Trump Reshaping Student Loan Program with Political Overtones, Advocates Warn
President Donald Trump is reshaping a student loan cancellation program into what some fear will become “a tool for political retribution,” according to advocates invited to weigh in on a draft proposal. The changes take aim at organizations that serve immigrants and transgender youth, potentially removing their eligibility under the Public Service Loan Forgiveness (PSLF) program.
Policy Overhaul Would Strip Benefits from Certain Nonprofits
The Education Department is preparing an overhaul of PSLF that would “strip the benefit from organizations involved in ‘illegal activities,’” with the final decision left to the U.S. education secretary. A draft proposal includes definitions of illegal activity centering on immigration, terrorism, and transgender issues.
“That’s definitely an indicator for me that this is politically motivated and perhaps will be used as a tool for political punishment,” said Betsy Mayotte, president of the Institute of Student Loan Advisors.
Massive Impact on Loan Relief Eligibility
The PSLF program has already canceled loans for over 1 million Americans, including nurses, college staffers, and park rangers. Created in 2007, it promises to cancel remaining student loan debt after borrowers make 120 monthly payments while working for government or certain nonprofits.
But under the proposed changes, organizations that provide grants for gender-affirming care or legal services to immigrants regardless of status could be deemed ineligible. Trump ordered the changes in March, claiming the program had “misdirected tax dollars into activist organizations” that he said “harm national security.”
“Huge Numbers of Borrowers” Could Be Affected
Trump’s plan “has the potential to block huge numbers of student loan borrowers from cancellation.” Borrowers working for an employer labeled ineligible “would no longer be able to make progress toward cancellation,” forcing them to find a new job or forgo the benefit.
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Hospitals and Schools at Risk
The proposal defines illegal activity to include “aiding or abetting” in federal immigration law violations, supporting designated foreign terrorist groups, and engaging in “chemical and surgical castration or mutilation of children in violation of Federal or State law.”
That includes “the use of hormone therapy or drugs that delay puberty” for those under 19. The changes raise concerns that entire hospital systems could become ineligible if one department offers such care.
“I could see entire cities and entire civil structures being targeted,” said Alyssa Dobson, financial aid director at Slippery Rock University and a member of the rulemaking panel.
Subjectivity and Political Leverage
The department’s proposal leaves room for “at least some degree of subjectivity,” giving the education secretary power to exclude organizations without proof of a conviction or settlement. When deciding employer eligibility, the department would consider court judgments and legal findings but is not bound to them.
“This unfortunately may allow them to further chase the undesirable institutions, in their view,” Dobson added.
Uncertainty and Ambiguity Remain
According to Emeka Oguh, CEO of PeopleJoy and panel member, the department was “unable to provide examples of organizations” it considers illegal. “There was a lot of ambiguity there,” Oguh said.
The plan could worsen shortages of doctors and nurses, he warned, urging officials to “go after individual hospital divisions rather than systems as a whole.”
Paperwork and Certification Problems May Endanger Borrowers
Another concern raised was a provision requiring employers to certify they don’t engage in illegal activity. Failing to certify “could also render an organization ineligible,” risking student loan cancellation for “huge numbers of borrowers” due to paperwork issues.
Final Rule Could Arrive in 2026
The Education Department stated it has “an obligation to prevent unlawful conduct and ensure that employers in the PSLF program are not complicit in illegal activities.”
Officials say they are open to revisions based on the panel’s concerns. A formal proposal will be released for public comment, with final rules expected to take effect in July 2026.
Last week, the department thanked the negotiators, stating they “helped fulfill one of President Trump’s promises to ensure that PSLF does not subsidize organizations that are breaking the law.”
Source: The Associated Press.
