Proposed PSLF Changes Would Undermine Nonprofits and Public Service Careers

The Trump administration is pushing forward changes to the Public Service Loan Forgiveness (PSLF) program that could destabilize nonprofits by injecting political control in what was meant to be an incentive for Americans to dedicate themselves to public service.

The proposed rule…follows President Donald Trump’s March 7 executive order claiming PSLF had been misdirecting tax dollars to “activist organizations” that “harm our national security and American values.”

Created by Congress in 2007 with bipartisan support, PSLF forgives the remaining balance of certain federal direct student loans for people who work in public sector jobs. Qualifications are stringent, including that borrowers first need to make 120 qualified monthly loan repayments while working full-time for eligible employers, such as local and state governments, 501c3 organizations, and some other nonprofits.

On August 18, the US Department of Education published a proposed rule to give the secretary of education the power to decide if an employer has engaged in “substantial illegal activities” and strip them of PSLF eligibility. The broad definitions of the allegedly illegal activities could be used against organizations working on immigration, gender-affirming care, LGBTQIA+ issues, reproductive health, civil rights, advocacy through protest, and more.

The proposed rule, set to take effect on July 1, 2026, follows President Donald Trump’s March 7 executive order claiming PSLF had been misdirecting tax dollars to “activist organizations” that “harm our national security and American values.” The president provided no proof to back up these accusations.

Borrowers could also lose their right to appeal if their employer loses PSLF eligibility due to prohibited activities, although in the proposed rule the Department of Education noted borrowers could “retain the ability to pursue PSLF through eligible employment elsewhere”—underscoring the disruptive effects this proposal could have on nonprofit staffing and job stability.

Legal Authority in Question

The Department of Education has framed the proposed changes as a matter of “transparency and accountability,” but nonprofit advocates have characterized them as an attack on the sector and unlawful overreach.

Sarah Saadian, senior vice president of policy at the National Council of Nonprofits (NCN), a network of nonprofits that is calling on people to oppose the proposed rule, described it as “intentionally vague” and designed “to create a sense of fear among nonprofits about what they are and are not allowed to do to support their missions.”

Saadian also notes that the Department of Education lacks legal authority to make the proposed changes.

“The statute makes it incredibly clear that all 501c3 organizations are eligible to participate in public service loan forgiveness,” she explained in an interview with NPQ. “That’s the role of the IRS to determine whether or not a nonprofit is engaging in illegal activity.

High Stakes

For nonprofits, their employees, and the people and communities they serve, the stakes are high.

With nonprofit pay often lagging behind the private sector, student loan forgiveness helps organizations recruit and retain skilled staff they otherwise could not afford. “Nonprofits already struggle,” said Saadian. “Taking PSLF away or making it less effective will make it harder for nonprofits to step in and fill the gaps they’re seeing in their community.”

The impact PSLF has had was the focus of a 2024 study that found that 96 percent of nonprofits with paid employees expanded their workforce after PSLF launched. The researchers also determined that nonprofits shifted a larger share of their budgets to programs, suggesting that loan forgiveness strengthened the ability of nonprofits to deliver on their missions.

Saadian urged nonprofits, students, and allies to submit public comment on the proposed PSLF changes, a process she described as “one of the most effective ways that people can make their voices heard in DC.”

Most nonprofits—92 percent of which run on annual budgets under $1 million, according to NCN—wouldn’t have the resources to appeal the decision if the Department of Education disqualifies them from PSLF.

“The organizations with the least amount of resources to fight an administration’s finding under this proposed rule are going to be most at risk,” said Saadian.

Attacks on the Sector

These proposed PSLF changes should not be viewed in isolation, but as part of a broader pattern of administration actions to make it harder for nonprofits to partner with government and obtain needed support, Saadian explains. Over the past few months, nonprofits have suffered from federal funding freezes, withheld grant payments, and deep budget cuts.

Nonprofits, she added, are traditionally seen as trusted partners in serving communities, but the Trump administration has cast them differently.

“They’re trying to portray, instead, nonprofits as enemies that need to be fought—enemies of the administration,” said Saadian. “PSLF is just one of 100 different ways that they’re trying to undermine the nonprofit sector.”

Taking Action

Saadian urges nonprofits, students, and allies to submit public comment on the proposed PSLF changes, a process she described as “one of the most effective ways that people can make their voices heard in DC.” Comments are due to the Department of Education by September 17, 2025, and NCN provides a public comment guide.

Saadian stresses that the issue goes beyond student loan forgiveness: Everyone benefits when nonprofits can get and retain effective, smart and caring staff who want to contribute to their community.

“Even if you don’t work in nonprofits, or if you don’t have a student who has student debt in your household, I think everyone can understand why this is so important for the workforce that nonprofits provide and the work that they do,” said Saadian.