William D. Ford Federal Direct Loan (Direct Loan) Program

Comments: Several commenters expressed concerns that the rule is impermissibly retroactive because it adds new requirements that impact existing participants, creates uncertainty, and violates the holdings of cases such as Landgraf v. USI Film Productions, 511 U.S. 244 (1994), and Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988), which require express Congressional authorization for rules with retroactive effect. Other commenters argued that the rule improperly penalizes organizations for lawful past conduct. A few commenters suggested that, to prevent unfair outcomes and impermissible retroactivity, any new restrictions must be applied prospectively to new borrowers, new loans, or new employees who begin service after the rule's effective date. Many commenters stated that current borrowers should not be impacted if their employer loses eligibility to participate in PSLF as a result of this rule.

Discussion: The Department disagrees that this final rule has retroactive effect on any current qualifying employers or borrowers employed by such organizations. An organization can only lose or be denied qualifying employer status under this final rule if it engaged in illegal activities such that it has a substantial illegal purpose on or after July 1, 2026, the effective date of this final rule. Those activities are all clearly enumerated within the final rule. The Supreme Court has stated that “considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly.” Landgraf, 511 U.S. at 265. This rule complies with that principle by identifying the prohibited activities and providing that the conduct occurring before a future date will not be a factor when the Department considers whether the organization has a substantial illegal purpose. Both employers and borrowers will have approximately eight months between the publication of this final rule and its effective date, providing sufficient time to understand the types of illegal conduct that could result in an employer losing PSLF eligibility.

With regard to borrowers employed by organizations that are currently qualifying employers, this final rule has no retroactive effect because any qualifying payment that the borrower made during the period of time that such employer was considered a qualifying employer will continue to count as such, including any payments made during the employer reconsideration process, even if the employer ultimately loses that status. In any case, an organization cannot lose or be denied qualifying employer status unless it engaged in illegal activities such that it has a substantial illegal purpose on or after July 1, 2026, meaning that payments made by borrowers employed by a qualifying organization could not possibly cease to be considered qualifying payments until the effective date of this final rule, at the very earliest. Taken together, the rule cannot and does not have a retroactive effect.

Furthermore, the Department rejects the argument that this final rule conflicts with the Supreme Court's rulings in the Landgraf and Bowen cases. In Landgraf, the Supreme Court rejected the plaintiff's argument that new remedies created by the Civil Rights Act of 1991 should apply in a sexual harassment case, even though the harassment and her resignation occurred before the legislation was passed, with the Court concluding that statutes burdening private rights are not presumed to have retroactive effect unless Congress clearly intended such retroactive effect. See 511 U.S. at 270, 285, 286. In Bowen, the Supreme Court found that the Secretary of Health and Human Services had exceeded his rulemaking authority by promulgating a wage index rule in 1984 under which Medicare reimbursements paid to hospitals that had been disbursed since 1981 would be recouped, because Congress did not explicitly give the Secretary of Health and Human Services the power to promulgate rules with retroactive effect. See 488 U.S. at 204, 210, and 211. This final rule is not in conflict with the Supreme Court's rulings in Landgraf or Bowen because it only concerns conduct occurring on or after July 1, 2026, and because payments made by borrowers employed by the organization during the period it was a qualifying employer will still be counted toward PSLF forgiveness, regardless of whether the organization later loses its qualifying employer status.

Furthermore, the Department disagrees that this final rule penalizes past lawful conduct. All the activities included within the definition of “substantial illegal purpose” require a violation of relevant State or Federal laws on or after July 1, 2026. An organization will not, and cannot, be penalized for past lawful conduct. To the extent that an organization engages in conduct which later becomes illegal as a result of a change in State or Federal law, only conduct occurring after the effective date of such a change could be considered relevant when considering whether the organization has a substantial illegal purpose, as the conduct was not illegal until that point in time.

Finally, the Department rejects the argument that any new restrictions on qualifying employment must only be applied to new borrowers. The MPN signed by each borrower explicitly states that its terms and conditions “are determined by the HEA and other federal laws and regulations.” MPN at 3. Section 1 of the BRR that is provided with the MPN further clarifies that that amendments to the HEA and other Federal laws and regulations may amend the terms of the MPN and specifically cautions that “[d]epending on the effective date of the amendment, amendments to the [HEA or other Federal laws and regulations] may modify or remove a benefit that existed

at the time that you signed this MPN.” MPN at 6. Because borrowers have been forewarned about the possibility of such changes, the Department believes it is unnecessary to grandfather in existing borrowers, especially when such an approach could result in the Department treating two borrowers differently when both are employed by the same organization, at the same time, and both are making payments. This result would be unfair to borrowers, would undermine the purpose of this final rule, and pose practical difficulties in terms of administration.

Definitions General (Sec. 685.219(b))

Comments: Commenters objected to the introduction of new, undefined concepts such as “substantial illegal purpose,” “aiding or abetting,” or “violating State law.” Without precise definitions, they argued, these terms invite inconsistent application across States and agencies.

Discussion: The Department disagrees that these terms are undefined or not well understood. These terms are clearly defined in the regulation, and in many instances are cross referenced to existing law that prohibits the underlying conduct. The concept of aiding and abetting is purposefully broad as it prohibits assisting in numerous types of criminal activity, but it is well understood by courts and the public. Likewise, the phrase “violating State law” is intentionally broad and encompasses a wide array of conduct, but it is also sufficiently clear and puts employers on notice that State law violations may be considered when determining if an organization has a substantial illegal purpose. Lastly, the term “substantial illegal purpose” is also clearly defined in the regulation and puts organizations on notice that the Secretary will consider any illegal conduct from the enumerated list and weigh it to determine if the organization has a substantial illegal purpose.

The purpose of using such terms is to set clear standards for PSLF program eligibility, not to create new interpretations. The Department will also rely on existing findings of unlawful activity by courts or other regulators where appropriate. To the extent that State laws may vary, the Department will defer to the judgments of State courts in determining what constitutes unlawful activity within the jurisdiction where the conduct occurs.

In instances where an organization has locations in more than one State and only broke the law in one or a few States, the Department may still find that the organization has a substantial illegal purpose by weighing all the relevant evidence. However, the Department will not find an organization to have engaged in illegal activity (and weigh that evidence under the substantial illegal purpose test) if the underlying conduct occurred in a State in which the conduct was legal. In other words, unless the State where the conduct occurs prohibits such conduct, the organization has not engaged in illegal conduct, and the Department will not use that conduct as a basis for removing employers from the PSLF program.

Changes: None.

Comments: Many commenters argued that the definitions provided in the rule are either too vague or sweep too broadly, creating uncertainty for both borrowers and employers. They worried that broad terms could invite inconsistent or arbitrary application, leaving organizations unclear about their eligibility status and borrowers without reliable assurances. Other commenters emphasized that definitions must be precise enough to avoid politicization but flexible enough to cover genuinely unlawful conduct.

Discussion: The Department agrees that its definitions are broad but disagrees that they are too vague to be clearly understood. As mentioned above, this final rule establishes definitions that are anchored in law, have precise meanings that provide sufficient notice, are written in a manner in which they can be applied uniformly, and are generally understood by the public.

Changes: None.

Aiding or Abetting (Sec. 685.219(b)(1))

Comments: Commenters expressed concern that extending PSLF disqualification to organizations deemed to have “aided or abetted” unlawful activity would open the door to subjective interpretations. They questioned what level of involvement or association constitutes “aiding” and were worried that entities providing indirect support, such as legal advice, medical care, or humanitarian assistance, could be unfairly swept into disqualification. Commenters additionally expressed concern about the application of the definition of “aiding and abetting” from 18 U.S.C. 2 to organizations, rather than individuals, and argued that such application is improper because corporations are legal concepts that do not have or share intent. Additionally, commenters urged the Department to clarify that lawful representation of a client accused of participating in substantial illegal activity does not constitute participation in said illegal activity, and requested the Department provide a `safe harbor' for the activity representation.

Discussion: The Department rejects the idea that ordinary, lawful assistance such as legal advice, medical care, or humanitarian support could trigger PSLF disqualification. Attorneys do not break the law, or adopt the views of their clients, by representing individuals in legal proceedings. This includes representing clients who may be unpopular, like terrorists. As such, the Department will not take action against legal employers under this final rule who are lawfully representing clients, including public defenders, or under the Legal Services Corporation Act. The term “aiding and abetting” carries a settled legal meaning: intentional participation in unlawful activity. It does not cover lawful support or incidental association. As such, the Department does not believe that it needs to provide a `safe harbor' consideration for these instances, as they are representative of lawful action undertaken by the eligible employer. Such actions are not illegal and thus would not be considered when determining if an employer has a substantial illegal purpose. The Department believes that it is necessary to include the concept of aiding and abetting within this final rule to address the issue that organizations that are going beyond lawful support or incidental associations are enabling or encouraging others to engage in certain unlawful activities. As such, organizations are just as at odds with the public interest as an organization that directly carries out unlawful activities. For example, if an organization has numerous employees who, at the direction of their employer, aided and abetted in acts of terrorism, the Department could clearly move to disqualify the employer and disallow PSLF benefits from flowing to its employees.

When considering, for PSLF eligibility purposes, whether an organization has aided and abetted illegal discrimination or violations of Federal immigration laws, the Department will carefully examine the balance of the evidence to determine both whether certain unlawful activities occurred and whether there is “objective indicia” that the organization sought to further those unlawful activities. See e.g., Presbyterian & Reformed Pub. Co. v. Comm'r, 743 F.2d 148, 155 (3d Cir. 1984) (“The difficulties inherent in any legal standard predicated upon the subjective intent of an actor are further compounded when that actor is a corporate entity. In such circumstances,

courts forced to pass upon a potentially illicit purpose have looked for objective indicia from which the intent of the actor may be discerned.” (footnote omitted)). The Department may look to established legal standards associated with employer liability for acts of employees when making these determinations. Isolated incidents of unlawful conduct are unlikely to be sufficient to demonstrate that the employer engages in activities that result in the culmination of it having substantial illegal purpose. However, if there is a pattern and practice where numerous employees have engaged in illegal conduct, at the direction of or with the acquiescence of the employer, the Department may weigh that evidence more strongly in determining if the employer has a substantial illegal purpose, consistent with the doctrine of respondeat superior. See e.g., Williams v. Clerac, LLC, 635 F. Supp. 3d 607, 613 (N.D. Ohio 2022) (stating that, under the respondeat superior doctrine, “if the employee tortfeasor acts intentionally and willfully for his own personal purposes, the employer is not responsible” unless the action was “calculated to facilitate or promote the business for which the [employee] was employed,” the employer “fails to take action where the employer knows or has reason to know that one employee poses a risk to other employees,” or if the employer “specifically and explicitly ratifies the employee's [tortious] act and adopts it as the employer's own.” (cleaned up)); Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 63 (4th Cir. 1993) (“[A] corporation is liable for the criminal acts of its employees and agents done within the scope of their employment with the intent to benefit the corporation.”)

Changes: None.

Chemical Castration or Mutilation (Sec. 685.219(b)(3))

Comments: Several commenters stated the definition of “chemical castration or mutilation” is especially unclear and controversial. They noted that Federal and State law already regulate medical procedures and questioned why the PSLF program should independently define or police such conduct. Other commenters noted that, without clarity, legitimate medical providers could be penalized simply for offering lawful procedures that might be politically contested. Other commenters recommended various amendments to the definition of “chemical castration or mutilation.”

Discussion: The Department disagrees. The definition of chemical castration or mutilation is not about lawful medical practices; it is about ensuring that PSLF funds do not support the castration or mutilation of children in violation of Federal or State law. Medical providers performing activities within the bounds of Federal and State law will not be affected. Only conduct that is prohibited by Federal law, or State law in the State where the conduct occurs, is at issue. The standard is anchored in law and will be applied narrowly, based on clear evidence of illegality under Federal law or State law.

Consistent with President Trump's Executive Order on Protecting Children from Chemical and Surgical Mutilation, Executive Order 14187 (Jan. 28, 2025), the Department will be guided by the definition of “chemical and surgical mutilation” outlined in that Executive Order. As discussed in the NPRM, the Department searched for the most appropriate definition of chemical castration or mutilation and located the January 28, 2025, Executive Order, Protecting Children From Chemical and Surgical Mutilation, which provides the basis for the proposed definition. For further discussion and additional sources regarding the rationale for this decision, see William D. Ford Federal Direct Loan (Direct Loan) Program, 90 FR 40154, 40159-40160 (Aug. 18, 2025).

Changes: None.

Child or Children (Sec. 685.219(b)(4))

Comments: Commenters asked for clarification on how “child” is defined for purposes of PSLF program eligibility. Some commenters worried that the rule could be read inconsistently across different contexts such as Federal law, State family law, or immigration law. They urged the Department to adopt a uniform definition that would purportedly avoid ambiguity and ensure fairness across all borrowers and employers. Commenters also recommended the Department use alternative definitions such as the “age of majority”, the term “18 years or younger”, or exempting emancipated minors no matter what their age.

Discussion: The Department agrees that uniformity is important. The definition of child in this final rule is tied to the Executive Order on Protecting Children from Chemical and Surgical Mutilation, Executive Order 14187 (Jan. 28, 2025), to avoid confusion across States or when used in different contexts. This definition will be applied consistently across the country to ensure fairness and prevent inconsistent application.

Changes: None.

Foreign Terrorist Organizations (Sec. 685.219(b)(10))

Comments: Commenters supported excluding groups tied to terrorism but urged the Department to anchor determinations strictly to Federal law and formal designations. They feared that vague language could allow future administrations to disqualify entities engaged in lawful advocacy or international humanitarian work. Borrowers and employers emphasized that PSLF program eligibility should track clear Federal determinations, not discretionary judgments.

Discussion: The Department agrees that PSLF program eligibility must follow formal Federal determinations. Organizations designated as foreign terrorist organizations under U.S. law will be excluded from the PSLF program. This final rule requires the Department to defer to terrorist designations already established by the Federal Government. Borrowers and employers will have certainty that decisions are neutral, grounded in evidence, and tied directly to statutory authority.

Changes: None.

Illegal Discrimination (Sec. 685.219(b)(12))

Comments: Commenters stated that the definition of “illegal discrimination” needs precision to avoid misuse. Commenters worried that organizations accused of discrimination, but not formally found liable, could be penalized. Others stressed that PSLF should not create new anti-discrimination standards beyond what is already defined under Federal or State law, to avoid layering duplicative or politically influenced rules.

Discussion: The Department agrees that the PSLF program should not create new discrimination standards. This final rule relies strictly on established Federal law and allegations alone will not meet the standard for disqualification. Only organizations found to have engaged in unlawful discrimination will face disqualification.

Changes: None.

Other Federal Immigration Laws (Sec. 685.219(b)(17))

Comments: Commenters said referencing “other Federal immigration laws” is too broad and risks sweeping in organizations providing lawful assistance to immigrants, refugees, or asylum seekers. They worried that work such as legal aid, housing support, or medical services could be mischaracterized as unlawful under shifting political climates. They

requested precise language to ensure only clear and adjudicated violations of immigration law trigger disqualification.

Discussion: The Department disagrees that referencing “other Federal immigration laws” is too broad or may sweep in legal conduct. This final rule will not penalize an organization for providing lawful assistance to immigrants, refugees, or asylum seekers. Disqualification will only occur where it is determined the organization is engaged in illegal conduct, and that conduct is material enough that the organization has a substantial illegal purpose. The phrase “Federal immigration law” is broad, but it is easily understood and only applies to Federal law that regulates immigration.

Changes: None.

Qualifying Employer (Sec. 685.219(b)(27))

Comments: Commenters asked for greater clarity on which organizations qualify as government, nonprofit, or public service employers under Sec. 685.219(b)(27). Some argued that uncertainty about whether certain nonprofits, quasi-governmental bodies, or contractors qualify has long plagued the PSLF program. They stressed that borrowers and employers alike need predictable criteria, particularly where functions are performed through delegated authorities, shared services, or nontraditional entities. Without clearer boundaries, they argued, borrowers risk making career choices under uncertainty, only to later discover their service does not qualify for PSLF. Other commenters stated that they feared the new rule would perpetuate confusion rather than resolve it, noting that there was confusion over whether affiliates, contractors, or subcontractors performing public service functions on behalf of government or nonprofit entities count as qualifying employers. They warned that the absence of clear treatment for affiliates, contractors, and subcontractors invites inconsistent outcomes across service providers.

Discussion: The Department agrees that clarity is critical so that borrowers can make informed decisions. This final rule does not change the five types of organizations and agencies that are considered as a qualifying employer under the current definition in 34 CFR 685.219(b)(27). Additionally, the government entities, nonprofits, and public service organizations that currently are considered by the Department as qualified employers are listed on the Department's website.

Under this final rule, the Department will update this list only after it takes action to remove an employer, and borrowers who work for that employer will be unable to receive credit for their work toward PSLF forgiveness only after the date of the Department's determination under subsection (h) or after any reconsideration requests or actions by the employer in accordance with subsection (j) of these regulations. These determinations will not be made retroactively, meaning that borrowers will receive credit for any work prior to the Department's determination. This final rule will ensure that borrowers have notice and will have an opportunity to change employers if they wish to continue to make progress toward loan forgiveness through PSLF.

Additionally, for a borrower to receive credit toward PSLF, the borrower must have a public service job working for a qualifying employer. Affiliates, contractors, and subcontractors that are not organizations or agencies meeting the definition of a qualifying employer do not offer public service jobs, so borrowers will not receive PSLF credit by working for those employers. This policy is not changed by this final rule.

Changes: None.

Comments: Many commenters raised questions about organizations that have both qualifying and non-qualifying functions, or that undergo restructuring, mergers, or spin-offs. They worried that borrowers could lose PSLF credit during employer transitions that are outside their control. Several commenters urged continuity protections, rules for partial qualifying service, and procedures to ensure that employer restructuring does not unfairly strip borrowers of eligibility.

Discussion: The Department recognizes the risks created by restructuring and mergers of service organizations. It is possible that restructuring or mergers could change the eligibility of employers for PSLF. Organizations must be qualifying employers under the regulation for their employees to be eligible to participate in PSLF. If after restructuring or a merger, the employer no longer meets the definition of qualifying employer, its employees can no longer receive credit toward loan forgiveness through PSLF. The Department's regulations already account for this, and the Department is not proposing any changes in this final rule to further address this issue.

The Department acknowledges that when employers undergo these types of changes it may create uncertainty for borrowers; however, the PSLF statute is clear when a job is no longer qualifying. To give borrowers credit for working in jobs that do not qualify would violate the statute, so the Department cannot make changes to the regulations to address employers that transition out of their qualifying status.

Changes: None.

Comments: Commenters expressed uncertainty over how the PSLF program should treat quasi-governmental entities such as special districts, authorities, or instrumentalities. They pointed to wide variations in how State law defines such bodies and asked the Department to establish consistent Federal criteria.

Discussion: The Department understands that State law definitions of governmental units vary. The definition of qualifying employer includes “A United States-based Federal, State, local, or Tribal government organization, agency, or entity, including the U.S. Armed Forces or the National Guard.” This definition is broad and captures a variety of organizations and instrumentalities that have been created by State or local governments, so long as the organization is not organized for profit and is not a labor union or a partisan political organization.

Changes: None.

Comments: Commenters requested standardized documentation requirements for nonprofit eligibility, such as reliance on IRS determination letters, State registration records, or other verifiable public filings. They urged the Department to avoid duplicative documentation requests and align with existing Federal and State oversight systems. Commenters also asked for clarity on whether nonprofits under investigation that are not yet found in violation remain eligible to participate in the PSLF program.

Discussion: The Department agrees that nonprofit employers must have clear, standardized documentation requirements. Borrowers and employers should not face duplicative requests or arbitrary standards. The Department will continue to take into evidence objective, verifiable records such as employer provided IRS determination letters and State nonprofit filings. The Department acknowledges that the IRS could only disclose this information pursuant to an exception under 26 U.S.C. 6103. Borrowers can also use the PSLF Help Tool on the Department's website to find employers that the Department already believes are qualifying employers.

Qualifying employers who are under review because they may have a substantial illegal purpose will remain as qualifying employers until a determination is made by the Secretary. This approach respects due process while safeguarding the PSLF program from abuse.

Changes: None.

Substantial Illegal Purpose (Sec. 685.219(b)(30))

Comments: Many commenters said the phrase “substantial illegal purpose” is inherently vague and creates risk of overreach. They asked how the term “substantial” would be measured, whether it refers to the primary purpose of the organization or any significant unlawful activity, and how determinations would be documented. They emphasized the need for precision to avoid penalizing lawful entities for isolated or contested conduct.

Discussion: The Department rejects claims that the phrase “substantial illegal purpose” is too vague to be understood. The activities that are included within this term are defined in this final rule. Organizations that have engaged in an illegal activity are not automatically considered to have engaged in an activity with a substantial illegal purpose. Instead, the Secretary considers evidence of activities and whether the materiality of those activities supports a determination that the organization has engaged in illegal activities such that it has a substantial illegal purpose. “Substantial” refers to unlawful activity that is central to an organization's purpose or operations, not incidental conduct. Determinations will be based on objective evidence, not speculation.

Changes: The Department made changes to the standard and the process in subsections (h), (i), and (j) for determining whether an organization has a substantial illegal purpose to make clear that the Secretary weighs evidence of illegal activity to determine whether that illegal activity is so substantial that the organization has a substantial illegal purpose.

Comments: Commenters asked how “substantial” would be measured in practice. They worried that isolated incidents, ongoing investigations, or unproven allegations could unfairly trigger PSLF disqualification. Many argued that only sustained and adjudicated illegal activity central to an organization's mission should be considered before disqualification of the employer. They urged the Department to establish multi-factor criteria that weigh scope, frequency, and intent to ensure that disqualification is limited to genuinely unlawful organizational purposes.

Discussion: The Department agrees that determinations must be based on real and substantial unlawful activity, not speculation or unproven allegations. This final rule makes clear that eligibility decisions will rest on the materiality of any illegal activities or actions central to the organization's mission, not incidental actions by individuals acting outside the scope of their employment. The Department may consider allegations as a basis to start an inquiry, but the Department must develop the factual record to substantiate any allegations. The Department may also consider evidence that another entity, like a court, has adjudicated an issue when developing the factual basis for any action. Organizations will receive notice of any findings, an opportunity to respond, and an opportunity to rebut such findings. The Department will use clear and objective standards to measure “substantial,” weighing the scope, frequency, and intent of the conduct.

Changes: The Department clarified the standard and made changes to the process for determining whether an organization has a substantial illegal purpose to make clearer that the Secretary weighs evidence of illegal activity that is enumerated in paragraph (b)(30) to determine whether that illegal activity is so substantial that the organization has a substantial illegal purpose.

Terrorism (Sec. 685.219(b)(32))

Comments: Commenters agreed that organizations engaged in terrorism should be excluded, but they stressed that the rule must be tightly tied to statutory definitions and formal government determinations. They warned that, without such anchoring, lawful advocacy groups could be vulnerable to being labeled as terrorist-linked based on politics rather than evidence.

Discussion: The Department agrees that the PSLF program must exclude organizations engaged in terrorism, and thus eligibility decisions will be tied strictly to statutory definitions and formal government determinations. The Department will be unable to find that an organization is engaged in terrorism if the organization's conduct does not meet the elements necessary to show that they have engaged in terrorism consistent with Federal law and formal designations. The Department must develop factual evidence to support any finding, which ensures that organizations will not be targeted under this provision because of their viewpoint or political advocacy.

Changes: There are no substantive changes to the definition of terrorism. The Department removed the phrase “the Crime and Criminal Procedure” and the parenthesis around the citation to 18 U.S.C. 2331 for clarity.

Trafficking (Sec. 685.219(b)(33))

Comments: Commenters broadly supported excluding organizations engaged in trafficking but asked for clear standards for how determinations would be made. They worried that nonprofits providing survivor support or harm reduction services could be swept in if the definition of “trafficking” was too broad. They urged the Department to ensure determinations rely on objective legal findings rather than discretionary judgments.

Discussion: The Department agrees that PSLF must exclude employers engaged in trafficking. Determination will be based on objective legal findings, not speculation. The Department will be unable to find that an organization is engaged in trafficking if the organization's conduct does not meet the elements necessary to show that they have engaged in such unlawful conduct. Nonprofits providing services to survivors or harm reduction work will not be penalized so long as their conduct is lawful. This final rule makes sure PSLF disqualification is narrowly applied to unlawful trafficking.

Changes: None.

Violating State Law (Sec. 685.219(b)(34))

Comments: Many commenters noted that State laws vary widely and could create inconsistent outcomes for employers across States. They feared that nonprofits or local agencies might be disqualified based on politically driven litigation in one State, even if their conduct would be lawful elsewhere. They recommended that we limit this provision to well-established violations adjudicated by courts rather than allegations or unsettled disputes.

Discussion: The Department acknowledges that State laws vary widely. PSLF disqualification will not rest on mere allegations or politically motivated lawsuits. When the Department is considering whether an employer has engaged in illegal activities such that it has a substantial illegal purpose by virtue of having violated State law, only final, non-default judgments against an employer for violations of those State laws listed in the regulation may be used as evidence in making that determination. This includes trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways.

The narrow scope of this provision limits its application and provides clear notice to borrowers and employers.

Changes: None.

Violence for the Purpose of Obstructing or Influencing Federal Government Policy (Sec. 685.219(b)(35))

Comments: Commenters strongly supported excluding organizations engaged in violence but worried the definition could be applied too broadly. They asked how the Department will distinguish between unlawful violent activities and lawful protest or advocacy that might involve civil disobedience. They stressed that only adjudicated instances of unlawful violence should trigger PSLF disqualification, to protect First Amendment rights while upholding statutory intent.

Discussion: The Department agrees that organizations engaged in unlawful violence must be excluded from PSLF. Violence involves using physical force to hurt, damage, or kill someone or something. The First Amendment does not protect violence; it protects speech and the expression of ideas. The Department will rely on court precedent to distinguish between protected speech and expression and unlawful violence. Even speech advocating for violence is protected, so long as it is not directed to or used to incite imminent lawless action. See e.g., Brandenburg v. Ohio, 395 U.S. 444 (1969) (holding that a state may not forbid speech advocating the use of force or unlawful conduct unless this advocacy is directed to inciting or producing imminent lawless action and is likely to incite or produce such action). When determining if an organization engages in illegal activities such that it has a substantial illegal purpose, the Department will not weigh evidence of lawfully protected speech or expression against an employer. This ensures First Amendment rights are respected while ensuring that PSLF benefits do not support employees of organizations that engage in violent behavior.

Changes: None.

Borrower Eligibility (Sec. 685.219(c))

Comments: Many commenters argued that, without clear rules, employees could lose PSLF benefits for reasons they could neither foresee nor control. They argued that workers should not bear the consequences of ambiguous employer classifications or administrative reinterpretations. Commenters urged the Department to ensure that credit continues for all periods of lawful public service, regardless of later disputes about an employer's eligibility.

Discussion: The Department understands that employees need to be informed when their employer loses eligibility for reasons that are outside of their control or that were unforeseeable. The Department will only determine that an organization has a substantial illegal purpose if there is evidence that shows that they have engaged in unlawful conduct. Organizations have the ability, and should have controls in place, to ensure that they do not engage in unlawful conduct. Nothing in this final rule changes the legality regarding the underlying legal offenses, it simply changes the consequences for such unlawful conduct. Where the unlawful conduct is material and meets the other requirements of the regulation, the Department can remove eligibility for PSLF. The Department does not believe Congress intended to prop up and subsidize the unlawful behavior of organizations. Employees will not lose PSLF credit for any payments that previously qualified toward forgiveness before a determination is made. This final rule makes clear that qualifying payments earned during periods of public service will not be removed from the borrower's count toward forgiveness provided those payments were made prior to the Secretary's determination that the employer engaged in illegal activity such that it has a substantial illegal purpose. It is only after the Department has determined that an employer has lost eligibility as a qualifying employer due to engaging in unlawful activities on or after July 1, 2026, that a borrower's payment will not be counted as a qualifying payment. This approach protects workers by preventing retroactive application and ensures that payments made before the Secretary's determination continue to count toward forgiveness.

The PSLF program will honor public service, not penalize borrowers for administrative disputes, and borrowers will retain the ability to pursue employment at another qualified employer. Borrowers will be protected, employers will be held accountable, and taxpayers will know their dollars are used responsibly and in pursuit of lawful activities.

Changes: None.

Comments: Commenters stressed the need for reliance on protections for those borrowers already serving in qualifying employment. They urged that borrowers should not be penalized mid-service if their employer is later disqualified. Several commenters recommended explicit non-retroactivity provisions, transition rules, and that borrowers who have earned PSLF credit may maintain that same credit when they move to a new, qualifying employer. Additionally, a commenter believed that the final rule should clarify that a borrower's payments continue to qualify for PSLF until the final determination is made. They also requested the borrower be given a grace period to find new qualifying employment for the purposes of the PSLF program.

Some commenters wrote about specific borrowers who have long-term employment contracts, including medical residents. Commenters expressed the belief that medical residents, and extended term contract employees, have additional restrictions surrounding their employment, limiting their ability to switch jobs in the event their employer loses PSLF eligibility. Some commenters went so far as to claim that losing PSLF eligibility could have career ending consequences if transition flexibility was not provided.

Discussion: The Department recognizes that borrowers in the PSLF program have significant reliance interests. The PSLF program was created by Congress in 2007 and requires borrowers to have certain types of student loans, enroll in certain types of repayment programs, and work for a qualifying employer for ten years. Many borrowers structure their life plans around the program, in that they sometimes decide to go to college and incur significant student loan debt in reliance on the program to ultimately subsidize the cost of their education. Furthermore, many borrowers may forgo higher-paying occupations in the private sector to maintain eligibility for the program. The Department believes that the rule appropriately balances the reliance interests of borrowers against the interests of taxpayers and the Federal Government in ensuring that the PSLF program is not supporting illegal activity. In accordance with borrower reliance issues, as explained previously, the Department is only taking action against employers prospectively. Even if an employer has engaged in unlawful conduct in the past, the Department's determination that an organization engaged in activities such that it has a substantial illegal purpose will not impact PSLF credit a borrower has received for working for that employer in the past. And while employees who work for these organizations may desire to continue to work for these organizations, they will have clear notice and the opportunity to change employers after the Department takes action against an employer. The Department believes this appropriately balances the borrower's substantial reliance interests against the Federal Government's interest in not indirectly subsidizing illegal activity.

With respect to the commenter's request that we clarify that a borrower's

payments continue to count toward PSLF until a final determination is made, we note that under this final rule, a borrower remains eligible for PSLF until the date of the Secretary's determination that employer is no longer a qualifying employer. Additionally, after considering the suggestion to include a grace period for a borrower to find new qualifying employment if their employer has been determined to be ineligible for PSLF, we believe that this would be inconsistent with current policy for borrowers who cease employment with qualifying employers for multiple other reasons or who change jobs between qualifying employers. Moreover, under section 685.219(h) of this final rule, borrowers will receive notice that the Secretary has initiated the process to determine whether an employer has engaged in illegal activities such that it could result in a determination that it has a substantial illegal purpose. Although not yet a final determination of employer eligibility, this final notice provides the borrower an opportunity to seek employment with another qualifying employer if they wish to continue to pursue PSLF without risk of interruption.

The Department acknowledges that there may be some medical resident borrowers who may face heightened challenges in changing employers due to the complex terms of their respective employment contracts. Although the Department acknowledges that this puts some borrowers in a more difficult situation, since the Department does not believe the interests of these borrowers outweighs the Department's interests in preserving the integrity of the PSLF program. Delaying the consequences of disqualification would mean that taxpayers would continue to indirectly subsidize the employment of individuals working for an employer engaged in illegal activity. Providing a transition period could reduce employers' incentives to comply with this final rule, including by delaying the timely development and implementation of a corrective action plan with the Department. As such, the Department does not believe that providing a transition period is appropriate. At the same time, the Department notes when an employer loses eligibility, borrowers who work for that employer will receive credit for the month in which eligibility is lost. For example, if an employer loses eligibility on the third day of a given month, the borrower will receive credit for that month.

Changes: None.

Comments: Commenters suggested that retroactive disqualification of employers could harm borrowers who relied in good faith on their employer's eligibility, creating unfairness and eroding trust in PSLF. They stressed that borrowers should not be penalized for decisions beyond their control.

Discussion: The Department agrees. As explained previously, this final rule makes clear that all qualifying payments made while an employer was considered eligible will continue to count, even if that employer is found ineligible later. There will be no retroactive PSLF disqualification of employers due to the reliance interests the borrowers have, as the commenters identified. However, any payment made after an employer is deemed no longer eligible for PSLF will not be counted toward the number of payments to forgiveness. This safeguard protects borrowers' reliance interests and ensures fairness while allowing the Department to act prospectively to maintain program integrity. This approach ensures that workers who have served in good faith are not punished, while also protecting taxpayers by preventing benefits from flowing to unlawful conduct in the future.

Changes: None.

Comments: Commenters warned that borrowers could lose PSLF eligibility because of sudden employer disqualification, even though workers themselves did nothing wrong. They argued that employees should not be punished for decisions outside of their control.

Discussion: The Department acknowledges that there may be instances where specific borrowers who work for employers the Department has determined to have a substantial illegal purpose may not have directly engaged in unlawful activity. The Department, however, must balance that against our interest in ensuring that the PSLF program is not indirectly subsidizing employment at organizations that have a substantial illegal purpose. The Department believes if the employer engages in illegal activities enumerated in paragraph (b)(30), such that it has substantial illegal purpose, that the Department, through the PSLF program, should not indirectly subsidize the employment of its employees. Organizations with a substantial illegal purpose are tainted by their illegal actions, even if some parts of the organization continue to engage in lawful behavior. The concept of a substantial illegal purpose appropriately balances the equities at hand by distinguishing between organizations that engage in isolated or minor legal violations and those whose core or predominant activities are unlawful. If more than an insubstantial portion of the employer's activities are unlawful, the organization may have a substantial illegal purpose. The Department recognizes that some organizations may have isolated misconduct where specific employees or segregable components engage in illegal conduct without that conduct defining the organization. In such cases, where unlawful activity is limited and not central to the organization's primary mission or operations, the employer would not be considered to have a substantial illegal purpose. This approach ensures that the PSLF program does not penalize borrowers for minor or isolated misconduct within their organizations, while still preventing the program from indirectly subsidizing entities whose principal or defining activities are unlawful.

Changes: None.

Application Process (Sec. 685.219(e))

Comments: Commenters stressed that timely notification of any Departmental action to remove eligibility from an employer is critical for borrowers to plan their careers and repayment strategies. They warned that without immediate notice, borrowers could be blindsided by sudden disqualification, left with little time to adjust, and placed at risk of financial harm.

Discussion: The Department agrees that borrowers should receive notice when the employers lose PSLF eligibility. This final rule requires the Department to provide prompt notification whenever an employer's eligibility changes based on the determination by the Secretary. This protects workers and prevents unnecessary disruption. By mandating clear and proactive communication, this final rule ensures that borrowers have the information they need to make informed decisions regarding their PSLF eligibility. As discussed above, borrowers have significant reliance interests in the PSLF program, but those reliance interests must be balanced against the Department's interest in not indirectly subsidizing employers that have a substantial illegal purpose. Prompt direct notification to the impacted borrowers and broad disclosure on the Department's website are important to mitigate the impact to borrowers.

Changes: None.

Comments: Commenters emphasized that notification is not just about timing but also about substance. They requested that the notices clearly

explain the reason for an employer's disqualification, the effective date, the borrower's current credit status, and what steps borrowers may take to continue to participate in the PSLF program. Without such detail, commenters argued, notifications could create more confusion than clarity.

Discussion: The Department agrees that its notification to affected borrowers must be substantive and should include information about the reason for an employer's disqualification, the effective date, the borrower's current credit status, and what steps borrowers may take to continue to participate in the PSLF program. The Department agrees with commenters that this approach reduces confusion and will provide helpful information to borrowers.

Changes: None.

Comments: Commenters urged the Department to use multiple communication channels, including email, online borrower dashboards, and paper mail to ensure that critical notifications reach all affected borrowers. They warned that reliance on a single method could leave some unaware of eligibility changes, particularly those borrowers with limited internet access or outdated contact information.

Discussion: The Department agrees that notifying borrowers through multiple mediums is appropriate to increase awareness among borrowers. That is why this final rule requires the Department to use multiple channels of communication, including secure electronic notices, borrower dashboard updates, and paper mail where necessary, to ensure all affected individuals and the public are informed about an employer's PSLF eligibility.

Changes: None.

Comments: Several commenters suggested that the Department should provide transparency for both current participants but also for prospective borrowers considering careers in public service. They recommended public-facing employer eligibility lists that are regularly updated so that individuals entering the workforce can make informed decisions about whether their potential employer qualifies.

Discussion: The Department agrees that both current participants and the public should be informed regarding employer eligibility. By informing the public, prospective participants and borrowers considering public service careers will be informed of their options for eligible employment. Accordingly, this final rule requires the Department to maintain and regularly update a public-facing list of employer eligibility determinations.

Changes: None.

Comments: Several commenters highlighted that new entrants into repayment should be warned about the possibility of employer disqualification and given transparent, accessible information about how eligibility determinations are made. They stressed that prospective borrowers must have the ability to make informed career and repayment choices with full knowledge of PSLF risks.

Discussion: The Department agrees that prospective borrowers deserve transparency regarding the eligibility process for the PSLF program. However, the Department disagrees that we should display such information as a “warning.” Employers that have a substantial illegal purpose will lose PSLF eligibility, and the Department will inform borrowers and the public of such determination. Because most employers voluntarily comply with the law, and the Department does not expect this final rule to impact the majority of eligible borrowers, we do not think it is appropriate to label the process as a “warning.”

Changes: None.

Borrower Reconsideration Process (Sec. 685.219(g)) and Employer Reconsideration Process (Sec. 685.219(h))

Comments: Many commenters underscored that a robust reconsideration process is essential to borrower confidence in the PSLF program. They argued that determinations about qualifying employment carry life- changing financial consequences and therefore must include a meaningful right to challenge decisions. Commenters emphasized that reconsideration should not be treated as a perfunctory administrative step but as a genuine safeguard against error.

Discussion: It is important to note that the current borrower reconsideration process is not changing in these final regulations. The Department is, however, making it clear that a borrower may not submit a reconsideration request when their employer is determined to no longer be a qualifying employer for the purposes of the PSLF program. This final rule establishes a clear employer reconsideration process that gives employers the right to submit additional information and seek review of determinations. This ensures decisions are not final without all relevant evidence and arguments being considered. This safeguard provides due process to ensure that the Department considers all relevant information prior to taking action to remove employer eligibility.

Changes: In the NPRM, the Department made clear that employers would have notice and the opportunity to respond to any findings before final action is taken. To avoid confusion, the Department inserted an amendment to the regulatory text in a parenthetical in Sec. 685.219(h)(1), which makes it clear that the opportunity to respond is called the “employer reconsideration process.”

Comments: Many commenters argued that there is the need for greater transparency in the reconsideration process. Commenters asked for clear timelines on when and how reviews would be completed, as well as published standards explaining the criteria applied in reconsideration decisions. Commenters further stressed that the Department should provide written reasons for its determinations, so borrowers understand the basis for decisions.

Discussion: The Department partially agrees with the commenters. The final rule requires that determinations be explained in writing and supported by clear reasoning. The employer reconsideration process exists to ensure that the Department has all the relevant information and takes it into account when making decisions. If the Department makes an error based upon the facts or the application of the regulation, the employer reconsideration process will ensure that organizations can bring that to the Department's attention prior to it taking final action. The Department understands the interest borrowers have in a definitive timeline for review of employer reconsideration requests; however, the Department is unable to commit to a specific timeline. Among other things, the Department needs to preserve flexibility to make certain that we have adequate time to consider all the relevant evidence. The Department expects that some employer reconsideration requests will be straightforward and will be able to be processed in a relatively short period of time. On the other hand, some employer reconsideration requests may be complex and involve significant amounts of new information. Complex reconsideration requests will take more time for the Department to process and may require elevated levels of approval. As such, given the complexity that may be involved, the Department is not making changes that would commit the Department to a temporally limited review period. As noted above, a borrower would not be affected by an adverse determination regarding an employer until the employer

reconsideration process is complete. Accordingly, if it takes six months for the Department to reach a final determination that an employer has a substantial illegal purpose, a borrower's qualifying payments made during that six-month period would continue to count toward loan forgiveness.

Changes: None.

Comments: Commenters expressed concern that delays in the reconsideration process could disadvantage borrowers, particularly if their PSLF progress is frozen during review. Several commenters urged that borrowers should continue accruing PSLF credit while reconsideration is pending so that they are not financially harmed by administrative timelines outside their control.

Discussion: The Department agrees. This final rule makes clear that all qualifying payments made while an employer was considered eligible will continue to count, even if the employer's eligibility is under review. Borrowers will continue to be eligible to receive credit toward PSLF if they make qualifying payments while waiting for the Department to complete the employer reconsideration process and make a determination.

Changes: None.

Comments: Many commenters argued that while reconsideration is an important safeguard, the process remains incomplete without a clear and well-defined appeals mechanism. They raised concerns that, without explicit standards for appeals, determinations may lack legitimacy, leaving borrowers with limited recourse if they believe an error has occurred. Commenters suggested that the Department establish clear appeal pathways with independent review, binding timelines, and published rationales to ensure confidence in outcomes.

Discussion: The Department agrees that employer reconsideration is an important procedural step that ensures that due process is provided. For this reason, this final rule includes a reconsideration process. Like all agencies that provide informal adjudications, the Department must provide a process that is consistent with the requirements of the Due Process Clause of the Fifth Amendment to the U.S. Constitution because of the property interests involved in the PSLF program. See e.g., Pension Ben. Guar. Corp. v. LTV Corp., 496 U.S. 633, 653-56 (1990) (holding that courts cannot require agencies to provide process beyond what is provided for in the underlying statute or the U.S. Constitution). The Department does not believe an additional internal reconsideration process is necessary to ensure that the Department makes reasoned decisions. As is generally true with informal adjudications under the APA, the Department's final agency action with respect to PSLF eligibility can be challenged in Federal district court. See Dep't of Homeland Sec. v. Regents of Univ. of Cal., 591 U.S. 1, 16 (2020) (“The APA establishes a basic presumption of judicial review for one suffering legal wrong because of agency action.” (cleaned up)).

Changes: None.

Comments: Commenters expressed concern that reconsideration outcomes might vary depending on which office or staff member handles a case, leading to inequities. They emphasized that a standardized process with uniform evidentiary thresholds, transparent procedures, and publicly available examples would promote consistency and fairness. Borrowers want assurance that reconsideration decisions will not hinge on individual discretion but instead follow predictable and published standards.

Discussion: The Department agrees that all employers should be treated in an even-handed manner. The results from the reconsideration process should not turn upon the specific staff involved but should instead focus on the facts and how they apply to the regulation. The Department has internal reviews and controls in place with all agency adjudications to prevent variation across staff and minimize the risk of arbitrary and capricious decision-making.

Changes: None.

Standard for Determining Whether a Qualifying Employer Has a Substantial Illegal Purpose (Sec. 685.219(h))

Comments: Many commenters claimed the Department should anchor determinations in objective, evidence-based findings rather than administrative discretion. Suggestions included requiring a final judicial or administrative finding of illegality before disqualification, limiting the scope of review to the unit directly involved in misconduct, and applying a clear evidentiary threshold that prevents speculative or politically motivated judgments. Commenters stressed that such standards would promote fairness, reduce uncertainty, and insulate the program from political manipulation.

Discussion: The Department agrees that determinations must be anchored in objective evidence, not speculation or politics. This final rule makes clear that employer disqualification requires the Department to find that an employer has a substantial illegal purpose by a preponderance of the evidence after weighing the employer's illegal conduct, narrowly focusing on only the illegal conduct enumerated in the regulation. A determination by the Department that an employer engaged in illegal activities such that it has a substantial illegal purpose only represents the Department's conclusion that the organization is not a qualifying employer for the purposes of participation in PSLF and does not represent a determination regarding the organization's tax-exempt status by the IRS. Only the IRS, not the Department, makes determinations regarding tax-exempt status. The Department decided to use the preponderance of the evidence standard because it is a well-established standard in informal agency adjudications and it ensures decisions are based on reliable evidence, not speculative allegations. See e.g., Student Assistance General Provisions, 84 FR 49788 (Sept. 23, 2019). At the same time, the Department does not believe that it is appropriate to only rely on final judicial or administrative rulings before taking action. As discussed, the Department has significant interest in preserving taxpayer resources and preventing PSLF benefits from indirectly subsidizing employers who have a substantial illegal purpose. When the Department finds that an organization's activity is material enough that it has a substantial illegal purpose, we believe that it is the appropriate time to remove PSLF eligibility. Waiting until another entity acts would create unnecessary delays, cost taxpayers more, and make the Department captive to third parties who may or may not have an interest in protecting the Federal fiscal interest. Congress charged the Department with the responsibility to administer the PSLF program. Fully delegating the responsibility for program integrity to a third party and thereby relinquishing the Department's role in safeguarding that integrity would constitute an abdication of its statutory duty. The Department has amended the regulatory provisions under this section to provide clarity that the materiality of any illegal activity is weighed when considering whether an organization has a substantial illegal purpose. An illegal activity alone does not automatically mean an organization has a substantial illegal purpose.

Changes: Amended Sec. 685.219(h) to include clarifying language for the standard for determining a qualifying employer has a substantial illegal purpose to include the distinction of illegal activity and substantive illegal purpose.

Comments: Commenters raised the concern that legal standards vary widely across States, particularly in areas such as marijuana laws, reproductive health regulations, and immigration enforcement. They argued that, without a Federal baseline, an employer deemed lawful in one jurisdiction could be disqualified in another, leaving borrowers subject to arbitrary geographic disparities. Commenters asked the Department to establish uniform Federal standards or explicitly preempt conflicting State interpretations to ensure equitable treatment for borrowers nationwide.

Discussion: The Department recognizes that State laws differ and appropriately drafted the rule to account for variation across States. Organizations will not be penalized if their actions are legal in the State in which they are operating. Although uniform standards would make the adjudication process more streamlined, such standards would not account for the differences across States in our Nation's system of vertical federalism. At the same time, if the Secretary determines that an employer has engaged in activities such that it has a substantial illegal purpose due to illegal conduct in one or more States, the Department may remove eligibility for the entire organization. Where an employer is operating under the same employer identification number (E.I.N.), but a part of the organization is actually separate and distinct, this final rule gives the Department flexibility to divide the employer into separate organizations for the purposes of PSLF eligibility.

With respect to immigration law, the Department disagrees that there is wide variation in immigration law across the country. The Federal Government has broad powers to regulate immigration law, and the immigration laws are uniform on the national level. See e.g., DeCanas v. Bica, 424 U.S. 351, 354 (1976) (stating that the “[p]ower to regulate immigration is unquestionably exclusively a federal power”); Arizona v. United States, 567 U.S. 387, 394 (2012) (stating that “[t]he Government of the United States has broad, undoubted power over the subject of immigration and the status of aliens” and holding that several Arizona laws concerning immigration were invalid because they conflicted with Federal immigration laws or intruded on areas where Congress left no room for States to regulate).

Changes: None.

Comments: Many commenters argued that adjudicatory determinations must be accompanied by published standards, detailed explanations, and clear timelines. Commenters argued that, without these safeguards, PSLF eligibility decisions risk appearing arbitrary and may erode borrower confidence. Many commenters recommended that the Department provide written rationales for each disqualification decision and establish public-facing guidance that borrowers and employers can rely upon to anticipate outcomes.

Discussion: The Department agrees that transparency is essential. Borrowers and employers must know how decisions are made, what standards apply, and how to anticipate outcomes. This final rule requires written explanations for disqualification determinations, published standards, and clear timelines so the process is predictable, consistent, and accountable. By providing detailed rationales and public-facing guidance, the Department will ensure that determinations are not hidden, arbitrary, or influenced by politics. Borrowers will know their rights, employers will know their responsibilities, and taxpayers will know the PSLF program is administered with integrity. Transparency strengthens confidence and protects lawful public service.

Changes: None.

Comments: Commenters argued that PSLF determinations would inevitably reflect politics and that organizations could be punished for their views rather than unlawful conduct. They feared the Department could use this rule to target groups unpopular with those in power.

Discussion: The Department disagrees with commenters' argument. Under this final rule, PSLF employer eligibility determinations are based on objective, content-neutral evidence that an organization has engaged in illegal activities such that it has a substantial illegal purpose. All the activities included within the definition of substantial illegal purpose are explicit violations of either State or Federal law, and as such, are actions which inherently do not serve the public good. By basing the components of the definition of substantial illegal purpose on State and Federal law, this final rule protects borrowers from arbitrary or politically motivated disqualification. It safeguards taxpayer funds, improves confidence in the program and ensures PSLF provides benefits for only lawful public service.

Changes: None.

Process for Determining When a Qualifying Employer Engaged in Activities Such That It Has a Substantial Illegal Purpose (Sec. 685.219(i))

Comments: Commenters objected to the idea that an entire organization could be disqualified because of misconduct by a small unit or a few individuals. They argued that blanket determinations would unfairly harm borrowers serving in lawful roles who had nothing to do with the misconduct.

Discussion: The Department agrees that broad disqualification could be unfair in certain circumstances, especially when the underlying illegal activity is immaterial or minor, is a result of a rogue employee, or does not rise to a pattern or practice. If more than an insubstantial portion of an organization's conduct and activities are illegal; however, the Department considers that organization to no longer be a qualifying employer for the purpose of PSLF eligibility. And as such, it would be inappropriate to continue to provide PSLF benefits to employees of such an organization. Although isolated and immaterial acts, even if illegal, may not be sufficient to withdraw eligibility because of the reasons commenters identify, if such conduct becomes a substantial part of the organization, the organization ceases to provide a public service and, therefore, the conduct becomes sufficient for the Department to cease providing PSLF benefits. When weighing these instances of illegal conduct, the Department will weigh the frequency in which they have occurred and the seriousness of the offense. In some cases, where the illegal conduct is material and very serious, such as acts of terrorism, the Department may not need to see a pattern of behavior. One act of supporting terrorism may be sufficient to remove eligibility. On the other hand, if the organization has engaged in less serious violations, the Department may need to see a pattern and practice of consistent violations to find that the organization has engaged in activities such that it has a substantial illegal purpose. See I.R.S. Gen. Couns. Mem. 34631 (Oct. 4, 1971) (stating, as an example, that “[a] great many violations of local pollution regulations relating to a sizable percentage of an organization's operations would be required to disqualify it from 501(c)(3) exemption” but “if only .01% of its activities were directed to robbing banks, it would not be exempt”). Courts have upheld this approach in the context of the Internal Revenue Code, because they have recognized the common-sense principle

that if an organization is engaged in a substantial amount of criminal activity, it is not advancing a tax-exempt purpose. See e.g., Church of Scientology, 83 T.C. at 586(stating, in affirming the IRS's denial of tax-exempt status to an organization that had engaged in tax fraud, “[w]ere we to sustain petitioner's exemption, we would in effect be sanctioning petitioner's right to conspire to thwart the IRS at taxpayer's expense”). Here, the Department is taking a similar approach to ensure that only organizations that are providing a public service are qualifying employers. We reiterate that the process envisioned under Sec. 685.219(i) is for determining when an employer has a substantial illegal purpose for the purposes of PSLF. The process in Sec. 685.219(i) does not make a determination of the employer's tax status under the Internal Revenue Code.

Changes: None.

Comments: Commenters stated that terms like “substantial illegal purpose” are not sufficiently defined, leaving room for subjective interpretation. They warned this vagueness could open the door to excessive enforcement and uncertainty for nonprofits and public service organizations that operate in politically sensitive areas. Some urged the Department to narrowly define the term, limiting it only to cases where the organization's primary mission is unlawful activity.

Discussion: The Department rejects the idea that “substantial illegal purpose” is not sufficiently clear enough to be understood. Organizations that engage in illegal activity do not automatically have a substantial illegal purpose under this final rule. As explained above, the Department will weigh the seriousness of offenses and the frequency with which they occurred when determining if an organization engages in activities enumerated under paragraph (b)(30) such that it has a substantial illegal purpose for PSLF eligibility purposes. Even one instance of an organization supporting terrorism may be sufficient to make such a finding; however, for less serious offenses, the Department will look more generally to see if there is a pattern and practice of illegal behavior. The Department believes if more than an insubstantial amount of illegal conduct is occurring at an organization that it is no longer providing a public service, and its employees should no longer receive PSLF program benefits.

Changes: The Department made clarifying changes to the process for determining whether an organization has a substantial illegal purpose to make clear that the Secretary weighs evidence of illegal activity as described in paragraph (b)(30) to determine whether that illegal activity is so substantial that the organization has a substantial illegal purpose.

Comments: Many commenters pressed the Department to draw a clear distinction between an organization's unlawful activities and lawful work performed by its other units or employees. They argued that, absent this protection, borrowers could lose PSLF credit even if their service was in fully compliant divisions of a larger entity. Commenters emphasized that fairness requires shielding employees from organizational misconduct they neither directed nor participated in. Additionally, commenters mentioned that it was unclear how standards would apply to separate entities sharing the same E.I.N. or how partial disqualification would be managed to ensure that eligible employees were not negatively impacted.

Discussion: The Department agrees that for PSLF eligibility purposes that it may be appropriate for the Department to have unique identifiers, in certain circumstances, when separate and distinct entities share the same E.I.N., and are operated in a separate and distinct manner. Such unique identifiers will only be necessary if the Secretary determines that a qualifying employer has engaged in illegal activities such that it has a substantial illegal purpose. If multiple qualifying employers share the same E.I.N., the Department will determine the specific employer that is ineligible for PSLF and assign a unique identifier to that organization if the organization is operating separately and distinctly.

At the same time, the Department disagrees with commenters that a component's illegal actions cannot taint the entire organization. For example, an organization that supports terrorism, but also provides food to low-income individuals, likely has a substantial illegal purpose. Providing food to low-income individuals, as admirable as it may be, does not necessarily immunize the organization from its other illegal conduct. The Department acknowledges that this approach may mean that certain borrowers that work for organizations that have a substantial illegal purpose will become ineligible for PSLF, even in instances where the borrower is not engaged in illegal activity. However, the Department believes that its interest in protecting taxpayer resources from going to organizations that harm the public good because they have a substantial illegal purpose outweighs the interests of borrowers in these narrow circumstances.

Changes: None.

Comments: Many commenters pointed out that the proposed standard for PSLF eligibility does not clarify what level of involvement qualifies as “engagement” in illegal activity. Commenters feared this vagueness could allow ideological misuse, targeting organizations for political reasons rather than unlawful conduct.

Discussion: The Department disagrees with commenters' suggestion and criticism. The term “engage” in the context of the regulation means the organization is taking part in the activity. In other words, it refers to direct participation or purposeful involvement in unlawful conduct by the organization itself. See Engage: Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/engage. Accessed 7 Oct. 2025. Because this word is sufficiently clear in the context in which it is used, the Department does not think changes to the rule are needed to provide clear notice as to what conduct this final rule seeks to address.

Changes: None.

Comments: Several commenters suggested that it would be more practical for the Secretary to simply reject incomplete applications rather than treating a failure to certify as conclusive evidence for disqualification, as the risks and costs of the current proposal outweigh any administrative benefit.

Discussion: The Department agrees that it will reject individual incomplete applications where an employer fails to certify that it did not participate in activities that have a substantial illegal purpose. Operationally, the Department will reject an individual application if the section about the employer's certification that it did not engage in substantial illegal activities is omitted or missing. The Department, via the borrower, will provide the employer an opportunity to correct the application and provide the requested information. However, when an employer consistently fails or refuses to provide a certification on multiple applications, the Department may consider disqualifying the employer per the process outlined in Sec. 685.219(i).

Changes: None.

Regaining Eligibility as a Qualifying Employer (Sec. 685.219(j))

Comments: Several commenters argued that once an organization corrects unlawful practices or demonstrates compliance, it should

have a clear pathway to regain PSLF program eligibility. Without this option, they argued, employers could be permanently tainted, unfairly harming employees who continue to perform lawful public service. Commenters recommended corrective action plans, time-limited disqualifications, and procedures for reinstating borrower credit once eligibility is restored.

Discussion: The Department recognizes the importance of a clear pathway for employers to regain PSLF program eligibility once unlawful practices are corrected. The goal of this final rule is not permanent exclusion but to ensure that benefits from the PSLF program do not indirectly support employers who have engaged in certain illegal activities. Organizations that take corrective action, demonstrate compliance, and return to lawful operations should have the opportunity to be reinstated as an eligible employer. This final rule provides for 10-year time-limited disqualification and the possibility of restoration. The Department believes the temporal disqualification strikes the right balance and ensures that organizations can regain eligibility. In addition, if the Secretary approves a corrective action plan for the organization, it can regain eligibility on an expedited timeline. Organizations that want to avoid ineligibility altogether may suggest a corrective action plan to the Secretary in tandem with any submission under the employer reconsideration process.

Changes: None.

Comments: Commenters argued that borrowers and employers could face disqualification without adequate notice or the ability to contest decisions. Some acknowledged that prior qualifying payments would still count, but most said that safeguard alone was not enough.

Discussion: The Department disagrees that employers could face disqualification without adequate notice. This final rule requires employers receive notice and the opportunity to respond through the employer disqualification process. This process will ensure notice is provided in advance of any action to disqualify the employer from the PSLF program. Borrowers will be notified directly if they are working for an employer who is no longer eligible because the Department has determined that the organization has a substantial illegal purpose. In addition, the Department will post this information on its website to inform the public. In addition, borrowers will retain credit for all qualifying payments made before an employer's status changes. This protection shields workers from any harm prior to a determination of employer ineligibility being made by the Secretary.

Changes: None.

Borrower Notification of Regained Eligibility (Sec. 685.219(k))

Comments: Commenters strongly supported requiring the Department to notify borrowers right away when an employer's eligibility changes. They stressed that, without timely notice, borrowers could be blindsided, undermining trust in the PSLF program and causing serious financial harm.

Discussion: The Department agrees. Timely notification is not optional, it is essential. This final rule requires prompt notice so borrowers know immediately when their employer's eligibility status changes.

Changes: None.

Comments: Many commenters questioned whether loan servicers currently have the expertise and staffing to administer this rule accurately. They pointed to past problems with inconsistent guidance, long call center delays, and errors in processing borrower accounts. Some commenters argued that, without significant investments in servicer training and oversight, the new rules could worsen confusion and lead to wrongful denials. Others emphasized that servicers should receive standardized guidance and be held accountable for ensuring determinations are applied uniformly.

Discussion: The Department acknowledges that servicers have faced challenges in administering certain aspects of the PSLF program in the past. However, the Department does not believe that its servicers will be unable to carry out new responsibilities under this final rule, given the limited scope of those responsibilities. The Department expects that it will only take action to remove PSLF program eligibility for less than ten employers per year. Servicers will have the ability to handle that volume of employer eligibility changes. The Department's Office of Federal Student Aid will ensure that its staff, who handle eligibility determinations, and its servicers, who handle processing, will be trained, monitored, and held accountable for accuracy.

Changes: None.

Comments: Commenters highlighted concerns that the additional layers of review and determination introduced by the rule could cause lengthy delays in processing applications, reconsiderations, and employer status updates. Commenters worried that they might be left in limbo for months or even years, undermining the value of the PSLF program as a dependable benefit. Some recommended the Department set strict timelines and performance metrics for application and employment certification form processing to prevent backlogs from eroding confidence in the program.

Discussion: The Department rejects the notion that this final rule creates unnecessary delays. The Department is creating internal performance expectations and oversight mechanisms so that applications, reconsiderations, and employer determinations move as quickly and predictably as possible. As explained previously, some reviews for substantial illegal activity will be straightforward and will be quickly processed, while other matters may be more complex and will need several layers of review before an informed decision can be reached. As such, the Department is unable to commit to specific timelines for different parts of the adjudicatory process. At the same time, qualifying employers and their employees will remain eligible to participate in the PSLF program throughout the review process. Only after the Secretary has determined that an organization has engaged in activities such that it has a substantial illegal purpose will borrowers no longer receive monthly PSLF credit for payments made.

Changes: None.

Comments: Commenters stressed that PSLF must be administered consistently regardless of which servicer handles a borrower's loans. They noted that inconsistent application of standards has been a long- standing problem, with some servicers approving payments or employers that others reject. Commenters urged the Department to adopt uniform servicing protocols, detailed written guidance, and stronger oversight mechanisms to ensure equal treatment across the program.

Discussion: The Department agrees that the PSLF program, including regulations under this final rule, must be administered uniformly. Through its ongoing oversight mechanisms, the Department will ensure that both Department staff and vendors adhere to consistent protocols, written guidance, and oversight standards. Borrowers deserve equal treatment, and taxpayers deserve confidence that the PSLF program is administered consistently and fairly.

Changes: None.

Comments: Commenters asked for more detail on how the rule will be implemented, including why certain organizations are excluded and how determinations will be documented. They said clearer terms would give borrowers and employers greater predictability and confidence.

Discussion: The Department agrees that clarity is essential. This final rule establishes the overarching regulatory framework, and the Department will continue to provide additional information, such as through guidance documents, as necessary to ensure that borrowers and employers understand how eligibility standards are applied. This approach promotes consistency, fairness, and transparency in all determinations. By doing so, the Department strengthens trust in the program, protects borrowers, and safeguards taxpayer interests. It ensures that the PSLF program operates under clear rules, with neutral enforcement, and strong accountability.

Changes: None.

Comment: A commenter asserted that the final rule failed to address scenarios where a State law changed after a qualifying employer was found to have violated that State law and that violation of State law was used as evidence by the Secretary to determine that an employer has a substantial illegal purpose. The commenter believed that in such cases an employer's eligibility for PSLF should be restored, payments made by borrowers during the period when the employer was disqualified from PSLF should be credited toward PSLF, and the Department should be required to initiate a new process for determining when an employer should be disqualified.

Discussion: The Department disagrees with the commenter. Changes to State law do not change the underlying issue that the organization's action were illegal at the time the action was taken. The Department's rule is designed, in part, to deter organizations from engaging in unlawful behavior by creating additional adverse consequences for engaging in that conduct. Consequences that flow from engaging in illegal activity are not automatically nullified if the underlying law is modified, and the Department thinks it would be inappropriate to alter the consequences for that illegal activity automatically here. The final rule provides disqualified employers with a streamlined pathway to regain eligibility as a qualifying employer for PSLF in section 685.219(j). Under that section, the employer has an opportunity to certify that it is no longer engaging in illegal activities under this final rule, and to provide evidence acceptable to the Secretary to support the compliance certification.

Changes: None.

Executive Orders 12866, 13563, and 14192

Under Executive Order 12866, the Office of Management and Budget (OMB) must determine whether this regulatory action is “significant” as defined by that Executive Order and, therefore, subject to the requirements of the Executive Order and subject to review by OMB. Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may:

(1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities;

(2) Create serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impacts of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The Department estimates the net budgetary impacts to be -$1.616 billion from reductions in transfers from the Federal Government to borrowers who no longer receive credit toward loan forgiveness under PSLF. Quantified economic impacts include annualized transfers of -$179 million at 3 percent discounting and -$191 million at 7 percent discounting, and annual quantified costs of $0.3 to $0.4 million related to compliance costs and administrative updates to government systems. Additionally, the Department expects to allocate a portion of current full-time equivalent employment (FTE) to support the systems, compliance, and oversight functions of this final rule on a continuing basis. The Department estimates that a total of 10 FTEs will be allocated annually on an ongoing basis to systems, compliance, and oversight activities associated with this final rule, with a possible reduction in later outyears as noncompliant employers are disqualified and the expected deterrent effects of the final rule are realized. It is also important to note that given that the average PSLF loan forgiveness payment amount to date, as shown in Table 5.4, is $75,900 per borrower, such a shift of current staff resources from performing lower value activities to preventing and deterring improper payments in the PSLF program is likely to result in lower overall net costs of these staff resources than without the final rule. Therefore, based on these estimates, the Office of Information and Regulatory Affairs (OIRA) has determined that this final action is “economically significant” under section 3(f)(1) and subject to OMB review under section 6(a)(3) of Executive Order 12866.

We have also reviewed these regulations under Executive Order 13563, which supplements and explicitly reaffirms the principles, structures, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, Executive Order 13563 requires an agency to:

(1) Propose or adopt regulations only on a reasoned determination that their benefits justify their costs (recognizing that some benefits and costs are difficult to quantify);

(2) Tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives and considering, among other things and to the extent practicable, the costs of cumulative regulations;

(3) Choose among alternative regulatory approaches and select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity);

(4) To the extent feasible, specify performance objectives rather than the behavior or manner of compliance a regulated entity must adopt; and

(5) Identify and assess available alternatives to direct regulation, including economic incentives, such as user fees or marketable permits, to encourage the desired behavior, or provide information that enables the public to make choices.

Executive Order 13563 also requires an agency “to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” OIRA has emphasized that these techniques may include “identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes.”

The Department finds that the benefits of this final rule outweigh and will justify their costs. In choosing

among alternative regulatory approaches, we selected those approaches that maximize net benefits. In this RIA, we discussed the need for regulatory action, potential costs and benefits, net budget impacts, and the regulatory alternatives we considered.

Elsewhere in this section under the Paperwork Reduction Act, we identify and explain burdens specifically associated with information collection requirements.

President Trump's Executive Order on Unleashing Prosperity Through Deregulation, Executive Order 14192 (Jan. 31, 2025) directs Federal agencies to manage and reduce regulatory costs while promoting economic growth. It emphasizes reviewing existing regulations and minimizing unnecessary burdens on the public. This rule is not an Executive Order 14192 regulatory action because it does not impose any more than de minimis regulatory costs. 1. Major Rule Designation

Pursuant to Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996, also known as the Congressional Review Act (5 U.S.C. 801 et seq.), OIRA designated this rule as a “major rule,” as defined by 5 U.S.C. 804(2). 2. Need for Regulatory Action

The Department has identified a critical and urgent need for targeted regulatory reform within the PSLF program. The PSLF program, established to encourage public service careers by offering loan forgiveness to eligible borrowers, has faced several operational challenges, eligibility concerns, and administrative burdens that undermine its effectiveness. Despite the program's intent, the current regulatory framework does not restrict eligibility if an organization has a substantial illegal purpose unless the organization ceases to qualify for another reason, such as having its tax-exempt status revoked by the IRS. As a result, the Department is currently indirectly subsidizing employers who are not engaged in public service because they are engaged in illegal activity and have no independent mechanism to remove such employers from the program.

In response to these challenges, the Department implements targeted regulatory changes designed to strengthen the program's integrity by limiting benefits to borrowers employed by organizations that meet the established public service criteria, including working for employers who perform a public good. This final rule refines the requirements for qualifying employers and makes certain that PSLF benefits are distributed only to those working for organizations that provide a public service, aligned with the goals of the HEA and consistent with the intent of Congress. 3. Summary

Table 3.1--Summary of Key Changes in the Final Regulations

Description of

Provision Regulatory section proposed provision

Public Service Loan Forgiveness

Definitions................. Sec. 685.219(b)... Will add definitions

of “aiding or

abetting”;

“chemical

castration or

mutilation”;

“child or

children”;

“foreign terrorist

organizations”;

“illegal

discrimination”;

“other Federal

immigration laws”;

“substantial

illegal purpose”;

“surgical

castration or

mutilation”;

“terrorism”;

“trafficking”;

“violating State

law”; and

“violence for the

purpose of

obstructing or

influencing Federal

Government

policy”. Will

revise the

definition of

“qualifying

employer”. Borrower Eligibility........ Sec. 685.219(c)... Will exclude from a

credit as a

qualifying payment

any month where ED

has determined that

a qualifying

employer engaged in

activities such

that it has a

substantial illegal

purpose. Application Process......... Sec. 685.219(e)... Will create a

borrower

notification of

employers that are

at risk of or have

lost PSLF

qualifying status. Borrower reconsideration Sec. 685.219(g)... Will prohibit a

process. borrower from

requesting

reconsideration if

their employer lost

eligibility due to

engaging in

activity such that

it has a

substantial illegal

purpose. Standard for determining Sec. 685.219(h)... Will create a

whether a qualifying standard by which

employer has a substantial the Secretary

illegal purpose. determines that the

qualifying employer

has a substantial

illegal purpose,

including but not

limited to

reviewing the

preponderance of

the evidence and

basing decisions on

materiality of the

activities that

have a substantial

illegal purpose.

Also, it will

provide the

employer an

opportunity to

respond except in

cases where there

is conclusive

evidence (see

discussion or

regulatory language

for more

information) that

the employer

engages in

activities such

that it has a

substantial illegal

purpose. Process for determining when Sec. 685.219(i)... Will establish that

a qualifying employer the Secretary

engaged in activities such determines that a

that it has a substantial qualifying employer

illegal purpose. has a substantial

illegal purpose

when the Secretary

receives that self-

certified

information on the

Public Service Loan

Forgiveness

Certification and

Application (PSLF

Form) or makes his

or her own

determination,

unless a corrective

action plan is

submitted prior to

issuance of the

determination. Will

also note the

Secretary's

authority to

separate entities

operating under one

identification

number. Regaining eligibility....... Sec. 685.219(j)... Will allow a

qualifying employer

to regain

eligibility after

ten years from the

date the Secretary

determines it has a

substantial illegal

purpose or when the

Secretary approves

a corrective action

plan signed by the

employer. Borrower notification....... Sec. 685.219(k)... Will require the

Secretary to update

the qualifying

employer list

within 30 days if

an employer regains

lost eligibility.

The PSLF program is a component of Federal student loan policy that provides benefits to individuals who enter and continue in public service employment by offering cancellation of remaining Direct student loan balance(s) after 120 qualifying monthly payments and at least 10 years of full-time employment in qualified public service jobs, which are both required under the PSLF program. However, over time, the

program has faced challenges, including the disbursement of benefits to borrowers employed by organizations whose activities do not align with the program's public service objectives. To address these issues, the Department proposed a series of regulatory changes through the negotiated rulemaking process. These final regulations aim to strengthen the program's integrity, improve its efficiency, and ensure that taxpayer funds are allocated appropriately. Although these changes are expected to generate certain costs, the long-term benefits are substantial, making the program more effective, transparent, and accountable. Below is an analysis of both the costs and benefits of these regulations.

Costs of the Regulatory Changes:

The Department acknowledges that implementing the regulations will generate costs. These costs primarily fall into three categories: Department administrative costs, compliance costs for employers, and potential disruptions for borrowers. However, these costs must be viewed in the context of the long-term benefits that the regulations will provide.

One of the immediate costs associated with these regulatory changes will be the need for the Department to update its systems, train staff and vendors, and implement new compliance and monitoring processes. The Department will also need to enhance communication systems to notify employers and borrowers of any changes to a qualifying employer's status in the PSLF program. These changes will require new costs for minor system changes and for changes and increases in customer service activities.

Initial estimates suggest that the administrative costs for the Department will range from $1.5 million to $3 million annually during the first two years of implementation. These funds, from appropriated Student Aid Administration account funds, will be used to ensure that the Department can effectively manage the new employer eligibility determination process, update systems, and conduct necessary training for staff and stakeholders. Also, as noted earlier, on a continuing basis the Department estimates that a total of 10 FTEs will be allocated annually, with a possible reduction in later outyears as noncompliant employers are disqualified and the expected deterrent effects of the final rule are realized.

In general, the Department believes that most employers will already be complying with the requirements of the rule because the employers already have an existing obligation to follow the law. Some employers may need to make changes to ensure that they follow the law and meet the new eligibility criteria under the regulations if they want to participate in the PSLF program. This will involve reviewing their activities to ensure they are not engaged in any actions that will disqualify them from participating in the PSLF program. For some employers who are not currently following the law, especially smaller organizations or those with limited resources, this process may necessitate consultation with legal counsel or operational adjustments.

Compliance costs for employers are expected to vary by organization, depending on the organization's size and complexity. Larger organizations, such as hospitals or universities, who are not currently complying with the law may incur higher costs as they assess their practices and make any necessary changes to align with this final rule. These costs primarily result from the costs of legal counsel, restructuring efforts, and changes to the organization's documentation processes. At the same time, many organizations are accustomed to attesting to the fact that they are not violating Federal and State law as a condition to participate in other government or non-governmental programs. In circumstances like these, organizations may not need to exert any additional effort, or at most will need to dedicate a de minimis amount of additional resources, in order to comply under this final rule. Rather, such organizations will rely on their existing compliance efforts to comply with the rule.

The most significant impacts on borrowers may stem from potential misunderstandings of the final rule that may lead to borrower confusion that delays application of the forgiveness benefit. Borrowers who are employed by organizations disqualified under the new rule will no longer be eligible to receive credit toward loan forgiveness while working for that employer, except in certain circumstances described in the rule. These borrowers would need to transition to qualifying employers to continue receiving credit for their payments. Borrowers who misunderstand the new rule may apply for forgiveness without knowing or understanding the implications of this final rule on their former or current employer, as they may no longer be a qualifying employer.

Benefits of the Regulatory Changes:

Despite the initial and ongoing costs, the long-term benefits of this final rule include increased integrity and long-term savings for taxpayers. The most significant benefit of the regulations is the improvement in the integrity of the PSLF program. By excluding employers engaged in illegal activities such that they have a substantial illegal purpose from the program, the Department affirms taxpayer dollars are only used to support borrowers working for organizations that are engaged in lawful public service. This change will directly address concerns about improper disbursements and misuse of Federal funds. This change also addresses concerns that the Department is indirectly subsidizing illegal activities that the Federal Government broadly aims to prevent.

The PSLF program provides generous benefits to individuals in public service, and these changes will improve the integrity of the program. By revising the PSLF program regulations to only reward service with organizations engaged in lawful activities, the Department expects to achieve substantial savings, as presented in the budget impacts of this final rule.

One of the most important benefits of the regulations is the long- term savings they will generate for taxpayers. By eliminating improper payments, the Department estimates that these regulations will save taxpayers $1.616 billion over the next ten years, resulting from a reduction in PSLF tied to illegal activity. The expected reduction in disbursements will ensure that taxpayer dollars are spent more efficiently and effectively because the benefits borrowers receive are not indirectly supporting organizations engaged in activities such that it has a substantial illegal purpose.

The regulatory changes for the PSLF program aim to enhance the program's integrity and transparency. The regulations will help reduce improper payments and ensure that the program supports individuals employed by eligible organizations that genuinely provide a public service. With these changes, the PSLF program will be more accountable and transparent. 5. Net Budget Impact

Table 5.1 provides an estimate of the net Federal budgetary impact of these regulations that are summarized in Table 3.1 of this RIA. This includes both the effects of a modification to existing loan cohorts and costs for loan cohorts from 2026 to 2035. A cohort reflects all loans originated in a given fiscal year. Consistent with the requirements of the Credit Reform Act of 1990, budget cost estimates for the student loan programs reflect the estimated net present value of all future non-administrative Federal costs associated with a cohort of loans. The approach to estimating the net

budget impact of these final regulations did not change from the NPRM. The primary change in the scores for the final rule is that the baseline for estimating the cost of this final rule is the President's Budget for 2026 (PB2026) as modified for the One Big Beautiful Bill Act, Public Law 119-21, 139 Stat. 72 signed into law on July 4, 2025. As it relates to the estimated impacts of this final rule to PSLF transfers, the most important change is the introduction of the Repayment Assistance Plan (RAP) and changes to eligibility for existing income-driven repayment (IDR) plans.

Table 5.1--Estimated Budget Impact of the Final Rule

[$ in millions]

Modification

Section Description score (1994- Outyear score Total (1994-

2025) (2026-2035) 2035)

Sec. 685.219(h)..................... Amended definition of -$842 -$774 -$1,616

qualifying employer.

This final rule defines several terms related to qualifying employment for PSLF and amends the definition of a qualified employer to exclude organizations that engage in activities such that it has a substantial illegal purpose. This is consistent with President's Trump's Executive Order, Restoring Public Service Loan Forgiveness, Executive Order 14235 (Mar. 7, 2025). Pursuant to subsection 685.219(h), the Secretary will determine based on a preponderance of the evidence, and after notice and opportunity to respond, whether employers have engaged in activities enumerated in paragraph (b)(30) of the final rule on or after July 1, 2026, such it has a substantial illegal purpose. The Department will presume that any of the following is conclusive evidence that the employer engaged in activities enumerated in paragraph (b)(30) on or after July 1, 2026:

1. A final judgment by a State or Federal court, whereby the employer is found to have engaged in activities that have a substantial illegal purpose;

2. A plea of guilty or nolo contendere, whereby the employer admits to having engaged in activities that have substantial illegal purpose or pleads nolo contendere to allegations that the employer engaged in activities that have substantial illegal purpose; or

3. A settlement that includes admission by the employer that it engaged in activities that have a substantial illegal purpose.

Employer qualification will be linked to the E.I.N. used for reporting to the IRS, therefore, employees in one area or agency may be affected by the activities of employees in other organizations under the same E.I.N. Government agencies may have many service areas under a single E.I.N.

The PSLF application data includes variables that distinguish non- profit employers and government employers, as well as the level of government employers. Table 5.2 summarizes the split between all borrowers who have received PSLF in the Department's data as of September 25, 2025, whose greatest time in qualifying employment was with government or non-profit organizations.

Table 5.2--Number of Borrowers Receiving PSLF and Average Forgiveness by Employment Sector

Number of borrowers who

Employment sector have received Average forgiveness

forgiveness amount

Government.................................................... 694,900 $73,100 Nonprofit..................................................... 305,500 82,200

Total..................................................... 1,000,400 75,900

Note: The total number of borrowers whose loans were forgiven may be less than most recent Department estimates

due to timing, data availability, and data cleaning. Borrowers are sorted into the sector with the maximum

time working toward forgiveness. The number of borrowers and average forgiveness amounts are rounded to the

nearest hundred. The total represents the weighted average of the number of borrowers and average forgiveness

amount across all borrowers who received PSLF through September of 2025. Totals are rounded to the nearest

hundred of the employment sectors and may not equal the total due to rounding. Data extracted September 25,

2025, and represents all borrowers who have received PSLF forgiveness up until that date.

Table 5.3 splits the government category into Federal, State, and local levels. We assume that Federal agencies will comply with the law and do not expect a reduction in forgiveness for Federal employees.

Table 5.3--Number of Borrowers Receiving PSLF and Average Forgiveness by

Government Subsector

Number of

borrowers who have Average

Government subsector received forgiveness amount

forgiveness

Federal Government.............. 100,400........... $72,000 Local government................ 425,500........... 71,200 State government................ 166,600........... 78,600 Unknown......................... 2,400............. 75,300

Total....................... 694,900........... 73,100

Note: The total number of borrowers who have received forgiveness may be

less than most recent Department estimates due to timing, data

availability, and data cleaning. Borrowers are sorted into the sector

with the maximum time working toward forgiveness. The number of

borrowers and average forgiveness amounts are rounded to the nearest

hundred. The total represents the weighted average of the number of

borrowers and average forgiveness amount across all borrowers who

received PSLF through September of 2025. Totals are rounded to the

nearest hundred of the employment sectors and may not equal the total

due to rounding. Data extracted September 25, 2025, and represents all

borrowers who have received PSLF forgiveness up until that date.

Based on the activities identified in this final rule, it is likely that organizations in some fields are more likely to be affected than others, either by loss of eligibility, the deterrent effect on their activities, difficulty recruiting employees, or by their employees not being granted PSLF forgiveness and seeking alternate employment. Regardless of the type of employer, service areas that could be most affected by the regulation include, but are not limited to, legal services, governance, social work, healthcare, K-12 education, and higher education. Existing data on employers of borrowers who received forgiveness does not include a service category and employer names do not always indicate what an organization does, but the Department analyzed this data to estimate what share of borrowers who have achieved forgiveness fall into certain service areas and their average forgiveness.\8\ This was done by matching keywords from various subsectors to employer names. For example, for healthcare, the keywords included “hospital,” “health,” “medical,” and “clinic”.

\8\ Turner, J., Blanchard, K., & Darolia, R. (2025, January). Where Do Borrowers Who Benefit from Public Service Loan Forgiveness Work? NEA. https://www.nea.org/sites/default/files/2025-03/where-do-borrowers-who-benefit-from-pslf-work.pdf.

A portion of employers cannot be classified because some employer names give no indication to their service area, contain misspellings, or have names that do not contain any of the keywords matched. These E.I.N.s are categorized as “Other”. Approximately 91 percent of borrowers who have received PSLF were categorized into a subsector category, leaving 9 percent in the “Other” category. In this analysis, we assume that the distribution of borrowers and subsectors in the future will reflect that of those who have received forgiveness. Table 5.4 summarizes the results by service area.

Table 5.4--Number of Borrowers Receiving PSLF and Average Forgiveness by Employment Subsector

Number of borrowers who

Employment subsector have received Average forgiveness

forgiveness amount

Agriculture................................................... 3,400 $64,600 Arts.......................................................... 2,900 62,200 Early Childhood............................................... 1,500 63,000 Environmental................................................. 2,700 61,400 Fire Rescue................................................... 1,200 52,800 Governance.................................................... 161,000 67,200 Healthcare.................................................... 163,900 89,400 Higher Education.............................................. 108,200 84,500 International................................................. 1,300 74,900 K-12 Education................................................ 303,500 72,500 Law Enforcement............................................... 20,500 66,400 Legal......................................................... 14,100 109,200 Military...................................................... 49,900 70,200 Other......................................................... 84,900 72,300 Philanthropy.................................................. 5,500 74,300 Religious..................................................... 14,400 69,600 Research...................................................... 1,600 65,600 Social Services............................................... 48,600 75,400 Transportation................................................ 5,700 61,500 Utilities & Infrastructure.................................... 2,500 60,500 Workforce & Labor............................................. 3,000 80,400

Total..................................................... 1,000,400 75,900

Note: The total number of borrowers who have received forgiveness may be less than most recent Department

estimates due to timing, data availability, and data cleaning. Borrowers are sorted into the sector with the

maximum time working toward forgiveness. The number of borrowers and average forgiveness amounts are rounded

to the nearest hundred. The total represents the weighted average of the number of borrowers and average

forgiveness amount across all borrowers who received PSLF through September of 2025. Totals are rounded to the

nearest hundred of the employment sectors and may not equal the total due to rounding. Data extracted

September 25, 2025, and represents all borrowers who have received PSLF forgiveness up until that date.

As we expect most employers to certify that they do not engage in activities with a substantially illegal purpose, the information in Table 5.4 informed our estimates of potential reductions in qualifying employers for PSLF but does not directly translate to the percentage of borrowers assigned to achieve forgiveness in our assumptions for the regulation. We also recognize that employers in other employment subsectors could engage in an activity that results in a loss of eligibility but estimate that these will be anomalies or very small percentages. Therefore, we have included a percentage for all other categories, and some sensitivity runs that are described in the Methodology for Budgetary Impact section of this analysis. Methodology for Budgetary Impact

The Department estimated the budgetary impact of the provisions in this final rule through changes to the PSLF assignment within the Department's IDR assumption. PSLF is randomly assigned to borrowers in our IDR model sample based on percentages that vary by the cohort range in which they enter repayment and highest education level as presented in Table 5.5.

Table 5.5--Change in Assignment of PSLF for Final Rule

Percentage of borrowers assigned PSLF

Enter repayment cohort range 2-Year (%) 4-Year (%) Graduate (%)

PB2026 Baseline Scenario

2016 to 2020.................................................... 10.46 18.05 21.96 2021 and later.................................................. 14.65 28.88 30.74

Final Regulatory Scenario

2016 to 2020.................................................... 10.25 17.69 21.52 2021 and later.................................................. 14.35 28.30 30.13

Alternate Regulatory Scenario

2016 to 2020.................................................... 9.83 16.96 20.64 2021 and later.................................................. 13.77 27.14 28.90

We expect the regulations to have a deterrent effect, reducing the likelihood of qualifying employers engaging in illegal activities. Additionally, borrowers have the option of shifting employers to complete their 120 months of qualifying payments. Therefore, we do not expect a large reduction in borrowers achieving PSLF forgiveness, although savings of $1.6 billion over ten years is significant. We have not increased the effect for future cohorts of loans because, while potential ineligibility starts with July 1, 2026, the effective date of this final rule, employers' ability to appeal and get reinstated and employees' ability to shift positions means the pattern is not necessarily a continued increase in ineligibility.

The changes made in Table 5.5 were derived from applying reductions between 0-5 percent to the employment subsectors identified in Table 5.4 as being most likely to be affected by the regulation (legal, healthcare, social work, higher education, K-12 education, and governance). This results in an estimated total reduction of approximately 0-2 percent.

As explained in the Paperwork Reduction Act section, the Department believes that there will be fewer than ten employers affected annually. Within the universe of borrowers who have received forgiveness, approximately 6 percent were employed for their longest time toward forgiveness in the top ten E.I.N.s by forgiven borrower count, excluding Federal employers who are assumed to comply. Therefore, we also ran an alternate high-impact sensitivity that changed the reductions up to 6 percent, see “PSLF Alternate” in Table 5.6.

The combined effect of the changes to the percentages in Table 5.5 reduces the number of borrowers achieving PSLF in our IDR assumption and results in the cost savings presented in Table 5.6.

Table 5.6--Net Budget Impact of Changes to PSLF

$ mns PSLF primary PSLF alternate

Modification...................... -$842 -$2,326 Outlays for Cohorts 2026-2035..... -774 -2,220

Total......................... -1,616 -4,546

Accounting Statement:

As required by OMB Circular A-4, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of these regulations. Table 5.7 provides our best estimate of the changes in annual monetized transfers that may result from these regulations. Expenditures are classified as transfers from the Federal Government to affected student loan borrowers.

Table 5.7--Accounting Statement: Classification of Estimated

Expenditures

[In millions]

In the interest of ensuring that these final regulations produce the best possible outcome, we considered a broad range of proposals from internal sources as well as from non-Federal negotiators and members of the public as part of the negotiated rulemaking process. However, the ideas presented during negotiated rulemaking largely mirrored the suggestions that the Department received in public comments. As discussed throughout the preamble and accompanying the discussion of each proposed regulatory provision, the Department believes the final rule will prevent taxpayer-funded PSLF benefits from being improperly provided to individuals who are employed by organizations that engage in activities such that it has a substantial illegal purpose, improve the integrity of the PSLF program, and provide protection for taxpayers.

Among some of the key themes discussed was the establishment of standards anchored in objective, evidenced-based findings. This final rule clarifies definitions of qualifying employers and provides a clear standard of determination. This rule makes clear that employer disqualification requires the Department to find that an employer has engaged in activities such that they have a substantial illegal purpose by a preponderance of the evidence after weighing the employer's illegal conduct, narrowly focusing on only the illegal conduct enumerated in the rule. Commenters also sought to broaden or clarify which entities qualify as “public service organizations”, particularly in edge cases such as nonprofit contractors, hybrid organizations, and religious nonprofits. The Department has carefully considered these requests but remains bound by the statutory language defining a “public service organization”. The Department believes this final rule preserves flexibility to recognize a wide range of nonprofit and governmental employers while ensuring that the core purposes of the PSLF program are preserved. 7. Regulatory Flexibility Act

The Secretary certifies, under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), that this final regulatory action will not have a significant economic impact on a substantial number of “small entities.” For the purposes of this certification, the Department of Education defines small entities to include: (1) nonprofit organizations that are independently owned and operated and not dominant in their field, as defined in 5 U.S.C. 601(4); and (2) local educational agencies (LEAs), school districts, or local governments serving populations of fewer than 50,000, consistent with 5 U.S.C. 601(5). For-profit companies, of any size, are not eligible as qualifying employers under PSLF, and therefore small businesses are not included here as small entities.

This regulatory action does not impose new reporting requirements or compliance burdens on these entities. Any potential effects are minimal, indirect, or result from voluntary participation in a Federal program. Therefore, the Department concludes that this rule will not have a significant economic impact on a substantial number of small entities, in accordance with 5 U.S.C. 605(b).

These regulations are focused on arrangements between the borrower and the Department. As noted in the Paperwork Reduction Act section, the burden related to the final regulations will be assessed in a separate information collection process. 8. Analysis of Public Comments and Changes

Comments: Several commenters expressed concern that the Department's RIA did not adequately account for the administrative and compliance costs borne by nonprofit organizations, hospitals, schools, and government employers involved in certifying employment for PSLF.

Commenters, including Counsel for Justice and Candidly, asserted that the Department's cost estimates ($1.5-3 million) underestimate the true burden of annual employment verification, staff training, and data management. They further suggested that the Department's approach diverges from prior economic analyses and omits recurring employer costs. Two anonymous commenters referenced specific sections of the RIA (Discussion of Costs and Benefits and Methodology for Budgetary Impact) to argue that the Department provided insufficient empirical support for its assumptions and did not identify data sources or methodologies to substantiate employer compliance estimates.

Discussion: The Department disagrees. The RIA provides reasonable and appropriate cost estimates. Although some employers may need to make administrative adjustments, those costs are outweighed by the benefits strengthening integrity and transparency that protects borrowers and safeguards taxpayer investment. This rule delivers certainty and strengthens oversight within the PSLF program. The Department is committed to fair implementation that protects both the public servants who rely on PSLF and the taxpayers who fund it.

Following the discussion of costs to borrowers and the Federal Government, the Department also considered potential administrative and compliance costs that may be incurred by employers participating in the PSLF program.

Several commenters asserted that the Department's analysis did not fully account for the administrative and compliance costs that nonprofit organizations, hospitals, schools, and government employers may face in assisting borrowers with PSLF employment certification. Commenters referenced the Discussion of Costs and Benefits and Methodology for Budgetary Impact sections of the proposed rule and suggested that the Department's estimated costs ($1.5-3 million) understated the true administrative workload associated with employment verification and recordkeeping. In response, the Department carefully reviewed the assumptions underlying its cost estimates and continues to find them reasonable and consistent with both prior rulemakings and current operational practices. The Department's methodology incorporates existing reporting obligations and employer processes already used to certify employment under PSLF and therefore reflects only incremental administrative costs directly attributable to this rule. Although commenters expressed general concern regarding compliance burdens, the Department did not receive quantitative data or supporting documentation sufficient to revise its estimates.

The Department concludes that any incremental employer burden associated with this final rule is expected to be minimal and does not represent a significant economic impact on small entities or affected sectors. As a result, no changes have been made to the RIA based on these comments.

Changes: None.

Comments: A recurring theme was concern that additional administrative burden and uncertainty may deter professionals from entering or remaining in public service roles. Commenters stressed that PSLF was designed to attract and retain public service workers, and that overly complex or costly rules could undermine this purpose.

Discussion: The Department does not agree with this claim. This final rule strengthens the PSLF program by clarifying eligibility standards and improving transparency so that borrowers and employers understand how the program is administered. These improvements give public service professionals greater confidence to remain in qualifying employment. The PSLF program must be reliable. Borrowers need certainty, and taxpayers require accountability. This rule supports both by keeping the program focused on rewarding lawful public service, consistent with the statute.

Changes: None.

Comments: A smaller number of commenters noted broader ripple effects if participation in PSLF declines. They suggested that reduced forgiveness would leave borrowers with higher debt burdens and less disposable income, limiting their ability to purchase homes, invest locally, or support their communities. Others argued that attrition in public service roles could weaken schools, healthcare providers, and local governments.

Discussion: The Department does not agree with the assertion that this rule will have a significant adverse impact on the economy. Rather, the rule enhances the PSLF program by restoring clarity and consistency in its administration. Borrowers will gain increased confidence in the program, which supports long-term participation in public service employment. This stability helps retain skilled professionals in critical service roles and ensures that PSLF benefits continue to reach those engaged in lawful public service. The rule advances the Department's goal of ensuring responsible use of taxpayer funds.

Changes: None.

Comments: Commenters highlighted that small nonprofits, community health centers, and local government units lack the infrastructure to absorb compliance costs at the same level as large institutions. They argued that the Department's cost analysis treated all employers uniformly, failing to recognize the disproportionate impact on small entities that operate with limited budgets and staff. These groups feared that compliance requirements could force them to reduce services or reconsider participation in the PSLF program altogether.

Discussion: The Department acknowledges that small nonprofits, community health centers, and local government units often operate with limited budgets and have a difficult time with regulatory compliance. However, the Department rejects the claim that this rule imposes disproportionate burdens as the rule does not add new legal requirements. Rather, the rule creates new consequences for failing to abide by existing law. The RIA already accounts for compliance adjustments across a wide range of employer types, and the requirements are narrowly tailored to ensure accountability without excessive paperwork. This rule does not create unnecessary red tape. It creates clarity, consistency, and fairness so borrowers know that only public service will be counted to ensure that taxpayer resources are protected. Accountability applies to all entities receiving the benefit of Federal loan forgiveness.

Changes: None.

Comments: Some commenters argued that beyond administrative costs, the Department did not fully consider how compliance demands could reduce organizational capacity to deliver essential services. For example, schools and hospitals could be forced to reallocate staff from direct service roles to compliance functions, potentially reducing classroom instruction or patient care. Commenters warned that these indirect costs may be more damaging than direct compliance expenses.

Discussion: The Department acknowledges that some organizations that are breaking the law will need to significantly change their existing compliance practices if they want to come into compliance with the rule. However, even in those circumstances, the Department does not believe that compliance requirements will weaken schools, hospitals, or other public service employers. If these organizations are not following the law, they have an independent reason outside of the PSLF program to spend necessary funds to stop violating the law. This final rule is designed to strengthen confidence in the PSLF program, not siphon resources away from public service providers. This rule's administrative safeguards are straightforward, proportional, and necessary to ensure that Federal benefits are delivered only to borrowers working for organizations engaged in lawful activities.

Changes: None.

Comments: A subset of commenters cautioned that the cumulative effect of compliance costs, administrative risk, and uncertainty could discourage some employers from participating in PSLF at all. They argued that, if organizations

perceive the program as unpredictable or too resource-intensive, they may avoid advertising PSLF benefits to employees or disengage entirely. They argue this would directly undermine the program's intended purpose of expanding access to public service careers.

Discussion: The Department acknowledges that some employers may no longer wish to participate in the program or may cease advertising to employees and prospective employees about how working for the organization could lead to PSLF forgiveness. At the same time, employers that voluntarily cease participation in PSLF may do so because they are engaging in activities with a substantial illegal purpose. In these circumstances, the Department believes that voluntary withdrawal is appropriate. Other employers who do not engage in activities with a substantial illegal purpose may also withdraw from PSLF participation. The Department believes that any risks associated with withdrawal by employers who would be eligible is outweighed by the benefits of enhanced integrity to the PSLF program that come from the rule. This final rule ensures all qualified employers are treated consistently, strengthens trust in the program, and makes PSLF a more accountable and transparent program.

Changes: None.

Comments: A few commenters expressed concern that the cost estimate included in the RIA was unsubstantial or otherwise in conflict with the Department's assertions with respect to the final rule's impact. They also argued that assertions regarding streamlining the PSLF process and anticipated growth in public service recruitment and retention contradicted the Department's projected savings under the rule, and requested the Department reconcile these conflicts.

Discussion: The Department acknowledges commenters' concerns regarding the conflict between projected savings under the final rule and anticipated growth in public service employment and made changes to address the inconsistency by reducing the Department's assumption about the anticipated growth in public service employment through the final rule.

Changes: Amended preamble language in the RIA section.