PSLF Employer Eligibility Changes in 2026
A new rule effective July 1, 2026 introduces a "substantial illegal purpose" test to PSLF employer eligibility. This fundamentally changes how qualifying employers are determined—and creates significant uncertainty for borrowers at certain nonprofits.
The new employer eligibility rule takes effect. Employment and payments before this date are evaluated under current rules (government + 501(c)(3) = qualifying). Employment and payments after this date are subject to the new "substantial illegal purpose" test.
What's Changing
Currently, PSLF employer eligibility is straightforward: if you work for a U.S. government agency or a 501(c)(3) nonprofit, you qualify. It's an objective, binary test based on your employer's tax status.
The new rule, announced October 30, 2025, adds a subjective criterion. Under the new standard, an otherwise qualifying employer may be disqualified if the Department of Education determines the organization engages in activities with a "substantial illegal purpose."
The Department of Education has explicitly identified two categories of activities that may trigger disqualification:
- "Aiding and abetting illegal immigration" — potentially affecting immigration services nonprofits, refugee resettlement agencies, and legal aid organizations
- "Performing prohibited medical procedures that attempt to transition children away from their biological sex" — potentially affecting hospitals and healthcare systems that provide gender-affirming care to minors
Which Employers May Be Affected
The rule creates uncertainty—not necessarily disqualification—for employees at:
- Immigration legal aid organizations
- Refugee resettlement agencies
- Immigrant advocacy nonprofits
- Hospitals and health systems that provide gender-affirming care
- University medical centers
- Mental health organizations serving transgender youth
Government employers (federal, state, local, tribal) are not affected by this rule. Traditional 501(c)(3) nonprofits not engaged in the targeted activities remain qualifying employers.
The Lawsuit
On November 3, 2025, a coalition of 22 state Attorneys General, led by New York's Letitia James, filed a lawsuit challenging the rule. The lawsuit argues that:
- The rule exceeds the Department of Education's statutory authority
- It is "arbitrary and capricious" under the Administrative Procedure Act
- It functions as an unconstitutional "political loyalty test"
- It violates due process by being vague and subjective
What This Means for You
The lawsuit may result in the rule being blocked, modified, or delayed. However, litigation can take years. You should plan for the possibility that the rule takes effect as scheduled on July 1, 2026.
What You Should Do Now
- Keep making payments and certifying employment. Until July 1, 2026, the current rules apply. Every payment you make now counts under the existing, objective standard.
- Submit an Employment Certification Form now. Document your current employer's qualifying status under the current rules. Use the PSLF Help Tool.
- Track the lawsuit. Court rulings may change the situation before July 2026.
- If you're close to 120 payments: Consider whether you can reach forgiveness before July 2026. If you're at 110+ payments, accelerating your timeline may be worth exploring.
- If you're at a potentially affected employer: Consult with a student loan attorney or financial advisor who specializes in PSLF. Consider your options, including whether alternative qualifying employers exist in your field.
The new rule applies to employment after July 1, 2026. Qualifying payments you've already made—and payments you make before the effective date—should count toward your 120, even if your employer's status becomes uncertain later.
The Bigger Picture
This rule represents a fundamental shift in how PSLF eligibility is determined—from objective criteria (tax status) to subjective, politically-influenced judgments (administration's view of what constitutes "illegal purpose").
Regardless of your views on the specific activities targeted, the shift from objective to subjective standards introduces uncertainty that affects anyone pursuing PSLF at nonprofits. The next administration could expand or narrow the definition of "substantial illegal purpose."
This is why government employment—which is not subject to the new rule—remains the most stable path to PSLF eligibility.