Capitol News

Michigan Attorney General Dana Nessel, along with attorneys general from 21 other states and the District of Columbia, has filed a lawsuit against the U.S. Department of Education. The legal action challenges a new federal rule that restricts eligibility for the Public Service Loan Forgiveness (PSLF) program. The PSLF program allows government and nonprofit employees to have their federal student loans forgiven after ten years of service.

The contested rule, finalized by the Department of Education on October 31, gives the agency authority to declare certain state and local governments or nonprofit organizations ineligible for PSLF if they are determined to have a “substantial illegal purpose.” This definition includes activities such as supporting undocumented immigrants, providing gender-affirming health care to transgender youth, promoting diversity and inclusion efforts, or engaging in political protest. The rule is set to take effect in July 2026.

Attorney General Nessel criticized the move, stating: “The Trump Administration has shown a troubling pattern of political retribution and unlawful targeting of those who dare to disagree with its policies. By now using this tactic with the Public Service Loan Forgiveness program, the White House is illegally undermining a vital resource that helps employers attract and retain qualified public servants. If allowed to stand, this rule could jeopardize loan forgiveness for first responders, nurses, teachers, and government employees who dedicate their careers to serving our communities. The Administration cannot unilaterally impose ideological exceptions on a loan program that has benefitted more than a million Americans, and I will continue to stand against these illegal actions and defend the integrity of programs that support those who are committed to public service.”

Established by Congress in 2007, PSLF was designed as an incentive for individuals pursuing careers in public service by forgiving remaining federal student loan debt after ten years of qualifying work and payments. State governments rely on PSLF as an important tool for recruiting professionals in education, healthcare, law enforcement, and other critical sectors.

Nessel and her counterparts argue that the new rule’s standard is vague and grants excessive discretion to the Department of Education. They contend it could lead to sudden loss of PSLF eligibility for many public workers nationwide through no fault of their own. States may face staffing shortages and increased costs as a result.

The lawsuit seeks a court order declaring the rule unlawful and preventing its enforcement or implementation by the Department of Education.

Attorneys general from Arizona, California, Connecticut, Delaware, Hawai‘i, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington state and Wisconsin joined Michigan in filing the lawsuit. In addition to this coalition suit by state officials, private plaintiffs and local governments are also challenging the new regulation.