PSLF Employer Rule Struck Down: What It Means for You

Short answer: the rule that would have let the Education Department disqualify certain employers from Public Service Loan Forgiveness never took effect. Federal judges in Massachusetts and Washington, D.C. vacated it on June 30, 2026, the day before it was supposed to start. On October 21, 2026, the government dropped two of its three appeals. If you work full-time for a government employer or a 501(c)(3) nonprofit, your employer's PSLF status works the way it did before the rule.

Last updated: October 28, 2026. Based on the Federal Register rule text, the court dockets and decisions, and AP, Washington Post, NASFAA and Investopedia reporting cited below.

What the rule tried to do

On October 31, 2025, the Education Department published a final rule in the Federal Register (90 FR 48966, document 2025-19729), effective July 1, 2026. It added a new reason an employer could lose its status as a qualifying PSLF employer: if the Secretary found, by a "preponderance of the evidence," that the organization had a "substantial illegal purpose."

The rule listed categories of activity it would treat that way. Critics, including cities, states, nonprofits and unions, argued the categories were vague and aimed at organizations because of the views they hold or the people they serve. If an employer was disqualified, employees' payments made after that point would stop counting toward the 120 needed for PSLF. Payments made before the disqualification would still count.

That last point matters. The rule didn't threaten payments already credited. It threatened future months for workers at targeted employers, which is still a big deal if you're at month 80 of 120.

The lawsuits and the ruling

Lawsuits were filed within days of the rule's publication, in November 2025. Three cases matter:

• National Council of Nonprofits v. McMahon, No. 1:25-cv-13242 (D. Mass.). Plaintiffs include nonprofit groups, unions and cities, among them San Francisco and Santa Clara.
• Commonwealth of Massachusetts v. U.S. Department of Education, No. 1:25-cv-13244 (D. Mass.). It was filed November 3, 2025 by 22 states plus the District of Columbia, led by California, Colorado, Massachusetts and New York.
• Robert F. Kennedy Center for Justice and Human Rights v. McMahon, No. 1:25-cv-03860 (D.D.C.), brought by 501(c)(3) organizations.

On June 30, 2026, both courts ruled for the challengers and vacated the rule. In Massachusetts, Judge Myong J. Joun decided both cases in one memorandum of decision, holding the rule unlawful; reporting by The College Investor and Investopedia describes the grounds as contrary to law, beyond the Department's authority, arbitrary and capricious, and a First Amendment violation. In Washington, D.C., Judge Amir H. Ali held that the rule is contrary to and exceeds the Secretary's authority under the Higher Education Act, and vacated it.

"Vacated" means the rule is set aside entirely, for everyone, not just the plaintiffs. NASFAA notes that the Department isn't required to formally rescind the language, so the text may stay in the Code of Federal Regulations for a while. It can't be enforced, though.

The appeals, and what's still pending

• August 27, 2026: the government appealed all three rulings, two to the First Circuit and one to the D.C. Circuit. The notice of appeal in the nonprofits' case is on the court docket.
• October 21, 2026: Justice Department lawyers filed joint stipulations dismissing two appeals: RFK Center v. McMahon (D.C. Cir. No. 26-5308) and National Council of Nonprofits v. McMahon (1st Cir. No. 26-1972). Each side pays its own costs, and no reason was given. The AP, the Washington Post, NASFAA, Inside Higher Ed and CBS News all reported it.
• Still pending: Commonwealth of Massachusetts v. U.S. Department of Education (1st Cir. No. 26-1973), the states' case. The College Investor reported that the government's opening brief is due November 4, 2026. NASFAA wrote that it's "assumed" this appeal will be dropped too, but that hasn't happened as of October 28.

What we've checked in court records: the June 30 decisions, the August 27 notice of appeal, and the joint stipulation dismissing the nonprofits' appeal. What we haven't: the November 4 brief date (it comes from news reporting) and whether the remaining appeal will be dismissed. This page gets updated when the docket changes.

What it means in practice:

• For now, the rule is vacated and unenforceable. That's true regardless of the pending appeal, unless an appeals court reverses the decision.
• If the states' appeal is dropped, the vacatur becomes final. If it goes ahead, an appeals court could in theory revive the rule, though reporters covering the case describe that chance as slim.
• The Department could restart rulemaking. NASFAA notes that any new rule would have to go through notice and comment, and that the court's reasoning limits what a new rule could say.
• No new employer-eligibility rule has been proposed as of October 28, 2026.

What actually decides whether your payments count

The court fight is about employers. Your progress toward PSLF still depends on the same four things:

1. Qualifying employer: a U.S. federal, state, local or tribal government organization, or a 501(c)(3) nonprofit. Some other nonprofits qualify if they provide certain public services.
2. Full-time work: at least 30 hours a week, or what your employer treats as full-time, whichever is greater. Combining part-time jobs can count.
3. Direct Loans: FFEL and Perkins loans need to be consolidated into a Direct Consolidation Loan.
4. A qualifying repayment plan: an income-driven plan (IBR, RAP, and PAYE or ICR while they last) or the 10-year Standard plan. The Tiered Standard Plan doesn't count, according to StudentAid.gov.

The fourth point is where many people are losing months right now. When SAVE ended, borrowers who didn't pick a new plan were moved automatically into Standard or Tiered Standard. If you land in Tiered Standard, those months don't count. See placed in the Standard plan after SAVE.

A worked example: where months get lost

Hypothetical: a county social worker began PSLF-qualifying payments in January 2019 and has 64 qualifying payments through August 2024. She then spent time in the SAVE litigation forbearance, which doesn't count toward PSLF.

• Qualifying payments so far: 64.
• Payments still needed: 120 − 64 = 56.
• If she's on an income-driven plan from November 2026 and pays every month, payment 120 arrives about 56 months later, around June 2031.
• If she's placed in Tiered Standard for six months before switching, those six don't count, and the finish line moves to about December 2031.
• PSLF buyback may let her pay for eligible forbearance months, but only once she has 120 months of qualifying employment. It doesn't speed up the date her employment adds up to 120.

Her employer was never the issue here. The plan was. Most PSLF delays look like this.

Questions people commonly ask about this case

• "My nonprofit works with immigrants. Should I be worried?" Under the rules in force today, a 501(c)(3) is a qualifying employer. The vacated rule can't be used to disqualify it. If a new rule is proposed, there would be a public comment period first.
• "Should I submit my PSLF form now, just in case?" Certifying employment regularly is good practice regardless. It locks in a record of each employer and period. See the PSLF form for employers.
• "Does this ruling forgive anything?" No. It removes a new barrier. It doesn't change the 120-payment requirement or add credit.
• "Is the money taxable when PSLF finally happens?" PSLF discharges are excluded from federal income tax. IDR discharges are different: they became federally taxable again for discharges on or after January 1, 2026.

Mistakes to avoid while the appeal plays out

• Switching jobs out of fear of the rule. The rule isn't in effect. Make job decisions based on the PSLF rules that actually apply.
• Ignoring your repayment plan. The plan question is more urgent than the court case for most borrowers after SAVE.
• Consolidating without checking the count. Consolidation blends payment counts by a weighted average across loans.
• Not keeping records. Save copies of employment certifications and plan confirmation letters. If your count looks wrong, those records make it much easier to sort out.

Related: PSLF requirements for teachers, PSLF for nurses, the PSLF form for employers, and the PSLF hub.

Frequently asked questions