Chicago – Attorney General Kwame Raoul and 21 other attorneys general today filed a lawsuit against the U.S. Department of Education and Secretary of Education Linda McMahon 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 10 years of service.
Raoul and 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 “substantially illegal” actions – 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.
“The Public Service Loan Forgiveness program is instrumental in recruiting the best and brightest to devote their careers to public service by working as first responders, teachers and health care workers. The Department of Education’s new rule is an unlawful attempt to punish states like Illinois that are successfully fighting the Trump administration’s illegal actions,” Raoul said. “I will continue to stand with my fellow attorneys general to protect essential programs that help the students in Illinois and across the country afford continued education, and also allow states to attract workers to careers in critical fields of public service.”
The PSLF program was established by Congress in 2007 to encourage students to dedicate their careers to the service of others. The program forgives borrowers’ remaining federal student loan debt after 10 years of qualifying public service and consistent payments. Over the years, PSLF has enabled more than 1 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 Oct. 31, the Department of Education finalized a new rule granting itself the power to unilaterally declare entire agencies or organizations ineligible employers for PSLF if the department determines they have a “substantial illegal actions with a substantial illegal purpose.” The rule’s narrow definition of “illegality” includes only activities that the current administration opposes, such as support for undocumented immigrants; gender-affirming health care for transgender youth; diversity, equity and inclusion efforts; and political protest. The rule is scheduled to take effect in July 2026.
Attorney General Raoul 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. Since PSLF’s inception, more than 41,000 Illinoisians have received more than $3 billion dollars in forgiveness through PSLF-related programs.
The coalition’s lawsuit argues that the Department of Education’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 the Department of Education discretion to carve out exceptions based on ideology. Raoul and the coalition assert that the rule’s vague “substantial illegal purpose” standard is arbitrary and capricious, as it gives the Department of Education unfettered power to target specific state policies or social programs while exempting federal agencies from scrutiny.
Raoul and 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 Raoul in filing this lawsuit are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, 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.
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