Oregon Sues Trump Administration Over New Rule Limiting Student Loan Forgiveness for Teachers and Public Workers

Attorney General Dan Rayfield joined a 22-state coalition of attorneys general in a lawsuit against the U.S. Department of Education (ED) to stop the Trump Administration from unlawfully restricting eligibility for the Public Service Loan Forgiveness (PSLF) program.

Oregon Sues Trump Administration Over Student Loan Forgiveness For Government Workers

Currently, government and nonprofit employees have their federal student loan debt forgiven after 10 years of service.

On October 31, President Trump’s ED introduced a new federal rule that would deem certain state and local governments or nonprofit organizations ineligible employers for PSLF if they have engaged in actions with a substantial illegal purpose, as determined by the federal government.

Given the pattern of this administration, in practice, activities or actions disfavored by the administration will lead to employee censure.

The coalition says the sweeping new rule is unlawful and is targeted to punish states and organizations the administration does not like. The rule is scheduled to take effect in July 2026.

AG Rayfield said, “Oregonians who dedicate their careers to public service… shouldn’t lose their benefits because of who they work for or what their community stands for.”

Oregonians who dedicate their careers to public service, such as teachers, nurses, and firefighters, could lose this benefit under the new rule if the administration determines they have a “substantial illegal purpose.” Yet a minimal definition of such “illegality” is included, but it does 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 vague new authority could have devastating consequences nationwide as states could face severe staffing shortages, higher turnover, and skyrocketing costs while trying to maintain essential services. PSLF is an important recruiting and retention tool for Oregon and other government and public-interest organizations throughout the state.

The coalition’s lawsuit argues that ED’s new rule is flatly illegal and does not grant ED discretion to carve out exceptions based on ideology.

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 coalition has asked the court to declare the rule unlawful, vacate it, and bar the Department of Education from enforcing or implementing it.