Some advocates are concerned that the student loan cancellation program may be used as a tool for retribution by Trump.

President Donald Trump walks toward the media to speak with them before boarding Air Force One, at Morristown Municipal Airport in Morristown, N.J., Sunday, July 6, 2025, en route to Washington after a weekend in New Jersey. (AP Photo/Jacquelyn Martin)

WASHINGTON (AP) — President Donald Trump is transforming a student loan cancellation initiative into what some worry could be a mechanism for political revenge, targeting groups that support immigrants and transgender youth.

The Public Service Loan Forgiveness program enables government workers, including teachers and firefighters, as well as many nonprofit employees, to have their student loans forgiven after making payments for a decade. The Education Department is working on a revision that would revoke this benefit from organizations engaged in "illegal activities," with the ultimate decision resting with the U.S. education secretary. A draft proposal issued by the department outlines definitions of illegal activities that focus on immigration, terrorism, and transgender matters.

A number of advocates invited to provide their input on the draft proposal expressed worries that it would grant the department subjective power to determine whether an organization is involved in any illegal activities — a capability that could potentially lead to the exclusion of entire hospital systems or state governments from the program.

"This is certainly a sign for me that this is driven by political motives and may be utilized as a means of political retribution," stated Betsy Mayotte, president of the Institute of Student Loan Advisors and one of the advocates who was asked to evaluate the policy during the rulemaking process.

Plan could block many from loan relief

Over 1 million Americans have benefited from loan cancellations through this program, which includes nurses, college employees, and park rangers.

Established by Congress in 2007, the program aims to motivate college graduates to pursue careers in the public sector, where compensation is frequently less than that offered by for-profit organizations. It guarantees the cancellation of any remaining debt after borrowers complete 120 monthly loan payments while employed in any government position. At present, nonprofits are also qualified if they concentrate on specific fields such as public interest law, public health, or education.

A federal database of qualifying nonprofits currently lists some that offer grants to transgender youth and their families, enabling them to travel to states that allow gender-affirming care for minors. It also features organizations that provide legal assistance to immigrants, irrespective of their legal status.

In March, Trump mandated modifications to the program, asserting that it had "misallocated tax dollars to activist organizations" that jeopardize national security. He instructed the Education Department to eliminate organizations associated with illegal activities, specifically targeting those that assist immigrants or transgender youth, as well as those he labels as supporting terrorism — a term he frequently uses for pro-Palestinian activists.

His proposal could significantly hinder a large number of student loan borrowers from achieving cancellation. Individuals employed by ineligible organizations would no longer be able to make progress towards loan forgiveness, effectively compelling them to seek new employment or abandon their hopes for loan cancellation.

Hospitals, schools, and nonprofits could be at risk

The proposal’s definitions of illegal activity largely mirror those laid out by Trump. They include “aiding or abetting” in the violation of federal immigration law, and supporting any group designated as a foreign terrorist organization. Also on the list are violations of the Civil Rights Act of 1964, a law Trump officials have invoked to root out diversity, equity and inclusion policies.

Also considered illegal is “engaging in the chemical and surgical castration or mutilation of children in violation of Federal or State law.” It says that includes the use of hormone therapy or drugs that delay puberty. It defines children as those under 19.

It raises concerns that entire hospital systems could become ineligible if a single department provides certain care to transgender youth. Likewise, the federal government could potentially strip the benefit from entire cities that limit cooperation with federal immigration officials.

“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. It could also give the administration another tool in its campaign against universities that run afoul of the president’s politics, she said.

This unfortunately may allow them to further chase the undesirable institutions, in their view,” she said.

When determining if an employer should be deemed ineligible, the department’s proposal would take into account court judgments and other legal findings. But it leaves room for at least some degree of subjectivity, giving the education secretary the authority to exclude organizations without proof of a conviction or settlement.

Only one negotiator opposed the proposal, the Education Department noted. Several negotiators on the rulemaking panel said they took issue with the proposal, but voted in favor of tweaks they felt improved the rule.

An Education Department spokesperson said the agency “has an obligation to prevent unlawful conduct and ensure that employers in the PSLF program are not complicit in illegal activities.”

Advocates see ambiguity in the definition of illegal activity

If used widely, the policy could worsen shortages of doctors and nurses, said Emeka Oguh, CEO of PeopleJoy, a company that helps employers provide student loan relief. A member of the panel, he encouraged the Education Department to use the power surgically, going after individual hospital divisions rather than systems as a whole.

Oguh said department officials were unable to provide examples of organizations that might be found to be involved in illegal activities. When pressed for detail, officials said it would not be considered illegal for a hospital to treat an immigrant in the country illegally, he said. Less certain was how the department would handle teachers or schools teaching lessons considered DEI.

“There was a lot of ambiguity there,” Oguh said.

Some others raised concerns with a provision that requires employers to certify they do not engage in illegal activities. Failure to certify could also render an organization ineligible, raising the risk that paperwork problems could jeopardize cancellation for huge numbers of borrowers.

The department said it’s open to making changes based on the panel’s concerns. Ultimately, it’s free to shape the proposal as it pleases. The agency is now preparing a formal proposal that will undergo a public comment period before it’s finalized. It would be expected to take effect in July 2026.

Last week, the Education Department thanked the experts and said they “helped fulfill one of President Trump’s promises to ensure that PSLF does not subsidize organizations that are breaking the law.

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