AG Rayfield: “Oregonians who dedicate their careers to public service… shouldn’t lose their benefits because of who they work for or what their community stands for.”
Attorney General Dan Rayfield and 21 other attorneys general today filed a lawsuit against the U.S. Department of Education (ED) for unlawfully restricting eligibility for the Public Service Loan Forgiveness (PSLF) program, which allows government and nonprofit employees to have their federal student loans forgiven after ten years of service. The attorneys general are challenging a new federal rule that would deem certain state and local governments or nonprofit organizations ineligible employers for PSLF if the federal government determines they have engaged in actions with a substantial illegal purpose – in practice, activities, or actions that are disfavored by the administration. The coalition argues that the sweeping new rule is unlawful and targeted to punish states and organizations that the administration does not like.
“This is not only illegal, but also deeply troubling. It gives the federal government the power to decide which public servants ‘count’ based on politics,” said Attorney General Rayfield. “Oregonians who dedicate their careers to public service – teachers, nurses, firefighters, and countless others- shouldn’t lose their benefits because of who they work for or what their community stands for.”
The PSLF program was established by Congress in 2007 to provide financial incentives to those who dedicate their careers to the service of others. The program forgives borrowers’ remaining federal student loan debt after ten years of qualifying public service and consistent payments. Over the years, PSLF has enabled more than one million public servants to pursue careers that might have otherwise been out of reach. For state governments, PSLF is a critical tool to recruit and retain qualified professionals in vital fields like education, health care, and law enforcement.
On October 31, ED finalized a new rule granting itself the power to unilaterally declare entire agencies or organizations ineligible employers for PSLF if the administration determines they have a “substantial illegal purpose.” The rule includes only a very limited definition of such “illegality,” which includes activities that support undocumented immigrants, provide gender-affirming health care to transgender youth, promote diversity, equity, and inclusion efforts, and engage in political protest. The rule is scheduled to take effect in July 2026.
Attorney General Rayfield and the coalition warn that this vague new authority could have devastating consequences nationwide. Countless public workers could suddenly lose PSLF eligibility through no fault of their own. States could be forced to confront severe staffing shortages, higher turnover, and skyrocketing costs to maintain essential services. In Oregon, the state and its agencies employ many dedicated public servants who join the state with student debt. PSLF provides an important recruiting and retention tool for Oregon, just as it does for other government and public interest organizations throughout the state.
The coalition’s lawsuit argues that ED’s new rule is flatly illegal. The PSLF statute guarantees loan forgiveness for anyone who works full-time in qualifying public service; it does not grant ED discretion to carve out exceptions based on ideology. They assert that the rule’s vague “substantial illegal purpose” standard is arbitrary and capricious as it gives the Department unfettered power to target specific state policies or social programs while exempting federal agencies from scrutiny.
The attorneys general are asking the court to declare the rule unlawful, vacate it, and bar the Department of Education from enforcing or implementing it.
Joining Attorney General Rayfield in filing this lawsuit are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Rhode Island, Vermont, Washington, Wisconsin, and the District of Columbia. A group of private plaintiffs and local governments is also filing a lawsuit today to block the implementation of the new rule.
