PSLF Litigation: Court Rules in Favor of Nonprofits — Rule Vacated

What happened: The U.S. District Court for the District of Massachusetts issued a decision in favor of the nonprofit sector in National Council of Nonprofits et al. v. McMahon, the lawsuit challenging the U.S. Department of Education’s final rule to overhaul the Public Service Loan Forgiveness program. The court held that the rule exceeds the Department’s statutory authority, is arbitrary and capricious in violation of the Administrative Procedure Act, and violates the First Amendment. The court vacated the regulation entirely — meaning it will not go into effect. NCN served as lead plaintiff in a coalition of more than a dozen cities, labor unions, and nonprofit organizations, and filed the lawsuit with the help of Democracy Forward and Protect Borrowers.

What the rule would have done: The rule would have allowed the Education Secretary to disqualify certain nonprofit employers from PSLF eligibility based on their missions — with key terms left entirely to the Secretary’s discretion. Organizations serving immigrant communities, providing gender-affirming care, or engaged in civil rights and equity work faced the most direct risk. Federal law makes clear that PSLF eligibility applies to all 501(c)(3) charitable nonprofits. By unlawfully excluding certain nonprofits, the rule would have set a troubling precedent allowing any administration — regardless of party — to change program eligibility based on its own priorities or ideology.

Why this matters for Pennsylvania nonprofits: PSLF helps ensure that talented individuals can afford to choose and remain in careers in public service — roles that are often lower-paying — without being burdened by long-term federal student debt. This ruling protects that program for nonprofit workers across Pennsylvania and the country. Communicate this outcome to any staff members who were concerned about their PSLF eligibility, and continue encouraging enrollment for eligible employees.

Related development — S.J. Res. 182:  NCN has endorsed S.J. Res. 182, introduced by Sen. Tim Kaine (D-VA), which would use the Congressional Review Act to overturn the PSLF rule entirely. The resolution currently lacks the votes needed to pass the Republican-controlled Senate, but its introduction signals ongoing congressional opposition to the rule and may create additional legal and political pressure.