The Education Department’s student loan rules appeal over Public Service Loan Forgiveness (PSLF) is finished. On 21 October 2026 the Justice Department filed papers dropping two of its three appeals, and Maryland’s Attorney General announced on 23 October that the third appeal, brought against 22 states, had been dropped too. The rule that would have let the Education Secretary disqualify some employers from PSLF stays vacated and will not take effect.
For borrowers, that means PSLF works the way it did before the rule was written. Government employers and 501(c)(3) nonprofits still qualify, there is no “substantial illegal purpose” screen, and the steps for earning credit have not changed. The repayment plan you are on now matters more than this case does, because SAVE has ended and one of the new plans does not count toward PSLF.
What the Education Department student loan rules appeal was about
The rule at the centre of the fight was announced by the Education Department on 30 October 2025 and published in the Federal Register on 31 October 2025. It changed the definition of a “qualifying employer” for PSLF so that the Department could exclude organisations it found to have a “substantial illegal purpose.” It was due to take effect on 1 July 2026.
The activities listed in the rule included supporting terrorism, aiding or abetting violations of federal immigration law, illegal discrimination, certain medical treatment for minors related to gender transition, and some protest-related conduct. Borrowers working for an employer that lost its status would have stopped earning PSLF credit for work done there after the Department’s determination.
- Regulation changed: 34 CFR 685.219, the PSLF regulation
- Public comments received: nearly 14,000, according to the Department
- Estimated savings: about $1.616 billion in net budget savings, as reported in the Government Accountability Office’s review of the rule (B-338110)
- Planned effective date: 1 July 2026 (it never took effect)
The Department’s case for the rule
The Department said the standards for qualifying employers had not been monitored closely enough, which let some organisations qualify despite illegal activity. Under Secretary Nicholas Kent said taxpayer funds “should never directly or indirectly subsidize illegal activity.” The Department presented the rule as a way to return PSLF to its original purpose of supporting people in public service.
The challengers’ case against it
States, cities, nonprofits, unions and advocacy groups argued that Congress had already defined which employers qualify and that the Secretary had no power to remove some of them. They also argued that the “substantial illegal purpose” test reached past existing criminal law and would push employers to avoid lawful work and speech, such as immigration legal services or diversity training, to protect their staff’s PSLF credit.
The three lawsuits and where each one ended
Three separate lawsuits were filed on 3 and 4 November 2025. Two were heard in Massachusetts and one in Washington, D.C.
| Case | Who sued | Trial court | Appeal | Final status |
|---|---|---|---|---|
| Commonwealth of Massachusetts v. U.S. Department of Education | 22 states and the District of Columbia | District of Massachusetts | First Circuit, No. 26-1973 | Appeal dropped (announced 23 October 2026) |
| National Council of Nonprofits v. McMahon | Nonprofits, unions and five cities and counties, including Boston, Chicago and San Francisco | District of Massachusetts | First Circuit, No. 26-1972 | Appeal dropped 21 October 2026 |
| Robert F. Kennedy Human Rights v. McMahon | RFK Human Rights, American Immigration Council, The Door and LULAC | District of Columbia | D.C. Circuit, No. 26-5308 | Appeal dropped 21 October 2026 |
What the judges decided on 30 June 2026
In Massachusetts, U.S. District Judge Myong J. Joun issued a 68-page decision covering both the states’ case and the nonprofits’ case. He found the rule contrary to law, beyond the Department’s statutory authority, arbitrary and capricious, a violation of the First Amendment and unconstitutionally vague. He vacated the whole rule.
The same day, the federal court in Washington, D.C. granted summary judgment to RFK Human Rights and its co-plaintiffs and also vacated the rule. That court held that the Higher Education Act requires PSLF eligibility for workers at qualifying organisations, so the Secretary could not pick and choose among 501(c)(3) employers.
Because both courts vacated the rule instead of pausing it, the rule was off the books from 30 June, one day before it was due to start.
Timeline of the appeal
| Date | What happened |
|---|---|
| 30 October 2025 | Education Department announces the final rule |
| 31 October 2025 | Rule published in the Federal Register |
| 3 to 4 November 2025 | Three lawsuits filed |
| 30 June 2026 | Courts in Massachusetts and D.C. vacate the rule |
| 1 July 2026 | Planned start date passes with no rule in force |
| 13 July 2026 | Federal Register notice removes the new perjury attestation from the PSLF form to comply with the court order |
| 27 August 2026 | Government files notices of appeal, close to the end of the 60-day window, without asking for a stay |
| 21 October 2026 | Joint stipulations dismiss the nonprofits’ appeal and the RFK Human Rights appeal; each side pays its own costs |
| 23 October 2026 | Maryland’s Attorney General announces the appeal in the states’ case has also been dismissed |
The notices of appeal filed in August were short and gave no legal arguments, and the dismissal papers in October gave no reason either. The Department had not published a statement explaining the decision when this post went up.
What the end of the appeal means for PSLF borrowers
With all three appeals dismissed, the June rulings stand. The rule cannot be revived in these cases. If the Department wanted to try again, it would have to start a fresh rulemaking, which begins with a proposed rule and a public comment period, and any new version could be challenged in court.
Here is how PSLF stands for you today:
- Employer test: unchanged. Federal, state, local and tribal government bodies and 501(c)(3) nonprofits qualify, as do some other nonprofits that provide qualifying public services.
- Work requirement: full-time employment, which PSLF treats as at least 30 hours a week.
- Payments: 120 qualifying monthly payments on Direct Loans, made under a qualifying plan.
- Employer form: the extra attestation about “substantial illegal purpose” was removed in July 2026, and the Department said nothing else on the form changed.
- Tax: PSLF forgiveness is not treated as taxable income at the federal level.
According to AP reporting on the dismissals, more than 1 million borrowers have now had loans forgiven through PSLF.
The repayment plan change that matters more right now
If you are chasing PSLF, the end of the SAVE plan deserves more of your attention than this lawsuit. A court order ended SAVE in March 2026. Servicers began writing to SAVE borrowers on 1 July 2026, in batches, and say everyone will be contacted before the end of 2026.
| Plan | Counts toward PSLF? | Note |
|---|---|---|
| Repayment Assistance Plan (RAP) | Yes | New income-driven plan |
| Income-Based Repayment (IBR) | Yes | |
| Pay As You Earn (PAYE) | Yes | Ends no later than 1 July 2028 |
| Income-Contingent Repayment (ICR) | Yes | Ends no later than 1 July 2028 |
| Tiered Standard Plan | No | Default for some borrowers who do not choose a plan |
| Months in SAVE forbearance | No | Payments made before the forbearance still count |
You get 90 days from your servicer’s notice to pick a new plan. If you do nothing, you receive a final 30-day notice and are then placed in a fixed plan. Borrowers with a loan disbursed on or after 1 July 2026 that has entered repayment go into the Tiered Standard Plan, which does not count toward PSLF. If I were working toward forgiveness, I would choose an income-driven plan myself instead of waiting to be moved.
Steps to protect your PSLF credit
- Certify your employment: submit the PSLF form through the PSLF Help Tool on StudentAid.gov at least once a year and every time you change jobs.
- Check your count: log in to StudentAid.gov and confirm your qualifying payment total after each certification is processed.
- Keep your own records: save dated screenshots of your payment count, plus pay slips, W-2s and approved forms, so you can dispute an error with evidence.
- Pick a qualifying plan: if you were on SAVE, choose RAP, IBR, PAYE or ICR within 90 days of your servicer’s notice.
- Consolidate older loans: FFEL and Perkins loans only earn PSLF credit after you consolidate them into a Direct Consolidation Loan.
- Challenge a wrong decision: ask your servicer for reconsideration, and if that fails, contact the Federal Student Aid Ombudsman.
A separate case: Sweet v. McMahon
Some coverage mixes the PSLF appeal with a different case about borrower defence to repayment. In Sweet v. McMahon, a three-judge Ninth Circuit panel unanimously rejected the Department’s attempt on 17 July 2026 to delay relief for more than 170,000 “post-class” borrowers who did not get timely decisions on their claims. The Project on Predatory Student Lending, which represents the borrowers, says the settlement is worth at least $23 billion. That case has nothing to do with the PSLF employer rule, and the end of the PSLF appeals does not change it.
Frequently asked questions
Did the Education Department drop its PSLF appeal?
Yes. Two appeals were dismissed on 21 October 2026, and Maryland’s Attorney General announced on 23 October that the appeal in the 22-state case was dismissed as well. The June 2026 rulings vacating the rule now stand.
Is my nonprofit employer still eligible for PSLF in 2026?
If it is a 501(c)(3) or another qualifying nonprofit, yes. The “substantial illegal purpose” test never took effect, so the usual employer rules apply.
Can the PSLF employer rule come back?
Not through these cases, which are over. A new attempt would need a new rulemaking with a public comment period, and it could be challenged in court again.
Does the Repayment Assistance Plan count for PSLF?
Yes. RAP, IBR, PAYE and ICR all count toward PSLF. The Tiered Standard Plan does not, and months spent in the SAVE forbearance do not count either.
Sources and updates
Details of the rule, its activity list and the Department’s reasoning come from the Education Department’s 30 October 2025 press release and the final rule in the Federal Register. The savings figure is from the GAO’s review of the rule. The 30 June 2026 rulings are described from press releases by the California Attorney General’s office and Public Citizen, and from analysis by Davis Wright Tremaine, NASFAA and The College Investor. Appeal dates, docket numbers and the 21 October dismissals come from The College Investor’s review of the filings, AP reporting and the National Council of Nonprofits. The states’ dismissal comes from the Maryland Attorney General’s 23 October 2026 announcement. The form change is from the 13 July 2026 notice posted on the FSA Partners Knowledge Center. Repayment plan rules are from Federal Student Aid’s SAVE plan guidance. The Sweet v. McMahon details come from the Project on Predatory Student Lending. This post was checked on 24 October 2026 and will be updated if the Department announces a new rulemaking.
I am Jude Chinecherem, a final-year MBBS student at the University of Nigeria, Nsukka. I know what it feels like to want an education your family cannot afford. When my parents could not pay for my schooling, I had to learn how to find scholarships and work the system out on my own, with nobody to guide me. I came out the other side, and now I share everything I learned so the next student does not have to figure it out alone. This is the advice I wish someone had given me back then.
