Trump administration limits student loan forgiveness for nonprofits with ‘illegal purpose’

Donald Trump. Pic/AFP

The Trump administration is forging ahead with plans to eject some nonprofits from a popular student loan forgiveness programme if their work is deemed to have a "substantial illegal purpose" " a move that could cut off some teachers, doctors and other public workers from federal loan cancellation. New rules finalised Thursday give the Education Department expanded power to ban organisations from the Public Service Loan Forgiveness program. The Trump administration said it's necessary to block taxpayer money from lawbreakers. Critics say it turns the programme into a tool of political retribution. Set to take effect in July, the policy is aimed primarily at organisations that work with immigrants and transgender youth. It grants the education secretary power to exclude groups from the program if they engage in activities including the trafficking or "chemical castration" of children, illegal immigration and supporting terrorist organisations.

"Chemical castration" is defined as using hormone therapy or drugs that delay puberty " gender-affirming care common for transgender children or teens. It amounts to a major reworking of a programme that has cancelled loans for more than 1 million Americans and was created by Congress in 2007 to steer more college graduates into lower-paying public sector jobs. The Trump administration has yet to identify specific groups it intends to target, but it estimates fewer than 10 would be barred per year. The programme "was meant to support Americans who dedicate their careers to public service " not to subsidise organisations that violate the law, whether by harbouring illegal immigrants or performing prohibited medical procedures that attempt to transition children away from their biological sex," Education Undersecretary Nicholas Kent said in a statement.

The new rules are weaponising loan forgiveness to make it harder for groups that work on issues like refugee and transgender rights, said Michael Lukens, executive director of the Amica Centre for Immigrant Rights. Lukens said many of the attorneys, social workers and paralegals who work at his organisation on deportation defence and other immigration litigation count on public service loan forgiveness to take jobs that pay significantly less than the private sector. "All of a sudden, that's going away," Lukens said. "The younger generation, I hope, will be able to wait this out for the next couple of years to see if it gets better, but if it doesn't, we're going to see a lot of people leave the field to go and work in a for-profit space." The programme promises to cancel federal student loans for government employees and many nonprofit workers after they have made 10 years of payments. It has long been open to government workers, teachers, firefighters and employees of public hospitals. Eligibility rules laid out by Congress focus mostly on nonprofits' tax status and their field of work.

The benefit has gone to workers at organisations across the political spectrum. Yet in a March action demanding new limits, President Donald Trump said it has "misdirected tax dollars into activist organisations that not only fail to serve the public interest, but actually harm our national security and American values, sometimes through criminal means". A central concern of critics is the wide latitude the department is giving itself to determine if an organisation's work should be considered to have a "substantial illegal purpose".

Employers across state and local government as well as nonprofits can be expelled from the programme if a state or federal court rules against them, or if they agree to a legal settlement that includes admission of guilt. Performing gender-affirming care in the 27 states that outlaw it, for example, appears to be grounds for expulsion. Even without a legal finding, the education secretary will be able to independently determine that an organisation should be barred. The secretary would weigh whether the "preponderance of the evidence" leans against the employer. The department dismissed concerns from many who said that bar is too low.

"It ensures decisions are grounded in fact, not speculation, and allows the Department to act promptly to protect both borrowers and taxpayers," federal officials wrote. Among those opposing the proposal were prominent associations in higher education, health care and legal professions. In public comments submitted to the department, many called it an illegal overstep and said it would undermine an incentive that has helped address work shortages in high-demand fields. The American Bar Association said it could decrease the ranks of public defenders and those in public interest law. Thousands of people will lose access to representation, the association said, "simply because those attorneys' jobs were deemed politically unfavourable by the Secretary." The National Council of Nonprofits said the policy would allow future administrations from any political party to change eligibility rules "based on their own priorities or ideology".

Rep Tim Walberg, chair of the House Education and Workforce Committee, said the overhaul will prevent taxpayers from covering loan relief for employees at "radical organisations that violate state and federal laws". Under the new rules, employers can only be sanctioned for activities that take place on or after July 1, 2026. Those barred from the programme can reapply for eligibility after 10 years or rejoin sooner if they follow a "corrective action plan" approved by the secretary. Documents from the department indicate that a single violation of the law may or may not be enough to get an employer barred, depending on the circumstances. Not all organisations that break the law have a "substantial illegal purpose," the agency said, and it ultimately comes down to the secretary's analysis of the evidence.

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