New Bill Bars Student Loan Forgiveness for Public Servants Working for Organizations with 'Substantial Illegal Purpose'

If you’ve got federal student loans and are chasing that Public Service Loan Forgiveness (PSLF) golden ticket, you know how strict the rules are about who counts as a qualifying employer. The No Loan Forgiveness for Terrorists Act of 2025 adds a new, significant hurdle: your employment won't count toward PSLF if your employer is an organization engaged in activities that have a “substantial illegal purpose.” This isn't just about the work you do; it’s about what your employer is doing overall.

The New Red Flags for PSLF Eligibility

This bill amends the Higher Education Act to create a list of activities that automatically disqualify an organization’s employment from counting toward PSLF. The list is broad, covering everything from providing material support to designated Foreign Terrorist Organizations (FTOs) to materially supporting child abuse. That part makes sense—no one wants to subsidize terrorism or serious crimes. However, the bill also targets organizations that are involved in assisting or encouraging violations of federal immigration laws, or those that consistently aid or encourage illegal discrimination. The key takeaway is that if your employer’s mission or main activities fall under these categories, your clock stops ticking on loan forgiveness.

When 'Public Service' Might Not Count

Here’s where things get complicated for the average person relying on PSLF. The bill includes a provision that disqualifies employment if the organization is “repeatedly violating state tort laws.” Tort laws cover civil wrongs like trespassing, vandalism, or causing a public nuisance. Think about non-profit advocacy groups—environmental organizations or housing rights groups, for instance—that might engage in civil disobedience or protests that occasionally result in staff being cited for trespassing or blocking a highway. Even if you’re an accountant or a communications manager for that group, the organization’s repeated legal skirmishes could suddenly invalidate your years of public service credit. This means an employee focused solely on public service (say, running a homeless shelter) could lose their forgiveness eligibility because their employer’s legal team is constantly fighting minor violations related to protests.

The Administrative Headache and the Burden of Proof

Currently, PSLF eligibility is relatively straightforward: you work full-time for a government entity or a 501(c)(3) non-profit. This bill introduces a massive layer of complexity, requiring the PSLF administrator to effectively audit the ongoing legal compliance of every qualifying employer. The term “substantial illegal purpose” is vague, which means the Department of Education will have significant discretion in deciding which organizations cross the line. This uncertainty could create a chilling effect, making it harder for people to commit to public service jobs if they have to constantly worry about whether their employer's ancillary activities—or even political activism—will suddenly tank their future loan forgiveness. For the borrower, this means a new, complex legal risk is now attached to choosing a public service career path.