Court Overturns Trump Administration’s Student Loan Rule Adjustment

In a significant legal setback for the Trump administration, two federal judges have declared that efforts to limit the eligibility criteria for a student loan forgiveness initiative are unlawful, based on rulings issued this week.

The “final rule” introduced by the U.S. Department of Education (DOE) concerning the Public Service Loan Forgiveness (PSLF) program aims to bar organizations deemed to engage in “illegal” activities from participating in it.

However, U.S. District Judge Myong J. Joun argued in one judgment that making such legal determinations would be “arbitrary” and exceed presidential authority. Moreover, the judge pointed out that historically, the administration has a tendency to base decisions on ideological agreement with an organization’s mission, rather than its legal standing.

Judge Joun, appointed by President Joe Biden, analyzed the program’s background and ongoing legal challenges in a detailed 68-page order released just prior to the rule’s intended implementation. The PSLF program was established by Congress in 2007 to promote public service careers by forgiving the remaining balance of student loans for borrowers who spend a decade working in qualifying roles, accompanied by 120 eligible loan payments.

In October 2025, the DOE announced its rule change, saying narrowing the types of organizations that qualify for the program would “prevent taxpayers from supporting loan forgiveness for borrowers whose organizations are breaking the law.” The administration “amend[ed] the definition of a ‘qualifying employer’ to exclude employers that participate in illegal activities such that they have a substantial illegal purpose.”

The rule identified six categories of activities the Trump administration deemed had a “substantial illegal purpose,” including “[a]iding or abetting violations” of federal immigration laws and what it called “child abuse, including the chemical and surgical castration or mutilation of children or the trafficking of children to so-called transgender sanctuary States.”

A group including 22 states sued in Massachusetts, where Joun sits, to stop the rule change. Multiple organizations also filed suit in Washington, D.C., in a case that went before U.S. District Judge Amir H. Ali, another Biden appointee.

The plaintiffs argued that they would suffer business disadvantages because individuals would seek employment elsewhere and the “threat of disqualification” would “itself deter new workers from entering public service.”

Furthermore, the organizations in the Washington, D.C., case argue that the “requirement that the plaintiffs affirmatively certify they have not participated in activities that have a ‘substantial illegal purpose’ clearly imposes a new obligation that goes beyond what the plaintiffs are already doing by following the law.”

The administration has argued “that there exists no threat of enforcement because the Department has not made any indication that any of the Plaintiffs will (or are likely to be) the target of any enforcement activity,” as Joun recounts in the Massachusetts case.

The judge found this rationale unconvincing.

“In the absence of evidence to the contrary, Defendants’ arguments might be persuasive. But the Administration’s history of prosecution tells a different story,” he writes, pointing to an example of the “ire” shown “toward those with immigration policies contrary to those held by the Administration.” The judge added: “Even beyond immigration, the Administration has threatened legal action against generally lawful activity with which it disagrees.”

Joun continues:

The rule thus leaves regulated entities to speculate about the scope of prohibited conduct while vesting the Department with substantial discretion to determine, after the fact, whether an employer has crossed an undefined line. Such indeterminate standards create a substantial risk of arbitrary enforcement. As Plaintiffs note, the Administration has prioritized enforcement in areas such as diversity, equity, and inclusion initiatives, raising the possibility that otherwise lawful conduct could be treated as evidence of “illegal discrimination” under the Final Rule’s undefined standards. … By failing to articulate objective standards governing what constitutes “substantial illegal activity,” “aiding and abetting,” or a “pattern” of unlawful conduct, the Department has left employers to guess at their obligations while reserving broad discretion to determine eligibility on an ad hoc basis. That lack of ascertainable standards is itself a hallmark of arbitrary and capricious decision-making.

He concludes by saying the rule is “contrary to law and promulgated in excess of statutory authority,” as well as “arbitrary and capricious” and “violates the First Amendment.”

Ali ruled similarly in the Washington, D.C., case, finding that Education Secretary Linda McMahon exceeded her statutory authority.