread opposition from nonprofit, labor, and public-sector stakeholders, ED finalized the rule on October 30, 2025, with an effective date of July 1, 2026. The final rule grants ED new authority to exclude certain nonprofit employers it deems to have a “substantial illegal purpose,” raising significant questions about the scope of ED’s discretion, the rule’s legality, and its potential impact on nonprofit employees who rely on PSLF.

Edited 01-02-2026 04:56 PM