Executive Order on PSLF & “Illegal Purpose”

On Friday, March 7, 2025, President Trump issued an Executive Order (EO) called “Restoring Public Service Loan Forgiveness.” The EO limits eligibility for Public Service Loan Forgiveness (PSLF), a program that provides student loan forgiveness to nonprofit and government employees after ten years of payments.

The EO attempts to change what kind of work is considered “public service.” Specifically, it says employees working for organizations with a “substantial illegal purpose” are no longer eligible for PSLF, including the following purposes:

  • Aiding or abetting violations of immigration laws

  • Supporting terrorism, including engaging in violence to influence the federal government

  • Supporting gender-affirming care for minors (which the EO calls “child abuse”) or “trafficking of children to so-called transgender sanctuary States”

  • Pattern of aiding and abetting illegal discrimination

  • Pattern of violating state tort laws, including trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways

The corresponding fact sheet says the goal of the EO is to “end taxpayer-funded student loan forgiveness for anti-American activists.”

The EO raises red flags for anyone participating in PSLF. But it also raises concerns for nonprofits more generally, particularly those engaged in work that does not align with the administration’s values. The concern of many nonprofits is that the administration will use the EO criteria to target lawful activity, including lawful work on immigration, LGBTQ+ issues, diversity-related programs, or protest activities.

What to Know:

  • Procedure: The EO directs the Secretary of Education to update federal regulations to change the definition of “public service” to exclude organizations that engage in the activities outlined above. There is no stated timeline, so it’s unclear when the updates will happen.

  • Legal Issues: This EO will likely face legal challenges. So far, several other EOs impacting issues of diversity and viewpoint-based speech have been enjoined (i.e., halted) by courts.

  • Important Takeaway: The Trump administration may use the IRS to investigate organizations it suspects are engaging in a “substantial illegal purpose.” That phrase is from a 1984 tax court case where the court revoked an organization’s tax-exempt status for engaging in activities that violate public policy. The problem is that the Trump administration is now attempting to re-define what’s “illegal” to include lawful activities.

How We Can Help:

Understand your risk, but don’t panic. Several groups have already raised concerns with the legality of the EO. There’s a real possibility that all or part of it will be struck down by the courts. But in the meantime—and in case it survives—there are steps to take to protect yourself.

  • If you’re concerned that the administration will wrongfully target your organization for engaging in certain activities, talk with an attorney about risk assessment and mitigation.

  • If you’re an individual participating in the PSLF program and have questions about whether your loan is impacted by the EO, talk to your employer or loan servicer. If you think you’re at risk of losing eligibility, consider contacting an attorney.

Focus on what you can control.  For nonprofits, it’s a good time to focus on internal compliance—governance procedures, lobbying tracking, employment policies. Attorneys at GLG can help with these things. If you’re personally impacted by this EO or others, you can also talk to an attorney about the possibility of challenging it yourself through a lawsuit.

For questions about EOs impacting nonprofits, risk assessment, assistance in compliance-related matters, or related litigation, contact Kait or Sydney at GLG.  

 

Written by Kait Madsen

This post is intended to be a general overview of the law and is not legal advice. You should consult with an attorney to determine applicable legal requirements in a specific situation.