Education Department’s New Rule Could Bar Organisations Serving Immigrants, Transgender Youth

Washington, D.C. — A draft proposal from the U.S. Department of Education under former President Donald Trump is drawing criticism for potentially transforming a student loan forgiveness program into a mechanism of political retribution, targeting nonprofits that support immigrants and transgender youth.

At the center of the controversy is the Public Service Loan Forgiveness (PSLF) program, which cancels federal student loans for employees of governments and qualified nonprofits after 10 years of service and payments.

Draft Rule Redefines Eligibility Based on “Illegal Activity”

The Education Department’s proposed changes would strip PSLF eligibility from organisations allegedly involved in “illegal activities,” a term broadly defined to include:

• Violations of immigration law
• Support for groups labeled as foreign terrorist organizations
• Gender-affirming care for minors deemed illegal under certain federal or state laws
• Violations of the Civil Rights Act of 1964, particularly related to diversity and inclusion policies

Crucially, the education secretary would have discretionary power to determine which organizations fall afoul of the new rules—even in the absence of formal convictions or legal findings.

“Politically Motivated and Dangerous,” Say Critics

Betsy Mayotte, president of the Institute of Student Loan Advisors, warned that the rule appears “politically motivated” and could be used to punish ideological opponents. Advocates fear this could:

• Exclude entire hospital systems if one department provides transgender care
• Bar cities with “sanctuary” policies from participation
• Remove schools and universities over diversity programs

“This unfortunately may allow them to further chase the undesirable institutions, in their view,” said Alyssa Dobson, financial aid director at Slippery Rock University.

Student Loan Forgiveness: Who Stands to Lose?

The PSLF program has forgiven loans for over 1 million Americans, including teachers, firefighters, nurses, and public defenders. The proposed rule could halt loan forgiveness progress for individuals working at newly ineligible institutions, forcing many to change jobs or give up relief entirely.

A federal database currently lists eligible nonprofits that provide legal help to undocumented immigrants and fund travel for transgender youth seeking medical care. These groups may be targeted under the new criteria.

“Subjectivity and Ambiguity” Raise Alarms

Emeka Oguh, CEO of PeopleJoy and a negotiator on the PSLF rulemaking panel, said the Education Department failed to provide clear examples of what would constitute disqualifying activity.

While officials clarified that treating undocumented immigrants wouldn’t alone be illegal, it remained unclear how the rules would apply to public schools offering DEI (Diversity, Equity, Inclusion) programming.

“There was a lot of ambiguity there,” said Oguh, warning that the subjective nature of enforcement could make the policy ripe for misuse.

Mandatory Employer Certifications Pose New Risks

A new requirement would force employers to certify they do not engage in illegal activity—a bureaucratic burden that, if mishandled, could accidentally jeopardize PSLF eligibility for thousands of borrowers.

The Education Department maintains it has a duty to “prevent unlawful conduct” and ensure taxpayer money doesn’t fund illegal organizations. However, critics argue that without objective enforcement standards, the overhaul opens the door to politically motivated exclusions.

Next Steps and Timeline

• A formal version of the proposal is now being drafted.
• A public comment period will follow its release.
• If finalized, the rule would take effect in July 2026.

The department thanked panel members last week, stating that the changes would help fulfill President Trump’s promise to “ensure PSLF does not subsidize organizations that are breaking the law.”