In October, the U.S. Department of Education released its final rule on the Public Service Loan Forgiveness program (PSLF). The 36-page document is available online in the Federal Register. The central tenet of the rule is that it gives the Secretary of the Department of Education the ability to disqualify organizations as being eligible for PSLF if the Secretary determines that the organization has a “substantive illegal purpose”. Employees of those organizations would then no longer be able to count their years of employment toward public service loan forgiveness. This now allows the Executive Branch of the federal government to use PSLF as a weapon against hospitals and universities.
What is PSLF?
The Public Service Loan Forgiveness program was established by the U.S. federal government in 2007 under President George W. Bush as a way to help college graduates who enter a career or public service pay for college education by forgiving a portion of their student loans. The specific criteria are:
- Be employed by a federal government, state government, local government, tribal government, or qualifying not-for-profit organization.
- Work full-time
- Have federal direct student loans
- Make 120 qualifying monthly payments on the loans.
Once those criteria are met, any remaining principal and interest on the loan is forgiven. Thus far, 694,900 government workers and 305,500 workers at non-for-profit organizations have met all of the PSLF criteria and had the remainder of their student loans forgiven. The amount of loan forgiven for the average government worker was $73,100 and for the average worker at not-for-profit organizations was $82,200. Combined, 1,000,400 people have had loan balances forgiven at an average of $75,900 per person. 163,900 employees of healthcare organizations (mostly doctors and nurses) have had loans forgiven under PSLF.
Not all non-profits companies or organizations qualify as employers for PSLF purposes. Those that that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code do qualify. Other non-profit organizations that devote a majority of their full-time equivalent employees to providing certain types of services also qualify. These services are: civilian service to the military, emergency management, National Guard, public safety, law enforcement, public interest law, early childhood education, public service for individuals with disabilities, public health (including physicians and nurses in a clinical setting), public education, public library, school library, school-based services, and public service for the elderly.
For physicians and nurses, this means that most public universities and most non-profit hospitals qualify as PSLF employers. Physicians can currently count their employment during residency and fellowship for PSLF purposes – there has been federal legislation proposed to no longer count residency toward the 120 loan repayment months but thus far, this legislation has not been voted on. Because most physicians do their residencies at non-profit hospitals, they can count 3-6 years of residency and fellowship toward the 10 years of required loan payments. 70% of medical students have education debt with an average of $220,000. The “One Big Beautiful Bill” now limits federal direct student loans for medical students to $200,000. Because federal direct student loan monthly payments are based on one’s income and because residents have a low income ($67,000 for a first year resident), it is very advantageous for physicians to begin paying off their direct student loans during residency since this results in a greater amount of principal that is forgiven at the end of 10 years.
What organizations will the Department of Education disqualify for PSLF?
The Department of Education’s new rule will permit the Secretary of the Department of Education to disqualify an organization if it engages in activities with a “substantive illegal purpose”. This is defined in the rule:
The activities indicative of a substantial illegal purpose include aiding and abetting violations of Federal immigration laws, supporting terrorism or engaging in violence for the purpose of obstructing or influencing Federal Government policy, engaging in the chemical and surgical castration or mutilation of children in violation of Federal or state law, engaging in the trafficking of children to another State for purposes of emancipation from their lawful parents in violation of Federal or State law, engaging in a pattern of aiding and abetting illegal discrimination, and engaging in a pattern of violating State laws.
The rule is proactive and goes into effect in July 2026. Organizations that are disqualified by the Secretary of the Department of Education have to wait 10 years to reapply as a PSLF qualifying organization unless the Secretary approves a corrective action plan for that organization.
The rule gives the Secretary of the Department of Education broad authority to determine what constitutes activities indicative of a substantial illegal purpose. Some of the criteria include:
“Chemical castration of children”. The rule defines chemical castration of children as:
- The use of puberty blockers, including GnRH agonists and other interventions, to delay the onset or progression of normally timed puberty in an individual who does not identify as his or her sex.
- The use of sex hormones, such as androgen blockers, estrogen, progesterone, or testosterone, to align an individual’s physical appearance with an identity that differs from his or her sex.
- Child means an individual under 19 years of age.
This essentially means any hospital or other organization that provides gender-affirming care to patients under age 19. It also means that physicians employed by hospitals cannot themselves provide gender-affirming care to anyone younger than age 19. By defining a child as younger than age 19 (rather than younger than age 18), the rule means that physicians at university student health clinics are not able to prescribe or refill sex hormone medications as part of gender-affirming care, even if those medications were initiated by the student’s personal (non-university) physician.
Aiding and abetting illegal discrimination. The Trump administration has taken the position that all DEI (diversity, equity, and inclusion) activities are discriminatory and thus illegal. Many hospitals and universities have had a variety of DEI initiatives and any of these could be considered as illegal by the Secretary of Education. Because the Secretary is given sole authority for determine what constitutes substantive illegal activities, the Secretary could choose to categorize transgender athletes, race or ethnic-specific college clubs, or implicit bias training programs, or race/religion/ethnicity-based scholarships as discriminatory.
Aiding and abetting violations of Federal immigration laws. Once again, the Secretary of the Department of Education has the authority to determine if an organization has violated immigration laws. Will this include schools that enroll students who are undocumented? Will it include hospitals that provide non-emergency medical care to undocumented immigrants? Will this include universities where students protest ICE activities? Will it include homeless shelters and food pantries that do not require proof of citizenship to get in the door?
Engaging in a pattern of violating state laws. This is very broad and gives the Secretary authority to disqualify organizations for any violation of a state-specific law. The rule does state that: “Organizations will not be penalized if their actions are legal in the State in which they are operating.” However, many organizations operate in more than one state. So, if a hospital organization has a hospital in Texas where abortion is illegal and has a second hospital in New Mexico where abortion is legal, will the organization be disqualified if it performs abortions in New Mexico since it also operates a hospital in Texas? The Secretary’s interpretation of this will be final.
Engaging in violence for the purpose of obstructing or influencing Federal Government policy. The current administration has already demonstrated that it has little tolerance for behaviors opposing its policies. When Sean Charles Dunn threw a Subway sandwich at an ICE agent in August 2025, he was arrested and charged with felony assault of a Federal officer. A jury subsequently found him not guilty. But next summer, if a university student throws a sandwich at an ICE agent, there will be no jury trial – if the Secretary decides that it constitutes assault, then the university could be determined to have activities of a substantive illegal purpose. The Secretary will be the sole arbitrator of whether a student protest is violent or not.
This is going to be huge…
The Department of Education states that the average amount of loan forgiveness is $75,900 per person. The new rule estimates that it will eliminate $1.616 billion in loans. This works out to 21,291 people who currently qualify for PSLF to be disqualified because they work for an organization that the Secretary of the Department of Education will disqualify. The implication is that the Department has already determined that it will be disqualifying a large number of organizations in July 2026. In looking over the definition that the new rule is using for “activities with a substantive illegal purpose”, it appears that the rule will mainly be implemented against public universities and non-profit hospitals.
The Trump administration has used similar justification for freezing Federal grants and withdrawing accreditation to effect policy and idealogical change at universities. It follows that the administration will use this new rule for disqualifying organizations for PSLF in a similar fashion. It is an extraordinarily powerful weapon, indeed. Because 70% of graduating medical students and 69% of nursing students have student loans, any hospital that becomes disqualified for PSLF will have a very, very hard time recruiting residents, attending physicians, or nurses. At particular risk are residents and nurses employed by university hospitals since any activities that happen on campus that the Secretary of the Department of Education deems to be “activities with a substantive illegal purpose” will result in those residents and nurses no longer being able to count their employment toward their 120 months of PSLF employment. Residents locked into a 3-5 year residency contract could face significant financial harm. Universities such as Harvard, Columbia, and Cornell that have already been extensively targeted by the Trump administration could be at highest risk.
Way too much power in one person’s hands
When the new rule was open for public comments, many commenters questioned how the determinations would be made and what the process for appeals would be. The Department of Education responded: “The Secretary will weigh any evidence presented showing that an organization’s activities violated any laws and make a determination if those violations rise to the level of substantial illegal purpose.” In other words, whatever Secretary of the Department of Education Linda McMahon says is the final word. There is no option for an appeal. This places enormous power in the hands of a single individual who is a political appointee not elected by the general populace.
I personally agree that there are organizations that are dangerously terroristic should not qualify for PSLF, such as the Klu Klux Klan and Al-Qa’ida. But the vagueness of the new rule now allows Secretary McMahon to decide what rises to a level of substantial illegal purpose. Normally in the United States, an action is determined to be illegal by conviction in the court system. The sixth amendment of the U.S. Constitution guarantees the right of citizens to a trial by jury for non-petty crimes. But in the new Department of Education rule, there is no court, Linda McMahon alone becomes the prosecutor, judge, and jury. And there is no court of appeals.
A changed mission for the Department of Education
The U.S. Department of Education’s official mission statement is “To promote student achievement and preparation for global competitiveness by fostering educational excellence and ensuring equal access.” The Department’s new rule on PSLF indicates that will use existing personnel to enforce the new rule and estimates an annual cost of $1.5 – $3 million per year. The rule represents a substantial departure from the Department’s stated mission and will now shift the Department’s mission to forcing ideologic and policy to eliminate “wokeness” and left-wing bias at our nation’s universities and hospitals. The Department of Education has now become a weapon to be used against any non-profit organization that the administration disagrees with.
Every physician, nurse, and resident who works at a university hospital or non-profit hospital should be afraid… very afraid.
December 24, 2026
