Vermont Business Magazine Attorney General Charity Clark and 21 other attorneys general today filed a lawsuit against the U.S. Department of Education for unlawfully restricting eligibility for the Public Service Loan Forgiveness (PSLF) program, which allows government and nonprofit employees to have their federal student loans forgiven after ten years of service.
The attorneys general are challenging a new federal rule that would deem certain state and local governments or nonprofit organizations ineligible employers for PSLF if the federal government determines they have engaged in actions with a substantial illegal purpose. The rule provides only a very limited definition of such “illegality,” which could include activities that support undocumented immigrants; provide gender-affirming health care to transgender youth; promote diversity, equity, and inclusion efforts; and engage in political protest.
The coalition argues that the sweeping new rule is unlawful and targeted to punish states and organizations that the Administration does not like.
“The Public Service Loan Forgiveness program is not a political tool for the President’s administration to reward organizations that support him while punishing organizations that he dislikes,” said Attorney General Clark. “The Trump Administration lacks the legal authority to take this action. I am suing both to protect the integrity of the program as well as to prevent this illegal power-grab.”
The PSLF program was established by Congress in 2007 to provide financial incentives to those who dedicate their careers to the service of others. The program forgives borrowers’ remaining federal student loan debt after ten years of qualifying public service and consistent payments. Over the years, PSLF has enabled more than one million public servants to pursue careers that might have otherwise been out of reach. For state governments, PSLF is a critical tool to recruit and retain qualified professionals in vital fields like education, health care, and law enforcement.
On October 31, the Department of Education finalized a new rule granting itself the power to unilaterally declare entire agencies or organizations ineligible employers for PSLF if the administration determines they have a “substantial illegal purpose”—in practice, activities, or actions that are disfavored by the Trump Administration. The rule is scheduled to take effect in July 2026.
The coalition’s lawsuit argues that Department of Education’s new rule is flatly illegal. The PSLF statute guarantees loan forgiveness for anyone who works full-time in qualifying public service; it does not grant the Department of Education discretion to carve out exceptions based on ideology. They assert that the rule’s vague “substantial illegal purpose” standard is arbitrary and capricious as it gives the Department unfettered power to target specific state policies or social programs while exempting federal agencies from scrutiny.
The attorneys general are asking the court to declare the rule unlawful, vacate it, and bar the Department of Education from enforcing or implementing it.
Joining Attorney General Clark in filing this lawsuit are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Washington, and Wisconsin. A group of private plaintiffs and local governments is also filing a lawsuit today to block the implementation of the new rule.
A copy of the complaint is available on our website.
This lawsuit is the 34th case overall that Attorney General Clark has brought against the Trump Administration since President Trump took office in January. For more information on actions taken by the Attorney General on behalf of Vermonters, visit our website at https://ago.vermont.gov/ago-actions.
11.3.2025. MONTPELIER, Vermont – Attorney General Charity Clark
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