Indigenous States Challenge New Student Loan Policy Targeting Nonprofits

Tue Nov 04 2025 03:20:52 GMT+0200 (Eastern European Standard Time)

Over 20 states, led by Democrats, are filing a lawsuit against a Trump-era policy affecting student loan forgiveness eligibility for nonprofits and public employees.

A coalition of more than 20 Democrat-led states has filed a lawsuit challenging a recent Trump administration policy that limits student loan forgiveness for nonprofit and government employees. The policy, which imposes criteria based on organizations' alleged illegal activities, is seen as targeting groups that work with marginalized populations, including immigrants and transgender youth. Legal leaders argue the policy is unjust and harmful to essential services in public sectors.

In a significant legal battle, more than 20 states, primarily controlled by Democrats, have come together to challenge a Trump administration policy that threatens to cut off student loan forgiveness for nonprofit and government employees. This policy targets employers that federal officials deem to have a substantial illegal purpose, significantly affecting organizations working with marginalized communities, including immigrants and transgender youth.

The lawsuit was filed recently in Massachusetts, with states like New York, Massachusetts, California, and Colorado leading the charge against what they consider an overreach of executive authority. According to the states, the new eligibility requirements jeopardize job stability and increase workforce shortages by imposing ideological barriers on those who serve in critical sectors.

New York Attorney General Letitia James described the rule as a political loyalty test disguised as a regulation and emphasized its unfairness in stopping hard-working Americans from accessing loan forgiveness based solely on ideological beliefs.

A broader coalition, including cities, nonprofits, and labor organizations, has also initiated legal actions in Massachusetts, which further highlights the widespread discontent with the federal policy.

Responding to the lawsuits, Under Secretary of Education Nicholas Kent dismissed the states’ claim, asserting that the reform aims to prevent taxpayer funding from supporting organizations involved in unlawful activities, such as human trafficking and harmful medical practices against children. Kent maintains that the policy will be enforced without bias toward an organization's mission or the populations they serve.

Another set of advocates, including the Robert F. Kennedy Human Rights organization and several legal groups, plans to file an additional lawsuit aimed at contesting the new rules.

Originally established in 2007, the Public Service Loan Forgiveness program was intended to encourage graduates to take lower-paying public sector jobs, offering loan forgiveness after 10 years of payments while working for government agencies or approved nonprofits. The recent policy changes raise concerns about potential widespread ineligibility for many of these essential employers.

Critics of the new policy argue that its vague language around what constitutes substantial illegal purpose could chill activities and threaten the operational capacity of entire sectors, including vital public services.

This evolving legal situation poses serious questions about the intersection of public policy, social justice, and the vital role of non-profit organizations in serving vulnerable communities.