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Proposed Rule2025-15665

William D. Ford Federal Direct Loan (Direct Loan) Program

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Published

August 18, 2025

Issuing agencies

Education Department

Abstract

The Secretary proposes to amend the regulations on the Public Service Loan Forgiveness (PSLF) program under 34 CFR 685.219 to exclude employers that engage in activities that have a substantial illegal purpose. The proposed regulations would prevent taxpayer-funded PSLF benefits from being improperly provided to individuals who are employed by organizations that engage in activities that have a substantial illegal purpose. These proposed changes are intended to improve the administration of the PSLF program and provide protection for taxpayers.

Full Text

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<title>Federal Register, Volume 90 Issue 157 (Monday, August 18, 2025)</title>
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[Federal Register Volume 90, Number 157 (Monday, August 18, 2025)]
[Proposed Rules]
[Pages 40154-40176]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-15665]

[[Page 40153]]

Vol. 90

Monday,

No. 157

August 18, 2025

Part II

Department of Education

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34 CFR Part 685

William D. Ford Federal Direct Loan (Direct Loan) Program; Proposed
Rule

Federal Register / Vol. 90 , No. 157 / Monday, August 18, 2025 /
Proposed Rules

[[Page 40154]]

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DEPARTMENT OF EDUCATION

34 CFR Part 685

[Docket ID ED-2025-OPE-0016]
RIN 1801-AA28

William D. Ford Federal Direct Loan (Direct Loan) Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations on the Public
Service Loan Forgiveness (PSLF) program under 34 CFR 685.219 to exclude
employers that engage in activities that have a substantial illegal
purpose. The proposed regulations would prevent taxpayer-funded PSLF
benefits from being improperly provided to individuals who are employed
by organizations that engage in activities that have a substantial
illegal purpose. These proposed changes are intended to improve the
administration of the PSLF program and provide protection for
taxpayers.

DATES: We must receive your comments on or before September 17, 2025.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal
at <a href="http://www.regulations.gov">www.regulations.gov</a>. The Department will not accept comments
submitted by fax or by email or comments submitted after the comment
period closes. To ensure that the Department does not receive duplicate
copies, please submit your comment only once. Additionally, please
include the Docket ID at the top of your comments.
Information on using <a href="http://Regulations.gov">Regulations.gov</a>, including instructions for
submitting comments, is available on the site under ``FAQ.'' If you
require an accommodation or cannot otherwise submit your comments via
<a href="http://Regulations.gov">Regulations.gov</a>, please contact <a href="/cdn-cgi/l/email-protection#186a7d7f6d74796c7177766b707d74687c7d6b73587f6b79367f776e"><span class="__cf_email__" data-cfemail="81f3e4e6f4ede0f5e8eeeff2e9e4edf1e5e4f2eac1e6f2e0afe6eef7">[email&#160;protected]</span></a> or by phone
at 1-866-498-2945. If you are deaf, hard of hearing, or have a speech
disability and wish to access telecommunications relay services, please
dial 7-1-1.
Privacy Note: The Department's policy is to make all comments
received from members of the public available for public viewing in
their entirety on the Federal eRulemaking at <a href="http://www.regulations.gov">www.regulations.gov</a>.
Therefore, commenters should include in their comments only information
that they wish to make publicly available. Additionally, commenters
should not include in their comments any personally identifiable
information (PII) in comments about other individuals. For example, if
your comment describes an experience of someone other than yourself,
please do not identify that individual or include any personal
information that identifies that individual. The Department reserves
the right to redact a portion of a comment or the entire comment at any
time if any PII about other individuals is included.

FOR FURTHER INFORMATION CONTACT: Tamy Abernathy, Office of
Postsecondary Education, 400 Maryland Ave. SW, Washington, DC 20202.
Telephone: (202) 987-0385. Email: <a href="/cdn-cgi/l/email-protection#4115202c386f002324332f203529380124256f262e37"><span class="__cf_email__" data-cfemail="f6a2979b8fd8b79493849897829e8fb69392d8919980">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

The Department has a broad interest in ensuring that its programs
do not contribute to or help support individuals or organizations that
engage in unlawful activity.
To prevent taxpayer-funded PSLF benefits from being improperly
provided to individuals who are employed by organizations that are
engaged in activities that are unlawful, the Secretary proposes to
exclude any organization that engages in activities that have a
substantial illegal purpose from being a qualifying employer for the
purposes of the PSLF program.
The proposed rule would clarify the definition of a qualifying
employer, define activities that have a substantial illegal purpose,
address the impact on borrower eligibility, and ensure employers are
given notice and the opportunity to respond to an adverse finding.
A brief summary of these proposed regulations is available at
<a href="https://www.regulations.gov/document/ED-2025-OPE-0016-0001">https://www.regulations.gov/document/ED-2025-OPE-0016-0001</a>.

II. Summary of the Major Provisions of This Regulatory Action

These proposed regulations would:
* Amend Sec. 685.219(b) to modify the existing structure of the
subsection into regulatory paragraph structure.
* Amend Sec. 685.219(b) to add definitions for: aiding or
abetting, chemical castration or mutilation, child or children, foreign
terrorist organizations, illegal discrimination, other Federal
Immigration laws, substantial illegal purpose, surgical castration or
mutilation, terrorism, trafficking, violating State law, and violence
for the purpose of obstructing or influencing Federal Government
policy.
* Amend Sec. 685.219(c) to establish that on or after July 1,
2026, no payment made by a borrower shall be credited as a qualifying
payment for PSLF for any month subsequent to a determination that a
qualifying employer engages in activities that have a substantial
illegal purpose.
* Amend Sec. 685.219(e) to require the Secretary notify borrowers
employed by a qualifying employer of the employer's status if the
employer is at risk of becoming or becomes ineligible for the PSLF
Program.
* Amend Sec. 685.219(g) to clarify that a borrower may not request
reconsideration of a final determination by the Secretary that the
employer lost status as a qualifying employer.
* Add Sec. 685.219(h) to establish that the Secretary would
determine by the preponderance of the evidence, and after notice and
opportunity to respond, that a qualifying employer has engaged on or
after July 1, 2026, in activities that have a substantial illegal
purpose by considering the materiality of any illegal activities or
actions. Also, the Secretary will deem certain actions as conclusive
evidence that the employer engaged in activities that have a
substantial illegal purpose.
* Add Sec. 685.219(i) to establish that the Secretary will
determine that a qualifying employer engaged in activities that have a
substantial illegal purpose when (1) the Secretary receives an
application in which the employer fails to certify that it did not
participate in activities that have a substantial illegal purpose, or
(2) the Secretary otherwise determines that the qualifying employer
engaged in such activities under the standard set forth in Sec.
685.219(h).
* Add Sec. 685.219(j) to establish that an employer that loses
PSLF eligibility could regain qualifying employer status after (1) 10
years from the date the Secretary determines the employer engaged in
activities that have a substantial illegal purpose, or (2) after the
Secretary approves a corrective action plan.
* Add Sec. 685.219(k) to require that if an employer regains
eligibility, the Secretary will update, within 30 days, the qualifying
employer list.
Cost and Benefits: As further detailed in the Regulatory Impact
Analysis (RIA), the proposed changes would have meaningful implications
for borrowers, taxpayers, and the Department. The regulatory changes
outlined in this rule are designed to preserve the integrity of the
PSLF program by ensuring that only borrowers employed by organizations
engaged in lawful public service remain eligible for forgiveness. By
excluding employers that engage in activities with a substantial
illegal purpose, the rule aims to better align PSLF eligibility with
the program's statutory intent--to

[[Page 40155]]

reward public service. Furthermore, it ensures that the Department is
not indirectly subsidizing employers who are engaging in activities
that have a substantial illegal purpose.
For borrowers, the proposed rule may alter eligibility for PSLF if
they are employed by organizations that no longer qualify under the
revised criteria. In cases where an employer is deemed to have engaged
in activities that breach federal or state law or established public
policy, affected borrowers would no longer receive credit toward loan
forgiveness for months worked after the effective date of
ineligibility. While this may delay or prevent forgiveness for a subset
of borrowers, the overall design of the regulations--including advance
notice, transparency around determinations, and employer
recertification pathways--helps mitigate unexpected harm. These
borrowers would retain the ability to pursue PSLF through eligible
employment elsewhere, thereby preserving the program's incentive
structure.
For taxpayers, the proposed rule reduces the risk of inappropriate
government expenditures by ensuring that loan forgiveness is granted
only in circumstances where individuals are engaged in public service.
Employers that engage in unlawful activity are not serving the public
interest because their actions harm, rather than help, the public good.
By limiting PSLF eligibility to borrowers employed by organizations
that do not engage in unlawful conduct, the rule reinforces appropriate
stewardship of federal funds. While the exact budgetary impact will
depend on the number and type of employers determined to fall outside
the clarified definition, the proposal is expected to reduce PSLF-
related discharges in cases where forgiveness would otherwise have gone
to borrowers employed at organizations acting illegally.
For the Department, the rule introduces new administrative
responsibilities. These include reviewing court judgments and plea
agreements for evidence of employer misconduct, issuing determinations,
notifying borrowers of status changes, and overseeing corrective action
plans. While these tasks will require the investment of staff time and
system resources, the use of existing standards--such as definitions
grounded in federal law and doctrines adopted by other agencies--will
allow the Department to administer the regulations with efficiency and
consistency. The rule also codifies a clear evidentiary framework, such
as relying on court judgments or plea agreements, which limits the need
for new investigative processes.
Taken together, the Department believes these regulations represent
a necessary improvement to PSLF implementation. The costs associated
with employer review and administration are modest compared to the
significant benefits gained, including increased transparency, program
integrity, and taxpayer protection. Most importantly, the rule
preserves the fundamental promise of PSLF--to support borrowers who
dedicate their careers to serving the public--while guarding against
the diversion of federal benefits to organizations engaged in illegal
conduct.

III. Invitation To Comment

We invite you to submit comments regarding these proposed
regulations. Please clearly identify the specific section or sections
of the proposed regulations that each of your comments addresses and
arrange your comments in the same order as the proposed regulations.
The Department will not accept comments submitted after the comment
period closes.
We invite you to assist us in complying with the requirements of
Executive Orders 12866 and 13563 and their overall requirement of
reducing the regulatory burden that might result from these proposed
regulations. Please let us know of ways we could reduce potential costs
or increase potential benefits while preserving the effective and
efficient administration of the Department's programs and activities.
During and after the comment period, you may inspect public
comments about these proposed regulations by accessing <a href="http://Regulations.gov">Regulations.gov</a>.
Assistance to Individuals with Disabilities in Reviewing the
Rulemaking Record: On request, we will provide an appropriate
accommodation or auxiliary aid to an individual with a disability who
needs assistance to review the comments or other documents in the
public rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of accommodation or auxiliary
aid, please contact the Information Technology Accessibility Program
Help Desk at <a href="/cdn-cgi/l/email-protection#3d74697c6d6e484d4d524f497d5859135a524b"><span class="__cf_email__" data-cfemail="236a776273705653534c51576346470d444c55">[email&#160;protected]</span></a> to help facilitate.

Clarity of the Regulations

Executive Order 12866 and the Presidential memorandum ``Plain
Language in Government Writing'' \1\ require each agency to write
regulations that are easy to understand. The Secretary invites comments
on how to make the regulation easier to understand, including answers
to questions such as the following:
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\1\ 63 FR 31885 (June 1, 1998).
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* Are the requirements in the proposed regulations clearly stated?
* Do the proposed regulations contain technical terms or other
wording that interferes with their clarity?
* Does the format of the proposed regulations (grouping and order
of sections, use of headings, paragraphing) aid or reduce its clarity?
* Would the proposed regulations be easier to understand if we
divided them into additional (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 668.2 General definitions.)
* Could the description of the proposed regulations in the
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in
making the proposed regulations easier to understand? If so, how?
* What else could we do to make the proposed regulation easier to
understand?
To send any comments that concern how the Department could make
these proposed regulations easier to understand, see the instructions
in the ADDRESSES section.

IV. Background

The PSLF program was established by the College Cost Reduction and
Access Act of 2007 (CCRAA), Public Law 110-84, 121 Stat. 84. In
particular, the CCRAA amended section 455(m) of the Higher Education
Act of 1965, as amended, to allow for cancellation of remaining loan
balances for eligible Direct Loan borrowers after they have made 120
monthly payments under a qualifying repayment plan while working at a
qualifying public service or nonprofit employer.
Following the enactment of the CCRAA, the Department promulgated
PSLF regulations at 34 CFR 685.219, which became effective on July 1,
2009.\2\ Since its original promulgation, 34 CFR 685.219 has been
amended seven times.\3\ Of these amendments, two, promulgated in 2020
and 2022, respectively, have substantively changed the criteria for
qualifying employment for the purposes of participation in PSLF--
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\2\ See 73 FR 63232-01 (Oct. 23, 2008).
\3\ See 74 FR 56005 (Oct. 29, 2009); 77 FR 76414 (Dec. 28,
2012); 80 FR 67242 (Oct. 30, 2015); 85 FR 49821 (Aug. 14, 2020); 87
FR 66063 (Nov. 1, 2022); 88 FR 43065 (July 6, 2023); 88 FR 43905
(July 10, 2023).
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1. In 2020, the definition of ``public service organization'' was
substantively

[[Page 40156]]

changed to allow employees of organizations engaged in religious
activities (regardless of whether the borrower's duties included
religious instruction, worship services, or any form of proselytizing)
to be eligible for PSLF; and
2. In 2022, the Department changed the term ``public service
organization'' to the term ``qualifying employer'' which substantively
changed the definition. Subsection (v)(A) of the definition of
qualifying employer referenced another term ``non-governmental public
service.'' Notably, while previous iterations of 34 CFR 685.219 relied
on definitions provided by the Bureau of Labor Statistics in regard to
specific professions that were considered to be a form of public
service (or left such terms undefined), the 2022 rule instead defined
those terms within the section.
The Department is engaging in this rulemaking because organizations
must not engage in substantial illegal activities to be a qualifying
employer for purposes of the PSLF Program. Indeed, organizations that
have a substantial illegal purpose are acting in contravention with the
public good.
Below, we address the Secretary's broad authority to engage in
rulemaking on this topic and provide a brief discussion of the relevant
statutory authority regarding what organization constitutes a
qualifying employer for the purposes of PSLF, the implementation of
that authority, and relevant changes to 34 CFR 685.219 since its
original promulgation. Additionally, we discuss the illegality doctrine
utilized by the Internal Revenue Service (IRS) as a basis for the
Department to promulgate regulations excluding organizations that have
engaged in certain illegal activities from the definition of qualifying
employers.

V. Authority for This Regulatory Action

Congress has granted the Secretary broad authority to promulgate
regulations to administer the programs administered by the Department
of Education and to carry out his or her duties.\4\ In order to carry
out functions otherwise vested in the Secretary by law or by delegation
of authority pursuant to law, and subject to limitations as may be
otherwise imposed by law, the Secretary is authorized to make,
promulgate, issue, rescind, and amend rules and regulations governing
applicable programs administered by and the manner of operation of, the
Department.\5\ These programs include the financial assistance programs
authorized pursuant to title IV of the Higher Education Act authorized
by HEA Sec. 455 et seq.
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\4\ See 20 U.S.C. 1221e-3, see also 20 U.S.C. 1082, 3441, 3474,
3471.
\5\ 20 U.S.C. 1221e-3.
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Legal Basis for Denying Certain Organizations' Qualifying Employer
Status

While HEA Sec. 455(m)(3) contains a definition of the term public
service job (setting forth categories of employment that provide a
public service),\6\ it does not define the term public service. As a
result of this, from the time the Department first promulgated 34 CFR
685.219(a), it has been necessary to expound upon what constitutes
public service--a term which has the plain meaning of ``any work that
serves the public good'' \7\--and the Department has repeatedly
promulgated amendments to 34 CFR 685.219 to further define its meaning.
The proposed change is a continuation of these efforts, as an
organization that engages in activities that have a substantial illegal
purpose is not providing a public service because it does not serve the
public interest to engage in illegal activities. Therefore, these
employers should not be considered a qualifying employer for the
purpose of PSLF.
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\6\ See HEA Sec. 455(m)(3)(B).
\7\ PUBLIC SERVICE, Black's Law Dictionary (12th ed. 2024).
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The Department has based its approach in this matter, in part, on
the so-called ``illegality doctrine'' utilized when determining whether
organizations qualify for tax-exempt status under Internal Revenue Code
Sec. 501(c)(3) (a requirement for non-governmental organizations to be
considered a qualifying employer for the purposes of the PSLF program).
The Department considered this doctrine because it is a tested approach
taken by another executive agency to avoid subsidizing employers
engaged in unlawful conduct.\8\
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\8\ 26 U.S.C. 501(c)(3) exempts the following from taxation:
Corporations, and any community chest, fund, or foundation,
organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary, or educational
purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the
provision of athletic facilities or equipment), or for the
prevention of cruelty to children or animals, no part of the net
earnings of which insures to the benefit of any private shareholder
or individual, no substantial part of the activities of which is
carrying on propaganda, or otherwise attempting, to influence
legislation (except as otherwise provided in subsection (h)), and
which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on
behalf of (or in opposition to) any candidate for public office.
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Background of the Illegality Doctrine

The ``illegality doctrine'' imposes an implied requirement that
organizations exempt from taxation under Sec. 501(c)(3) must not have
a substantial illegal purpose. This doctrine arises from a common-sense
principle:

Loss of government revenues from tax exemption is often
justified on the grounds that tax-exempt organizations serve
desirable public purposes and lessen the government's costs and
burdens. As a corollary to this public benefit principle, tax
exemption is not justified when an organization has an illegal
purpose because the organization does not serve a public purpose,
and the organization increases the government's costs and burdens.
The illegality doctrine helps ensure that the government is not
subsidizing activity that it aims to prevent.\9\
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\9\ The Illegality Doctrine and 501(c)(3) Organizations (2025),
<a href="https://www.congress.gov/crs-product/IF12739">https://www.congress.gov/crs-product/IF12739</a>.

A recent example of the application of the illegality doctrine, and
a review of said application by a Federal court, is found in Iowaska
Church of Healing v. Werfel, 105 F.4th 402 (D.C. Cir. 2024). In this
case, the IRS denied an application for 501(c)(3) tax exempt status to
an organization whose members' sincerely held religious beliefs
involved the consumption of a hallucinogenic drug regulated by the
Controlled Substances Act (``CSA''), because it determined that (1) the
organization was formed in part for the illegal purpose of distributing
a controlled substance; and (2) a substantial part of the
organization's activities was in furtherance of that illegal
purpose.\10\ The D.C. Circuit upheld this decision on the basis that,
regardless of the sincerity of its beliefs, until the organization
obtained an exemption from the CSA, its primary organizational and
operational purpose was facially illegal.\11\
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\10\ See Iowaska Church of Healing, 105 F.4th 402, 406, 407.
\11\ Id. at 414.
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The Department's Proposed Changes to the Definition of Qualifying
Employer Aligns With, and Are Justified on the Same Basis as, the IRS's
Use of the Illegality Doctrine

Through the Illegality Doctrine, the IRS excludes organizations
engaged in illegal purposes or purposes that are against established
public policy from tax exemption under Sec. 501(c)(3) on the basis
that they do not serve a public purpose. The Department's proposed
changes to the definition of qualifying employer align directly with
this approach by excluding organizations engaged in activities with a
substantially illegal purpose from being

[[Page 40157]]

included in the definition of qualifying employer, on the basis that
such organizations are engaged in activities that are either explicit
violations of State or Federal law or are otherwise in direct
contravention of established public policy.
Just as benefit to the public is an underlying justification for
tax exemption,\12\ the purpose of the PSLF program is to encourage
individuals to enter and continue in full-time public service
employment.\13\ All of the activities included within the definition of
substantial illegal purpose \14\ are either explicit violations of
State or Federal law, and as such, are actions which do not serve the
public good. Indeed, violations of law may increase government costs
and burdens, which has the opposite effect of actions that actually
promote the public good. To maintain internal coherence across the
statutes at large, we presume that Congress would not have the
Department subsidize activity through the PSLF program that Congress
also aims to prevent in other statutes. Indeed, Congress appropriates
significant public funds to combat illegal behavior, and it would
frustrate the purpose of those appropriations if the Department were
also subsidizing illegal behavior in the PSLF program with public
funds. Therefore, the Department's exclusion of organizations engaging
in such activities from the definition of qualifying employer is
justified on the same basis that the IRS is justified in using the
Illegality Doctrine to deny or revoke tax exempt status granted under
Sec. 501(c)(3): it would be paradoxical for the Department to allow
organizations and borrowers to be employed by organizations that are
acting against the public good in order to benefit from a program
premised on encouraging individuals to enter and continue in full-time
public service employment.\15\
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\12\ See Jean Wright and Jay H. Rotz, Illegality and Public
Policy Considerations, in IRS Exempt Organizations Continuing
Professional Education Technical Instruction Program Textbook, 17th
Ed. (IRS Exempt Organizations Technical Division, ed. 1993).
\13\ See 34 CFR 685.219(a).
\14\ See ``Substantial Illegal Purpose (Sec. 685.219(b)(30))
for the list of activities.
\15\ See Church of Scientology of California v. Comm'r of
Internal Revenue, 83 T.C. 381, 507 (1984), aff'd sub nom. Church of
Scientology of California v. Comm'r, 823 F.2d 1310 (9th Cir. 1987)
(stating ``The Government also has an interest in not subsidizing
criminal activity. Were we to sustain petitioner's exemption, we
would in effect be sanctioning petitioner's right to conspire to
thwart the IRS at taxpayer's expense. We think such paradoxes are
best left for Gilbert and Sullivan'').
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VI. Public Participation

Section 492 of the HEA, 20 U.S.C. 1098a, requires the Secretary to
obtain public involvement in the development of proposed regulations
affecting programs authorized by the title IV, HEA programs. Prior to
developing this NPRM, we significantly engaged with the public to
obtain advice and recommendations from individuals and representatives
of groups involved in the title IV, HEA programs. This engagement
included a 30-day public comment period, two days of public hearings,
and three days of negotiated rulemaking.
On April 4, 2025, we published in the Federal Register (90 FR
14741) a notice of our intent to hold public hearings and to establish
a negotiated rulemaking committee addressing topics such as PSLF, Pay
As You Earn (PAYE), Income-Contingent Repayment (ICR), or other topics
that would streamline and improve Federal student financial assistance
programs and related regulations.

Public Comments and Hearings

We received 7,929 written comments in response to the Federal
Register notice. Additionally, public hearings were held on April 29
and on May 1, 2025. A total of 137 individuals testified at the
hearings. We also received written comments on possible regulatory
provisions that were submitted directly to the Department by interested
parties and organizations.
You may view the written comments submitted in response to the
April 4, 2025, Federal Register notice on the Federal eRulemaking
Portal at <a href="http://Regulations.gov">Regulations.gov</a>, within docket ID ED-2023-OPE-0151.
Instructions for finding comments are also available on the site under
``FAQ.''
Transcripts of the public hearings can be accessed at <a href="https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026">https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026</a>.

Negotiated Rulemaking

After obtaining this extensive advice and recommendations from the
public, the Secretary, by section 492 of the HEA, 20 U.S.C. 1098a,
prepared draft regulations and submitted them to a negotiated
rulemaking process. Further information on the negotiated rulemaking
process can be found at: <a href="https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026">https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026</a>.
On May 12, 2025, we published a notice in the Federal Register (90
FR 20142) announcing our intent to establish a committee to prepare
these proposed regulations. The notice set forth a schedule for
committee meetings and requested nominations for individual negotiators
to serve on the negotiated rulemaking committee. In the notice, we also
announced the topics that the committee would address.
We chose members of the negotiated rulemaking committee from
individuals nominated by groups involved in the title IV, HEA programs.
We selected individuals with demonstrated expertise or experience with
the PSLF program. The negotiated rulemaking committee included the
following members, representing their respective constituencies:
* Civil rights organizations, consumer advocates, and legal
assistance organizations that represent students and/or borrowers:
Betsy Mayotte, The Institute of Student Loan Advisors, and Abby
Shafroth (alternate), Student Loan Borrower Assistance Project.
* State officials, including State higher education executive
officers, State authorizing agencies and State attorneys general:
Rebecca Stanley, Fifteenth Judicial Circuit Solicitor's Office, and J.
Charles Smith III (alternate), Frederick County State's Attorney's
Office.
* Student loan borrowers in repayment: Emeka Oguh, PeopleJoy, and
Sarah Doran (alternate), St. Vrain Valley Schools.
* U.S. military service members, veterans, or groups representing
them: Robert H. Carey, Jr., National Defense Committee, and Faisal
Sulman (alternate), Student Veterans of America.
* Public institutions of higher education, including Historically
Black Colleges and Universities, Tribal Colleges and Universities, and
Minority-serving institutions (institutions of higher education
eligible to receive Federal assistance under title III, parts A and F,
and title V of the HEA): Tracy A. Ireland, The Board of Regents of the
University System of Georgia, and Kaity McNeill (alternate), The
University of North Carolina System Office.
* Private nonprofit institutions of higher education including
Historically Black Colleges and Universities, Tribal Colleges and
Universities, and Minority-serving institutions (institutions of higher
education eligible to receive Federal assistance under title III, parts
A and F, and title V of the HEA): C. Todd Jones, Association of
Independent Colleges and Universities of Ohio, and

[[Page 40158]]

Heather Boutell (alternate), Vanderbilt University.
* Proprietary institutions of higher education: Mary Lyn Hammer,
Champion College Solutions, and April Boyd (alternate), The College of
Health Care Professionals.
* Financial aid administrators at postsecondary institutions:
Alyssa Dobson, Slippery Rock University, and Helen Faith (alternate),
University of Virginia.
* Organizations representing taxpayers and the public interest:
Thomas John Aiello, National Taxpayers Union, and Laurel Taylor
(alternate), Candidly.
* Federal Family Education Loan Lenders and/or Guaranty Agencies:
Scott Buchanan, Student Loan Servicing Alliance, and Alex Ricci
(alternate), National Council of Higher Education Resources.
The committee discussion was led by Tamy Abernathy of the
Department and supported by the Department's Office of General Counsel
and Office of Postsecondary Education, with Annmarie Weisman of Federal
Student Aid serving as facilitator for the committee.
The negotiated rulemaking committee for these proposed regulations
met from June 30 to July 2, 2025. The committee reviewed and discussed
draft regulations prepared by the Department, as well as alternative
language and suggestions proposed by committee members. The Department
provided opportunities for public comment at the end of the first two
days of negotiations. Additionally, during each negotiated rulemaking
session, non-Federal negotiators obtained feedback from stakeholders
that they shared with the negotiating committee.
Under the organizational protocols for negotiated rulemaking, if
the committee reaches consensus on the proposed regulations, we agree
to publish, without substantive alteration, a defined group of
regulations on which the negotiators reached consensus--unless the
Secretary reopens the process or provides a written explanation to the
participants stating why he or she has decided to depart from the
agreement reached during negotiations. In this instance, consensus is
considered to be the absence of dissent by any member of the negotiated
rulemaking committee (abstaining members are not considered to be
dissenting from the proposal).
At the conclusion of the meetings on July 2, 2025, the negotiator
representing civil rights organizations dissented from the draft
regulations and therefore the committee did not reach consensus. For
more information on the proceedings of these meetings please visit:
<a href="https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026">https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026</a>.

VII. Significant Proposed Regulations

We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect.

Definitions General (Sec. 685.219(b))

Current Regulations: Section 685.219(b) contains 23 definitions of
key terms as they relate to the PSLF program.
Proposed Regulations: We are proposing to restructure subsection
(b) of Sec. 685.219 to make each definition its own paragraph. The
paragraphs would include the 23 current definitions and add 13 new
definitions in these proposed rules.
Reasons: Due to the proposed addition of 13 new definitions the
Department believes restructuring subsection (b) in this manner will
greatly aid with readability of the regulation. For ease of reference,
the definitions in subsection (b) would continue to be listed in
alphabetical order.

Aiding or Abetting (Sec. [thinsp]685.219(b)(1))

Current Regulations: None.
Proposed Regulations: Proposed Sec. 685.219 would define aiding or
abetting and use the same definition that is already in current law
under Title 18, United States Code, Section 2.
Reasons: The term aiding or abetting can be found in two places in
the proposed definition of substantial illegal purpose under Sec.
[thinsp]685.219(b)(30): (1) aiding or abetting violations of 8 U.S.C.
1325 or other Federal immigration laws, and (2) engaging in a pattern
of aiding and abetting illegal discrimination. Under the proposed rule,
a qualifying employer that engages in activities that have a
substantial illegal purpose would lose its qualifying employer status
if certain conditions were met (see discussion of proposed Sec.
[thinsp]685.219(h) and (i)). The principles under 18 U.S.C. 2 state:

(1) Whoever commits an offense against the United States or
aids, abets, counsels, commands, induces or procures its commission,
is punishable as a principal.
(2) Whoever willfully causes an act to be done which if directly
performed by him or another would be an offense against the United
States, is punishable as a principal.

The Department would adopt the definition of aiding and abetting as
defined in Title 18 of the United States Code, a Federal statute. As
the Department expressed during negotiated rulemaking, utilizing a pre-
existing definition in Federal law would help ensure: (1) the
Department's regulations align with other definitions across Federal
agencies, (2) the Department is able to make consistent determinations
using established criteria regarding the status of a qualifying
employer, and (3) the public understands how the Department interprets
the phrase.

Chemical Castration or Mutilation (Sec. [thinsp]685.219(b)(3))

Current Regulations: None.
Proposed Regulations: Proposed Sec. 685.219(b)(3) would define
chemical castration or mutilation to mean the use of puberty blockers,
including GnRH agonists and other interventions, to delay the onset or
progression of normally timed puberty in an individual who does not
identify as his or her sex and the use of sex hormones, such as
androgen blockers, estrogen, progesterone, or testosterone, to align an
individual's physical appearance with an identity that differs from his
or her sex.
Reasons: The term chemical castration or mutilation can be found in
the proposed definition of substantial illegal purpose under Sec.
[thinsp]685.219(b)(30): engaging in the chemical and surgical
castration or mutilation of children in violation of Federal or State
law. Under this proposed rule, a qualifying employer that engages in
activities that have a substantial illegal purpose may lose its
qualifying employer status if certain conditions are met.
The Department searched for the most appropriate definition of
chemical castration or mutilation and located Executive Order 14187,
Protecting Children From Chemical and Surgical Mutilation,\16\ which
provides the basis for the proposed definition. E.O. 14187 states:
---------------------------------------------------------------------------

\16\ Executive Order 14187--Protecting Children From Chemical
and Surgical Mutilation--<a href="https://www.federalregister.gov/documents/2025/02/03/2025-02194/protecting-children-from-chemical-and-surgical-mutilation">https://www.federalregister.gov/documents/2025/02/03/2025-02194/protecting-children-from-chemical-and-surgical-mutilation</a>.

[[Page 40159]]

appearance to align with an identity that differs from his or her
sex or that attempt to alter or remove an individual's sexual organs
to minimize or destroy their natural biological functions. This
---------------------------------------------------------------------------
phrase sometimes is referred to as gender affirming care.

As the Department expressed during negotiated rulemaking, utilizing
a pre-existing definition elsewhere in guidance would help ensure: (1)
that the Department's regulations align with other definitions across
Federal agencies, (2) that the Department makes consistent
determinations using established precedents regarding the status of a
qualifying employer, and (3) that the public has clear expectations on
how the Department interprets the term.
During negotiated rulemaking, one negotiator expressed concern that
the Department staff are not medical professionals and do not have the
expertise to define chemical castration or mutilation. The Department
clarified that in order for a qualifying employer to lose eligibility
under this definition there must be a violation of Federal or State
law. In United States v. Skremtti, Attorney General and Reporter for
Tennessee, et al.,\17\ the U.S. Supreme Court upheld a Tennessee law
restricting certain sex transition treatments for minors. Also, there
are 27 States that restrict medical procedures and treatments performed
on minors related to assertion that minor's sexual identity differs
from their biological sex, either in part of in full.\18\
---------------------------------------------------------------------------

\17\ United States v. Skremtti, Attorney General and Reporter
for Tennessee, et al.--<a href="https://www.supremecourt.gov/opinions/24pdf/23-477_2cp3.pdf">https://www.supremecourt.gov/opinions/24pdf/23-477_2cp3.pdf</a>.
\18\ Amy Herron, These 27 States Have Restricted Gender-
Transition Treatments for Minors Since 2021, N.Y. Times, June 18,
2025 (available at <a href="https://www.nytimes.com/2025/06/18/us/politics/states-trans-treatments-scotus.html">https://www.nytimes.com/2025/06/18/us/politics/states-trans-treatments-scotus.html</a>).
---------------------------------------------------------------------------

The Department would not find a violation of the standard (see
discussion under Sec. [thinsp]685.219(h) and (i)) if there is not a
Federal or State law that prohibits sex transition treatments for
minors in the state where the employer is located.

Child or Children (Sec. [thinsp]685.219(b)(4))

Current Regulations: None.
Proposed Regulations: The Department proposes that for the sole and
specific purpose of the PSLF Program the term ``child'' or ``children''
means an individual or individuals under 19 years of age.
Reasons: The term child or children can be found in the proposed
definition of substantial illegal purpose under Sec.
[thinsp]685.219(b)(30): engaging in the chemical and surgical
castration or mutilation of children in violation of Federal or State
law. The Department believes that it is necessary to define the term
for the purposes of the PSLF program.
The Department searched for the most appropriate definition of
child or children and located guidance in Executive Order 14187,
Protecting Children From Chemical and Surgical Mutilation, which
provides the basis for the proposed definition. Executive Order 14817
states---
``The term ``child'' or ``children'' means an individual or
individuals under 19 years of age.''
During rulemaking, a few negotiators raised concerns that the age
of majority in many States is 18 years of age. The negotiators believed
that the Department's proposed definition could penalize a qualifying
employer that performed certain medical procedures that were banned for
minors to an individual that a State considered to be a legal adult. To
address this concern, the Department clarified that the entire clause
under proposed Sec. 685.219(b)(30) must be considered. The illegal
activities in which the organization is engaging--specifically the
chemical and surgical castration or mutilation of children must be in
violation of Federal or State law of the state where the employer is
located (see also the discussion of proposed Sec. 685.219(b)(4),
above, and Sec. 685.219 (b)(31)), below.

Foreign Terrorist Organizations (Sec. 685.219(b)(10))

Current Regulations: None.
Proposed Regulations: Under proposed 685.219(b)(10), the Department
would define the term foreign terrorist organizations to mean
organizations on the list published under paragraph (a)(2)(A)(ii) under
the Immigration and Nationality Act (8 U.S.C. 1189).
Reasons: The Department proposes to adopt the definition of foreign
terrorist organizations as defined in the Immigration and Nationality
Act, a Federal statute. As the Department expressed during negotiated
rulemaking, utilizing a pre-existing definition elsewhere in Federal
law helps to ensure that the Department's regulations align with other
definitions across Federal agencies. As we explained during negotiated
rulemaking, as of June 2025, there were over 70 foreign terrorist
organizations designated by the United States Department of State.\19\
---------------------------------------------------------------------------

\19\ List of foreign terrorist organizations designated by the
State Department: <a href="https://www.state.gov/foreign-terrorist-organizations/">https://www.state.gov/foreign-terrorist-organizations/</a>.
---------------------------------------------------------------------------

To help the Department determine whether a qualifying employer or
organization is engaging in activities with a substantial illegal
purpose--including supporting terrorism, the Department would need a
definition for foreign terrorist organizations. The Department believes
utilizing an existing definition of foreign terrorist organizations
would ensure consistency and clarity for the community. The Department
would then be able to determine the nexus between a qualifying employer
and whether that qualifying employer met the conditions of engaging in
a substantially illegal purpose.

Illegal Discrimination (Sec. 685.219(b)(12))

Current Regulations: None.
Proposed Regulations: Under proposed 685.219(b)(12), the Department
would define the term ``illegal discrimination'' to mean a violation of
any Federal discrimination law including, but not limited to, the Civil
Rights Act of 1964 (42 U.S.C. 1981 et seq.), Americans with
Disabilities Act (42 U.S.C. 12101 et seq.), and the Age Discrimination
in Employment Act of 1967 (29 U.S.C. 621 et seq.).
Reasons: The Department proposes to enumerate a non-exhaustive list
of Federal anti-discrimination laws in the definition of illegal
discrimination. These Federal laws are some of the chief anti-
discrimination laws that we believe capture the intent of the PSLF
Executive Order which keeps qualifying employers accountable to not
engage in illegal discrimination.
The definition of illegal discrimination is limited to only Federal
discrimination laws rather than State discrimination laws. Limiting the
scope to only Federal laws will help reduce the burden on the
Department when assessing whether a qualifying employer engages in
illegal discrimination as there are many State laws addressing
discrimination. Furthermore, the Department would leverage its existing
relationship with other Federal partners to assist in determining if a
qualifying employer engages in illegal discrimination in the context of
Federal laws. The Department believes the listed Federal laws in
paragraph (b)(12) should cover most of the illegal discrimination
employers could be involved in and help ensure that the Department is
consistent and uniform in addressing issues of illegal discrimination
to a narrow set of Federal laws.
The Department notes that we reserved the Secretary's authority to
include other Federal anti-discrimination laws in this definition that
are not enumerated by including the phrase ``including but not limited
to.'' In crafting the definition of illegal discrimination, we balanced
the need to

[[Page 40160]]

outline specific laws to give qualifying employers clear expectations
to curb illegal discrimination with the need to also cover other forms
of illegal discrimination that are not enumerated that could be a cause
of concern in the future.
During negotiated rulemaking sessions, a negotiator acknowledged
that, while the Department has expertise in helping ensure that
discrimination does not exist in educational settings, it does not have
the expertise or authority to enforce other types of discrimination,
including employment discrimination law. The negotiator also expressed
concern that a ``chilling effect'' could exist in the reporting of
discrimination. In turn, the employee would lose PSLF eligibility if
the employer was found liable for engaging in illegal discrimination.
In response, the Department pointed out the circular nature of the
argument if the Department cannot enforce the rules preventing illegal
discrimination due to the fear of the ``chilling effect.'' Therefore,
we reiterate that we have an interest in helping ensure that PSLF
qualifying employers do not engage in illegal discrimination.

Other Federal Immigration Laws (Sec. 685.219(b)(17))

Current Regulations: None.
Proposed Regulations: Proposed Sec. 685.219(b)(17) would define
other Federal Immigration laws to mean any violation of the Immigration
and Nationality Act (8 U.S.C. 1105 et seq.) or any other Federal
immigration laws.
Reasons: The term other Federal immigration laws can be found in
the proposed definition of substantial illegal purpose under Sec.
[thinsp]685.219(b)(30)(i): aiding or abetting violations of 8 U.S.C.
1325 or other Federal immigration laws. The Department believes that it
is necessary to define the term for the purpose of determining whether
a qualifying employer engaged in activities that would restrict
participation in the PSLF program.
U.S. immigration policy is governed largely by the Immigration and
Nationality Act (INA), which was first codified in 1952 and has been
amended significantly several times since. U.S. immigration policy
contains two major aspects. One facilitates migration flows of foreign
nationals into the United States; another focuses on immigration
enforcement and removal. Immigration functions authorized by Congress
under the INA and other laws are carried out by several executive
branch agencies.\20\
---------------------------------------------------------------------------

\20\ Primer on U.S. Immigration Policy--<a href="https://www.congress.gov/crs-product/R45020">https://www.congress.gov/crs-product/R45020</a>.
---------------------------------------------------------------------------

While the INA is the main Federal statute governing U.S.
immigration policy, there are other immigration statutes that are not
part of the INA. The Department chooses not to limit its authority to
review a qualifying employer under the proposed standard (see proposed
Sec. 685.219(h) and (i)) to the INA. As such we included the phrase
``or any other Federal immigration laws'' as part of the definition.

Qualifying Employer (Sec. 685.219(b)(27))

Current Regulations: Current Sec. 685.219(b) contains definitions
of key terms, including the definition of qualifying employer. Under
the current regulations, the term qualifying employer generally
includes Federal, State, local, and Tribal Government agencies; public
child or family service agencies; nonprofit organizations that are
described in section 501(c)(3) of the Internal Revenue Code and exempt
from taxation under section 501(a) of the Internal Revenue Code; and
other organizations that provide certain specific public services
listed in Sec. 455(m)(3)(B) of the HEA, other than a business
organized for profit, a labor union, or a partisan political
organization.
Proposed Regulations: The Department proposes modifying the
existing definition of qualifying employer in Sec. 685.219(b). At the
direction of the Secretary and consistent with the guidance in E.O.
14235,\21\ the Department would revise the definition of qualifying
employer to exclude organizations that engage in activities that have a
substantial illegal purpose.
---------------------------------------------------------------------------

\21\ Restoring Public Service Loan Forgiveness--<a href="https://www.federalregister.gov/documents/2025/03/12/2025-04103/restoring-public-service-loan-forgiveness">https://www.federalregister.gov/documents/2025/03/12/2025-04103/restoring-public-service-loan-forgiveness</a>.
---------------------------------------------------------------------------

Reasons: The proposed modified definition of qualifying employer
would align with the policy in E.O. 14235 to protect the integrity of
the PSLF program by ensuring that loan cancellation under the program
does not subsidize organizations that engage in activities that have a
substantial illegal purpose.
The Department is concerned that the PSLF program has sent tax
dollars to employees of organizations that are engaged in activities
that are illegal, thereby subsidizing their employment.
The proposed changes to the definition would benefit taxpayers by
ending support for organizations that engage in illegal activities such
as aiding and abetting illegal immigration, human trafficking, damage
to government property, and other actions that threaten our country.
The proposed definition would also benefit student loan borrowers by
redirecting them to employment with organizations that serve the public
good.
During the negotiated rulemaking meetings, the Department proposed
a refined definition of qualifying employer as a method to protect the
objectives and efficacy of the PSLF program. Negotiators and public
commenters expressed concerns that such an approach might create a
``chilling effect'' that could discourage borrowers from entering
certain career fields in public service. The Department has taken steps
to address the issues raised with the draft regulations and believes
that the benefits of these proposed regulations outweigh concerns that
have been raised. The modified definition would provide notice to
borrowers about the qualifying employer requirements when applying for
or certifying eligibility under the PSLF program. The modified
definition would also provide clarity that an organization that
participates in activities that have a substantial illegal purpose is
explicitly excluded from the list of qualifying employers for purposes
of determining eligibility under the program.

Substantial Illegal Purpose (Sec. 685.219(b)(30))

Current Regulations: None.
Proposed Regulations: Proposed Sec. 685.219(b)(30) would define
substantial illegal purpose as:
(1) aiding or abetting violations of 8 U.S.C. 1325 or other Federal
immigration laws;
(2) supporting terrorism, including by facilitating funding to, or
the operations of, cartels designated as Foreign Terrorist
Organizations consistent with 8 U.S.C. 1189, or by engaging in violence
for the purpose of obstructing or influencing Federal Government
policy;
(3) engaging in the chemical and surgical castration or mutilation
of children in violation of Federal or State law;
(4) engaging in the trafficking of children to states for purposes
of emancipation from their lawful parents in violation of Federal or
State law,
(5) engaging in a pattern of aiding and abetting illegal
discrimination; or
(6) engaging in a pattern of violating State laws as defined in
paragraph (34) of this subsection.
Reasons: Illegal activities, including illegal immigration, as well
as activities which are against established public policy, are a threat
to our national security and to the social and economic

[[Page 40161]]

stability of the United States. The Department has an overriding
governmental interest in promoting policies to thwart such unlawful
conduct. Further, the President has a constitutional duty of ensuring
that laws be faithfully executed. On March 7, 2025, President Trump
signed E.O. 14235, directing the Secretary of Education to propose
revisions to 34 CFR 685.219 that ensure that loan cancellation under
the PSLF Program excludes organizations that engage in activities that
have a substantial illegal purpose and identifying certain activities
which are illegal or contrary to public policy. The Department has
chosen to use its statutory authority to codify the guidance outlining
activities that have a substantial illegal purpose in E.O. 14235 in
regulation.

Surgical Castration or Mutilation (Sec. 685.219(b)(31))

Current Regulations: None.
Proposed Regulations: Proposed Sec. 685.219(b)(31) would define
surgical castration or mutilation as surgical procedures that attempt
to transform an individual's physical appearance to align with an
identity that differs from his or her biological sex or that attempt to
alter or remove an individual's sexual organs to minimize or destroy
his or her natural biological functions.
Reasons: The term surgical castration or mutilation can be found in
the proposed definition of substantial illegal purpose under Sec.
685.219(b)(30): engaging in the chemical and surgical castration or
mutilation of children in violation of Federal or State law. Under this
proposed rule a qualifying employer that engages in activities that
have a substantial illegal purpose may lose its qualifying employer
status if certain conditions are met.
The Department searched for the most appropriate definition of
surgical castration or mutilation and located Executive Order 14187,
which provides the rationale for the proposed definition. Executive
Order 14187 states:

. . . chemical and surgical mutilation means the use of puberty
blockers, including GnRH agonists and other interventions, to delay
the onset or progression of normally timed puberty in an individual
who does not identify as his or her sex; the use of sex hormones,
such as androgen blockers, estrogen, progesterone, or testosterone,
to align an individual's physical appearance with an identity that
differs from his or her sex; and surgical procedures that attempt to
transform an individual's physical appearance to align with an
identity that differs from his or her sex or that attempt to alter
or remove an individual's sexual organs to minimize or destroy their
natural biological functions. This phrase sometimes is referred to
as gender affirming care.

As the Department expressed during negotiated rulemaking, utilizing
a pre-existing definition elsewhere in guidance would help ensure: (1)
that the Department's regulations align with other definitions across
Federal agencies, (2) that the Department is able to make consistent
determinations using established precedent regarding the status of a
qualifying employer, and (3) that the public is aware how the
Department interprets the phrase.
During negotiated rulemaking, one negotiator expressed concern that
the Department staff are not medical professionals and do not have the
expertise to define surgical castration or mutilation. The Department
clarifies that, in order for a qualifying employer to lose eligibility
under this definition, there must be a violation of State law. In the
United States v. Skremtti, Attorney General and Reporter for Tennessee,
et al.\23\ the U.S. Supreme Court upheld a Tennessee law restricting
certain sex transition treatments for minors and, as of June, 2025,\24\
there are 27 States that restrict certain medical procedures and
treatments performed on minors related to assertions that minors'
sexual, identity differs from their biological sex.
---------------------------------------------------------------------------

\23\ United States v. Skremtti, Attorney General and Reporter
for Tennessee, et al.--<a href="https://www.supremecourt.gov/opinions/24pdf/23-477_2cp3.pdf">https://www.supremecourt.gov/opinions/24pdf/23-477_2cp3.pdf</a>.
\24\ Amy Herron, These 27 States Have Restricted Gender-
Transition Treatments for Minors Since 2021, N.Y. Times, June 18,
2025 (available at <a href="https://www.nytimes.com/2025/06/18/us/politics/states-trans-treatments-scotus.html">https://www.nytimes.com/2025/06/18/us/politics/states-trans-treatments-scotus.html</a>).https://<a href="http://www.nytimes.com/2024/12/04/us/gender-transition-bans-states.html">www.nytimes.com/2024/12/04/us/gender-transition-bans-states.html</a>.
---------------------------------------------------------------------------

The Department would not find a violation of the standard (see
discussion under Sec. [thinsp]685.219(h) and (i)) if there is not a
Federal or State law in the state where the employer is located that
prohibits surgical castration or mutilation of minors. In other words,
if those types of procedures are legal in the state where the employer
resides and the employer participates or supports such activities,
there would be no violation.

Terrorism (Sec. 685.219(b)(32))

Current Regulations: None.
Proposed Regulations: Proposed 685.219(b)(32), would adopt the
definition of ``terrorism'' used in Title 18, United States Code,
Section 2331 (18 U.S.C. 2331).
Reasons: The Department proposes to adopt the definition of
terrorism as defined in the criminal code. As we explained during
negotiated rulemaking, utilizing a pre-existing definition elsewhere in
Federal law would help ensure that the Department's regulations align
with other definitions across Federal agencies. To that end, we propose
to use the definition of terrorism in 18 U.S.C. 2331. Under Federal
law, terrorism includes acts of international and domestic terrorism
that involve violated acts or acts dangerous to human life that are
illegal and appear to be intended to intimidate or coerce civilians or
the Government.
To help the Department determine whether a qualifying employer or
organization is engaging in activities with a substantial illegal
purpose, including supporting terrorism, the Department requires a
definition for terrorism. The Department would then be able to
determine the nexus between a qualifying employer and whether that
qualifying employer supported terrorism as defined in our regulations.

Trafficking (Sec. 685.219(b)(33))

Current Regulations: None.
Proposed Regulations: Proposed Sec. 685.219(b)(33) would add a new
definition for trafficking, which is a key term under the broader
substantial illegal purpose definition.
Reasons: The proposed definition at Sec. 685.219(b)(33) is
necessary to bring clarity to the specific activities that constitute
having a substantial illegal purpose. Because trafficking is a key term
listed under the broader substantial illegal purpose definition, the
Department must provide a definition for the term. Additionally,
proposed Sec. 685.219(b)(33) provides greater specificity for the
Secretary, in his or her authority under the HEA, to make the
determination if an organization has engaged in illegal activities, for
the purposes of determining eligibility under the PSLF program.
The Department researched existing Federal laws and statutes but
did not find a statute that matched the context. For example, current
regulatory text at 28 CFR 1100.25 provides a definition for ``severe
forms of trafficking,'' however the definition was limited to
situations of sex trafficking only. In the absence of an appropriate
definition under existing law, the Department chose to develop its own
proposed definition to better align with the intent of Executive Order
14187 to specifically protect children from illegal transportation
across State lines for the purposes of emancipation from their lawful
parents or guardian. The Department believes the proposed definition
will effectively serve the purpose of preventing organizations

[[Page 40162]]

from engaging in these types of trafficking activities.

Violating State Law (Sec. 685.219(b)(34))

Current Regulations: None.
Proposed Regulations: Under proposed 685.219(b)(34), violating S
State law would mean a final, non-default judgment by a State court of:
(i) trespassing; (ii) disorderly conduct; (iii) public nuisance; (iv)
vandalism; or (v) obstruction of highways.
Reasons: The Department believes we must create a definition to
establish a clear and consistent framework for evaluating violations of
State law. The proposed definition would provide an exhaustive list of
State law violations that would amount to activity that has a
substantial illegal purpose. Qualifying employers would have the
ability to recognize actions or activities that have a substantial
illegal purpose and either avoid or resolve them prior to losing
eligibility.
The Department originally proposed ``Violating State Tort Law'' as
the title for the definition. However, during negotiated rulemaking,
negotiators commented that the listed violations were a combination of
both civil and criminal offenses; therefore, the Department removed the
reference to ``tort''.
Additionally, because of negotiations, the Department proposed to
remove the definition of violating State laws given we believed it was
defined adequately under the definition of substantial illegal purpose.
However, a negotiator noted that we inadvertently removed the condition
that the State law violation must be confirmed as a final, non-default
judgment. The Department reintroduced the language into the proposed
definition as we believed it ensured an employer, suspected of having
violated State law under this proposed rule, was provided consistency
and fairness when deciding to rely upon a decision made by court or
tribunal. The Department believes a non-default judgment clarifies this
standard by relying upon a court decision made after a full trial or
hearing.

Violence for the Purpose of Obstructing or Influencing Federal
Government Policy (Sec. 685.219(b)(35))

Current Regulations: None.
Proposed Regulations: Proposed Sec. 685.219(b)(35) would define
violence for the purpose of obstructing or influencing Federal
Government policy, which is one of the activities explicitly mentioned
in the broader substantial illegal purpose definition. Section
685.219(b)(35) leverages an existing statutory definition for crime of
violence, as found under 18 U.S.C. 16.
Reasons: The proposed definition at Sec. 685.219(b)(35) is
necessary to bring clarity to the specific activities that constitute
having a substantial illegal purpose. Additionally, Sec.
685.219(b)(35) provides greater specificity for the Secretary, in his
or her authority under the HEA, to make the determination if an
organization has engaged in illegal activities, for the purposes of
determining eligibility under the PSLF program. In defining violence
for the purpose of obstructing or influencing Federal Government
policy, the Department sought an appropriate reference to violence in
existing Federal laws. A crime of violence within 18 U.S.C. 16,
generally involves attempted, threatened, or physical force against a
person or property of another. The Department believes this existing
reference is appropriate for use in our proposed definition and
simplifies the determination process for the Department by leveraging
existing law. Borrowers as well as their employers will also benefit
from the approach of using existing law as doing so applies
consistency, familiarity, and fairness.

Borrower Eligibility (Sec. 685.219(c))

Current Regulations: Section 685.219(c) provides the borrower
eligibility requirements for purposes of PSLF. Specifically, Sec.
685.219(c)(2) outlines the conditions when a borrower would have been
considered to have made a qualifying monthly payment under Sec.
685.219(c)(1)(iii).
Proposed Regulations: Under proposed Sec. 685.219(c)(2), the
Secretary would add a new condition under paragraph (c)(4) under which
a borrower would not have been considered to have made a qualifying
payment under paragraph (c)(1).
Under proposed Sec. 685.219(c)(4), effective on or after July 1,
2026, through a standard described in Sec. 685.219(h), no payment
would be creditable as a qualifying payment for any month subsequent to
a determination that a qualifying employer engaged in activities that
have a substantial illegal purpose.
Reasons: Under the PSLF program, borrowers must meet the following
criteria: be employed by a qualifying employer such as a Federal,
State, local, or Tribal government or qualifying not-for-profit
organization; work full-time for that agency or organization; have
Direct Loans (or consolidate other Federal student loans into a Direct
Loan); repay their loans under a qualifying repayment plan; and make a
total of 120 qualifying monthly payments that need not be
consecutive.\25\ The proposed rules in 685.219(c) are twofold. First,
the Department adds an exception clause in paragraph (c)(2) that states
a borrower would not be considered to have made a PSLF-qualifying
payment during a period or periods subsequent to which the qualifying
employer has been determined to have engaged in substantial illegal
activity. Second, by adding a new paragraph (c)(4), the Department
makes certain the effective date of these regulations that impact a
borrower's eligibility. The Department believes that addressing the
impact these regulations have on a borrower's eligibility with an
effective date of July 1, 2026, only allows for prospective
adjudications. By selecting a date that impacts a borrower's
eligibility for PSLF, borrowers have clarity as to when their payments
would be considered qualifying payments.
---------------------------------------------------------------------------

\25\ <a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service">https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service</a>.
---------------------------------------------------------------------------

Application Process (Sec. 685.219(e))

Current Regulations: Section 685.219(e) outlines a process for a
borrower to apply for loan forgiveness under the PSLF program.
Specifically, the process directs that a borrower may request loan
forgiveness by filing an application approved by the Secretary, and
then directs the Secretary to, among other things, make determinations
and notify the borrower of forgiveness if sufficient information is
available. If there is insufficient information available, the
Secretary may request that the borrower provide additional information
in order to make a determination of qualifying employment or eligible
payments based on other documentation provided by the borrower. Upon
the Secretary's determination that a borrower meets forgiveness
eligibility requirements, the Secretary will notify the borrower and
forgive the outstanding balance of the eligible loans.
Proposed Regulations: Proposed Sec. 685.219(e)(9) would modify the
current process to require the Secretary to notify the borrower when an
employer may become an ineligible employer under subsection (h) of this
section. Proposed Sec. 685.219(e)(10) would provide that, if the
Secretary has determined that the employer is no longer a qualifying
employer, the Secretary would notify that borrower of the employer's
status.
Reasons: Modifying Sec. 685.219(e) is necessary to conform with
the Department's proposed regulatory amendment at subsection (h) within
the

[[Page 40163]]

same section. Whereas subsections (h) and (i) provide the standard for
determining a qualifying employer engaged in activities that have a
substantial illegal purpose and the process for making such
determinations, subsection (e) clarifies the application process by
directing the Secretary to notify borrowers when an employer may become
ineligible or is no longer considered a qualifying employer for
purposes of the PSLF program as it relates to the proposed standard for
determining a qualifying employer engaged in activities that have a
substantial illegal purpose. The proposed borrower notification process
provides transparency and insight regarding current or former employers
that may become ineligible or are ineligible as a result of the
proposed subsection (h). Should a borrower be employed by an affected
employer, such notifications may assist a borrower in making informed
decisions about their employment should they wish to continue making
qualifying PSLF payments while employed at a qualifying employer.

Borrower Reconsideration Process (Sec. 685.219(g))

Current Regulations: Section 685.219(g) outlines a process for the
reconsideration of a student loan borrower's eligibility under the PSLF
program. Specifically, current Sec. 685.219(g) outlines the conditions
for a borrower to request that the Secretary reconsider whether the
borrower's employer or any payment on their qualifying loan meets the
requirements for credit toward loan forgiveness under the program.
Proposed Regulations: Proposed Sec. 685.219(g) would modify the
current process for requesting reconsideration by adding an additional
subparagraph that states a borrower may not request reconsideration
when the Secretary's determination was made based upon an
organization's ineligibility as a qualifying employer due to engaging
in activities that have a substantial illegal purpose.
Reasons: Modifying Sec. 685.219(g) is necessary to conform with
the Department's proposed regulatory amendment at subsection (h) within
the same section. Proposed subsection (h) describes the standard the
Secretary would use to determine when a qualifying employer has engaged
in substantial illegal activities that would impact a borrower's
eligibility under the PSLF program. If an organization has been
determined to be ineligible as a qualifying employer under the standard
at proposed subsection (h), it would follow that there would be no
recourse for a borrower as the employer, not the borrower, is the
entity that has not met the eligibility requirements for the PSLF
program. It is therefore necessary to modify the regulatory text at
subsection (g) to align the reconsideration process with the proposed
addition at subsection (h).
During negotiated rulemaking, negotiators expressed concerns that
borrowers would have no recourse to contest an employer's loss of
qualifying status. The Department noted that, under the standard
outlined in subsection (h), the employer itself will have the
opportunity to respond to the Department's assertation of the employer
having engaged in activities that have a substantial illegal purpose.
Also, the Department added subsection (j) that would prescribe the
process for regaining eligibility as a qualifying employer if
qualifying status were ultimately revoked by the Department.

Standard for Determining When a Qualifying Employer Has Engaged in
Activities That Have a Substantial Illegal Purpose (Sec. 685.219(h))

Current Regulations: None.
Proposed Regulations: Under Sec. 685.219(h), the Department would
create a standard for determining that a qualifying employer engaged in
activities that have a substantial illegal purpose.
The Secretary would determine by a preponderance of the evidence,
and after notice and opportunity to respond, that a qualifying employer
has engaged on or after July 1, 2026, in activities that have a
substantial illegal purpose by considering the materiality of any
illegal activities or actions (by gauging both frequency or severity)
and would not find that the organization has a substantial illegal
purpose if it has only engaged in illegal activities. In making such a
determination, the Secretary would accept the following as conclusive
evidence that the employer engaged in activities that have a
substantial illegal purpose:
(1) A final judgment by a State or Federal court, whereby the
employer is found to have engaged in activities that have a substantial
illegal purpose;
(2) A plea of guilty or nolo contendere, whereby the employer
admits to have engaged in activities that have substantial illegal
purpose or pleads nolo contendere to allegations that the employer
engaged in activities that have substantial illegal purpose; or
(3) A settlement that includes admission by the employer that it
engaged in activities that have a substantial illegal purpose as
described in subsection (h) of this section.
Finally, nothing in this proposed standard shall be construed to
authorize the Secretary to determine an employer has a substantial
illegal purpose based upon the employer or its employees exercising
their protected First Amendment rights, or any other rights protected
under the Constitution.
Reasons: The Secretary seeks to establish a clear and consistent
framework for how the Department would determine that a qualified
employer engaged in activities that have a substantial illegal purpose.
First, the Department would use the preponderance that it receives from
sources specified in regulation (see discussion under proposed Sec.
685.219(i)). The Department arrived at this standard because the
preponderance of the evidence typically means that something is more
likely true than not true. On the final day of negotiated rulemaking,
the Department offered using a clear and convincing standard to
negotiate in good faith due to negotiators' concerns that the
preponderance of evidence was not a high enough standard; however, the
committee did not reach consensus. With this proposed rule we have
returned to the preponderance of evidence standard. The Department
believes that the preponderance of evidence is the most appropriate
standard of proof because of the severity of the activities that have a
substantial illegal purpose. Prior to losing status as a qualified
employer, the Department would notify the employer of an initiated
action to determine if the employer engaged in activities that have a
substantial illegal purpose. This is the Department's attempt to
outline the benchmarks that will be used in the determination and offer
due process to a qualifying employer.
During this time, payments made by employees of the qualifying
employer would still be counted towards PSLF. If the employer chooses
not to respond, then the Secretary may move forward with revoking
qualified employer status, thus subsequent payments made by a borrower
would no longer be counted towards PSLF unless certain conditions were
met (see discussion of proposed subsections (i) and (j)).
If the employer chooses to respond, the Secretary will decide on
the qualified employer's status after the response has been submitted
and reviewed by Department staff. Based on the response, the Secretary
may choose to maintain or revoke the employer's qualifying status.

[[Page 40164]]

The activities that have a substantial illegal purpose would occur
on or after July 1, 2026. This means that activities that have a
substantial illegal purpose that took place and ended prior to July 1,
2026, would not be considered in the Secretary's review under this
standard.
During rulemaking, some of the negotiators expressed concern that
the Department would use authority under this proposed standard to
target qualifying employers that did not align with the current
Administration's values. Negotiators expressed concerns because the
language provided to negotiators prior to the committee meetings
stated: ``The Secretary determines by a preponderance of the evidence,
and after notice and opportunity to respond, that a qualifying employer
has engaged on or after July 1, 2026, in activities that have a
substantial illegal purpose.'' In order to allay concerns, the
Department added language that the Secretary would also consider the
materiality, meaning the significance, of the activities of the
qualifying employer by gauging both frequency and the severity of said
activities, in deciding whether the activities amount to a substantial
illegal purpose. As stated in the text of the regulation, this is
because the Department does not intend to penalize a qualifying
employer prior to the proposed effective date of the regulations.
The Secretary would presume that the following is conclusive
evidence that the employer engaged in activities that have a
substantial illegal purpose, thus revoking qualifying employer status:
(1) A final judgment by a State or Federal court, whereby the employer
is found to have engaged in activities that have a substantial illegal
purpose, (2) A plea of guilty or nolo contendere, whereby the employer
admits they engaged in activities that have a substantial illegal
purpose or pleads nolo contendere to allegations that the employer
engaged in activities that have a substantial illegal purpose; or (3) A
settlement that includes admission by the employer that it engaged in
activities that have a substantial illegal purpose. In crafting options
for the proposed standard, the Department explored judgments and legal
proceedings in a State or Federal court or tribunal of competent
jurisdiction. Reliance on judgments and legal proceedings in any
tribunal would reduce the burden on the Department since, in this
instance, the Department itself would not adjudicate whether the
employer engaged in activities that have a substantial illegal purpose.
Instead, we would rely on processes that took place in court to
determine that the employer engaged in illegal activities that have a
substantial illegal purpose.
During rulemaking, some of the negotiators expressed concern that
the Department would use authority under this proposed standard to
target free speech. For example, one negotiator stated that, if an
employer releases information in support of transgender rights but does
not engage in the chemical or surgical castration or mutilation of a
child or children in violation of a State or Federal law, that the
Department may revoke qualifying employer status. Another negotiator
stated that many legal aid organizations with 501(c)(3) status work
with undocumented clients and feared losing qualifying employer status
due to the Department's determination that they are aiding and abetting
violations of Federal immigration laws. Therefore, the Department
clarified that nothing in the standard would be construed to authorize
the Secretary to determine an employer engaged in activities that have
a substantial illegal purpose based upon the employer or the employees
exercising their protected First Amendment rights, or any other rights
protected under the Constitution.

Process for Determining When an Employer Engaged in Activities That
Have a Substantial Illegal Purpose (Sec. 685.219(i))

Current Regulations: None.
Proposed Regulations: The Department would create a standard for
determining when a qualifying employer is engaged in activities that
have a substantial illegal purpose. The Department would determine that
a qualifying employer violated the standard when the Secretary receives
an application in which the employer fails to certify that it did not
participate in activities that have a substantial illegal purpose; or
would determine that the qualifying employer engaged in activities that
have a substantial illegal purpose, unless, prior to the issuance of
the Secretary's final determination, the Secretary approves a
corrective action plan (see discussion in Sec. 685.219(j).
Reasons: The Department intends to determine in regulations when a
qualifying employer could lose qualifying status for the PSLF program
to make clear to borrowers and qualifying employers the effective date
of loss of qualifying status for purposes of qualifying employment for
PSLF. First, the Department would amend the PSLF Form to allow a
qualifying employer to self-certify that it has not engaged in activity
that has a substantial illegal purpose. Upon receiving that non-
certification, the Secretary would remove the employer from the
qualifying employer list, because the employer is affirming that it
engaged in activities that have a substantial illegal purpose.
Second, the Secretary would determine that a qualifying employer
engaged in activity that has a substantial illegal purpose, resulting
in the eligible employer losing qualifying status. This is because not
all signatories will correctly acknowledge on the PSLF form--either
through an inadvertent mistake, unknowingly, or knowingly and willfully
concealing those facts--whether the employer engaged in activities that
have a substantial illegal purpose.
During negotiated rulemaking, the Department heard a concern that
there could be a lapse in qualifying status for an employer that was
ultimately found by the Department to have engaged in activities that
have a substantial illegal purpose and attempted to regain eligibility
status via a corrective action plan. While under proposed Sec.
685.219(j) an employer can submit a corrective action plan to regain
qualifying status, the process may take time for approval which would
leave employees without access to PSLF for an undefined length of time.
Therefore, the Department proposes to add that the employer may
maintain qualifying status if, prior to the issuance of the Secretary's
final determination, the Secretary approves a corrective action plan.
If the corrective action plan is approved prior to the Secretary's
final decision of a violation of the standard, there will be no lapses
in the qualifying employer's status.
Current Regulations: None.
Proposed Regulations: The Department also would propose a new
paragraph (i)(2). If an employer is operating under a shared
identification number or other unique identifier, the Secretary shall
consider the organization to be separate if the employer is operating
separately and distinctly, for the purposes of determining whether an
employer is eligible.
Reasons: During rulemaking, there was a significant discussion
regarding shared Federal employer identification numbers (EIN). The EIN
is a unique Federal tax identification number issued by the IRS for
businesses, tax-exempt organizations, and other entities. The
Department requests the EIN on the PSLF form and matches the EIN with
the IRS' publicly available listing of tax-exempt organizations and
other entities to ensure that the employer is a qualifying employer for
PSLF purposes. Negotiators noted that there are examples of entire city
governments that

[[Page 40165]]

share an EIN. If a qualifying employer is determined by the Secretary
to have engaged in activities that have a substantial illegal purpose,
entire city governments, including police and fire departments, could
lose eligibility for PSLF. While the Department believes the Secretary
already has the authority to consider agencies as separate under one
EIN, we added a provision in the regulations that allow the Secretary
to separate employers that are under one EIN, should an agency with a
shared EIN lose qualifying employer status. In the regulations, we do
not refer directly to the EIN but instead use the phrase ``shared
identification number or other unique identifier'' to safeguard against
changes or renaming of the EIN to another term in the future.
A qualifying employer could also choose to provide more information
about the structure of the organization during the notice and response
phase under the standard in subsection (h). The Secretary maintains
ultimate authority to make decisions regarding separation of agencies
under a single EIN.

Regaining Eligibility as a Qualifying Employer (Sec. 685.219(j))

Current Regulations: None.
Proposed Regulations: The proposed addition of Sec. 685.219(j)
describes a process for an employer who has lost eligibility due to
engaging in activities that have a substantial illegal purpose, to
regain eligibility, and become a qualifying employer again. An employer
who has lost eligibility may regain eligibility after:
(1) ten (10) years from the date the Secretary determines the
organization engaged in activities that have a substantial illegal
purpose if, at, or after that time the organization certifies on a
borrower's subsequent application that the organization is no longer
engaged in activities that have a substantial illegal purpose; or
(2) the Secretary approves a corrective action plan that is signed
by the employer that includes: a certification that the employer is no
longer engaging in activities that have a substantial illegal purpose;
a report describing the employer's compliance controls that are
designed to ensure that the employer will not engage in activities that
have a substantial illegal purpose in the future; and any other terms
or conditions imposed by the Secretary designed to ensure that
employers do not engage in actions or activities that have a
substantial illegal purpose.
Reasons: During negotiations, several negotiators expressed that an
employer that lost its qualifying status under PSLF would have several
negative consequences including that it would permanently ban employers
from PSLF that may no longer be engaged in activities that have a
substantial illegal purpose. Negotiators mentioned that borrowers often
make major life decisions about employment based on access to PSLF.
As noted above, the initial draft regulations did not contain
provisions for employers to regain eligibility as a qualifying
employer. In an attempt to negotiate in good-faith to address the
concerns mentioned by negotiators and to reach consensus on the draft
regulations, the Department offered two changes whereby an employer may
regain eligibility ten years from the date of determination, or, if the
employer did not want to wait the ten-year period, then the employer
would have the ability to submit a corrective action plan and statement
to the Department that it is no longer engaged in activity that has a
substantial illegal purpose. While there were tentative agreements on
these two changes, one negotiator dissented on approving the draft
regulations, and the negotiated rulemaking committee failed to reach
consensus. Therefore, in proposing these regulations, the Department
continues to agree in principle that providing an employer with a
process to regain qualifying status is an important component. However,
the agreement to allow reinstatement within five years was a major
compromise offered by the Department in the negotiated rulemaking to
gain support from committee members on other provisions in the draft
regulations. In proposing these regulations, the Department believes
that a period of 10 years would better ensure that employers do not
continue to engage in behavior that has a substantial illegal purpose.

Borrower Notification of Regained Eligibility (Sec. 685.219(k))

Current Regulations: None.
Proposed Regulations: The proposed addition of Sec. 685.219(k)
describes a process under which the Department would notify student
loan borrowers if an organization regained eligibility as a qualifying
employer, based upon the standards outlined in proposed subsection (j)
of the same section, for the purpose of correctly certifying or
applying for loan cancellation under the PSLF program.
Reasons: During the negotiated rulemaking session, negotiators
raised concerns about the importance of notifying borrowers, who may
become eligible to apply or re-eligible after initial certification,
when and if their employer regained eligibility as a qualifying
employer. Although operational procedures for the Department are not
commonly outlined in regulatory text, we agreed with the committee's
recommendation to incorporate a general borrower notification
requirement into the proposed rules for PSLF to reflect the
Department's commitment to increase transparency and efficiency in our
administration of the Federal student loan programs.

X. Regulatory Impact Analysis

Executive Orders 12866 and 13563

Under E.O. 12866, the Office of Management and Budget (OMB) must
determine whether this regulatory action is ``significant'' and,
therefore, subject to the requirements of the E.O. and subject to
review by OMB. Section 3(f) of E.O. 12866 defines a ``significant
regulatory action'' as an action likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or Tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles stated in the
E.O.
The Department estimates the net budgetary impacts to be -$1.537
billion from increased transfers from borrowers who no longer receive
PSLF to the Federal Government. Quantified economic impacts include
annualized transfers of -$167 million at 3 percent discounting and $173
million at 7 percent discounting, and annual quantified costs related
to compliance costs and administrative updates to Government systems.
Therefore, based on our estimates, OIRA has determined that this final
action is ``economically significant'' under section 3(f)(1) of
Executive Order 12866 and subject to OMB review3(f)(1).
We have also reviewed these regulations under Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent

[[Page 40166]]

permitted by law, Executive Order 13563 requires that an agency:
(1) Propose or adopt regulations only on a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor its regulations to impose the least burden on society,
consistent with obtaining regulatory objectives and considering, among
other things and to the extent practicable, the costs of cumulative
regulations;
(3) In choosing among alternative regulatory approaches, select
those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives rather
than the behavior or manner of compliance a regulated entity must
adopt; and
(5) Identify and assess available alternatives to direct
regulation, including economic incentives, such as user fees or
marketable permits, to encourage the desired behavior, or provide
information that enables the public to make choices.
E.O. 13563 also requires an agency ``to use the best available
techniques to quantify anticipated present and future benefits and
costs as accurately as possible.'' OIRA has emphasized that these
techniques may include ``identifying changing future compliance costs
that might result from technological innovation or anticipated
behavioral changes.''
As required by OMB Circular A-4, we compare the proposed
regulations to the current regulations. In this regulatory impact
analysis (RIA), we discussed the need for regulatory action, potential
costs and benefits, net budget impacts, and the regulatory alternatives
we considered.
Elsewhere in this section under the Paperwork Reduction Act of
1995, we identify and explain burdens specifically associated with
information collection requirements.
1. Need for Regulatory Action
The Department has identified a critical and urgent need for
comprehensive regulatory reform within the PSLF program. The PSLF
program was established to encourage public service careers by offering
loan forgiveness to eligible borrowers. Despite the program's intent,
the current regulatory framework has exposed the PSLF program to
potential misuse, with taxpayer dollars being allocated to borrowers
working for organizations that do not align with the program's public
service mission.
In response to these challenges, the Department proposed a series
of regulatory changes designed to ensure the program's integrity by
limiting benefits to borrowers employed by organizations that meet the
established public service criteria. The proposed regulations will
exercise the Secretary's authority under title IV of the HEA,
specifically 20 U.S.C. 1087e(m), 20 U.S.C. 1221e-3, and implemented in
34 CFR 685.219, to refine the requirements for qualifying employers and
ensure that PSLF benefits are distributed only to those working for
organizations that provide public service, aligned with the goals of
the HEA.
Clarifying the Secretary's Broad Authority and Defining Public Service
Employment
The Secretary's authority to establish rules and regulations for
the administration of the Direct Loan Program, including the PSLF
program, is grounded in the HEA, particularly under Section 455(m)(3),
which empowers the Secretary to define and regulate the parameters for
public service employment under the program. This broad regulatory
authority provides the foundation for the proposed rules to refine the
criteria governing PSLF eligibility. Specifically, these changes will
focus on ensuring that PSLF benefits are directed only to those
borrowers who are employed by organizations that serve the public good
and uphold public policy, while eliminating the risk of improper
payments to those working for organizations engaged in illegal
activities. By exercising this authority, the Department aims to
protect public funds and guarantee that PSLF benefits fulfill their
intended purpose by rewarding individuals dedicated to public service
careers.
Exclusion of Employers Engaged in Substantial Illegal Activities
One of the most significant challenges faced by the PSLF program
has been the inclusion of employers whose activities are at odds with
the program's core mission of supporting public service. To address
this, the Department proposes a new regulation to exclude employers
that engage in activities with a ``substantial illegal purpose'' from
the list of organizations that qualify for PSLF. This exclusion is
necessary to protect taxpayers from funding loan forgiveness for
individuals employed by organizations that operate in a manner harmful
to the public good.
The proposed rules will specifically identify activities that
qualify as having a ``substantial illegal purpose,'' including
violations of Federal and State laws, involvement in trafficking,
terrorism, violence aimed at obstructing Federal policy, and other
illegal actions. Organizations engaging in such activities will be
disqualified from participating in the PSLF program, and their
employees will no longer be eligible to receive qualifying payments
that lead to loan forgiveness under PSLF.
The inclusion of this provision in the regulations aligns with the
Department's responsibility to administer Federal student aid programs
in a manner that is transparent, equitable, and consistent with public
policy. By establishing clear criteria for what constitutes a
``substantial illegal purpose,'' the Department will ensure that PSLF
benefits are only granted to those working for employers that genuinely
contribute to the public good and comply with the law. The proposed
definition of ``substantial illegal purpose'' will be codified in 34
CFR 685.219(b)(30), providing clarity for both employers and borrowers.
Addressing Borrower Eligibility and Ensuring Due Process
In implementing the new regulations, the Department is also mindful
of the need to protect borrowers from losing eligibility due to their
employer's actions. Borrowers working for organizations engaged in
activities that disqualify them from PSLF will no longer be able to
accrue qualifying monthly payments toward loan forgiveness while
remaining at that employer. However, the proposed regulations include
safeguards to ensure that borrowers are not unfairly penalized. When an
employer is found to have engaged in disqualifying activities,
borrowers will be promptly notified. This ensures that their employer's
status does not unduly harm borrowers and that they have the
opportunity to continue making progress toward loan forgiveness.
To further protect the rights of borrowers, the regulations will
provide a process by which employers who are at risk of losing PSLF
eligibility due to illegal activities will be notified and allowed to
respond. The proposed regulations at 34 CFR 685.219(h) will specify
that employers will be afforded a period to respond to the findings
before any final determination regarding their eligibility is made.
This process aligns with principles of due process and transparency,
ensuring that employers have a fair opportunity to

[[Page 40167]]

maintain their status and that borrowers are not left uninformed.
Reaffirming Transparency and Employer Accountability
Transparency and accountability are central to these proposed
regulatory changes. By providing clear guidelines for employers
regarding their obligations under PSLF, the Department will help ensure
that both employers and borrowers understand the eligibility criteria.
Employers found to be engaged in disqualifying activities will be given
a reasonable opportunity to contest the findings and take corrective
action if necessary. If an employer loses eligibility, the proposed
regulations will establish a process for regaining eligibility after 10
years or after the employer has implemented a corrective action plan.
This will be codified in 34 CFR 685.219(j).
The regulations also require that, once an employer regains
eligibility, the Secretary shall update the qualifying employer list,
which is accessible to borrowers for purposes of certification or
application. This helps ensure that borrowers have up-to-date
information about which employers are eligible for PSLF, facilitating a
more streamlined and transparent process for all stakeholders.
The proposed regulatory changes are designed to protect the
integrity of the PSLF program by ensuring that taxpayer funds are used
to support borrowers working in public service roles with eligible
employers. By excluding employers engaged in illegal activities,
defining ``substantial illegal purpose,'' and providing clear
guidelines for borrower eligibility and employer accountability, the
Department aims to create a more efficient, transparent, and fair PSLF
program. These reforms will help reduce administrative burdens on
borrowers and institutions, promote fairness, and ensure that PSLF
benefits are awarded only to those genuinely dedicated to serving the
public good. Through these changes, the Department will fulfill its
responsibility to safeguard taxpayer funds while enhancing the
effectiveness of the PSLF program in supporting individuals committed
to public service careers.
2. Summary
The Department proposes to make several significant changes to PSLF
based on discussions during the negotiations.

Table 2.1--Summary of Key Changes in the Proposed Regulations
------------------------------------------------------------------------
Description of
Provision Regulatory section proposed provision
------------------------------------------------------------------------
Public Service Loan Forgiveness
------------------------------------------------------------------------
Definitions................. 685.219(b).......... Would add
definitions of
``aiding or
abetting'';
``chemical
castration or
mutilation'';
``child or
children'';
``foreign terrorist
organizations'';
``illegal
discrimination'';
``other Federal
immigration laws'';
``substantial
illegal purpose'';
``surgical
castration or
mutilation'';
``terrorism'';
``trafficking'';
``violating State
law''; and
``violence for the
purpose of
obstructing or
influencing Federal
Government
policy''. Would
revise the
definition of
``qualifying
employer''.
Borrower Eligibility........ 685.219(c).......... Would exclude from a
credit as a
qualifying payment
any month that a
qualifying employer
engaged in
activities that
have a substantial
illegal purpose.
Application Process......... 685.219(e).......... Would create a
borrower
notification of
employers that are
at-risk of or have
lost PSLF
qualifying status.
Borrower reconsideration 685.219(g).......... Would prohibit a
process. borrower from
requesting
reconsideration if
their employer lost
eligibility due to
engaging in
activity that has a
substantial illegal
purpose.
Standard for determining a 685.219(h).......... Would create a
qualifying employer engaged standard by which
in activities that have a the Secretary
substantial illegal purpose. determines that the
qualifying employer
engaged in
activities that
have a substantial
illegal purpose,
including but not
limited to
reviewing the
preponderance of
the evidence and
basing decisions on
materially of the
activities that
have a substantial
illegal purpose.
Also, would provide
the employer an
opportunity to
respond except in
cases where there
was conclusive
evidence (see
discussion or
regulatory language
for more
information) that
the employer
engaged in
activities that
have a substantial
illegal purpose.
Process for determining when 685.219(i).......... Would establish that
an employer engaged in the Secretary
activities that have a determinates that a
substantial illegal purpose. qualifying employer
engaged in
substantial illegal
activities when the
Secretary receives
that self-certified
information on the
PSLF form or makes
his or her own
determination,
unless a corrective
action plan is
submitted prior to
issuance of the
final
determination. We
would also note the
Secretary's
authority to
separate employers
operating under on
identification
number.
Regaining eligibility....... 685.219(j).......... Would allow a
qualifying employer
to regain
eligibility after
10 years from the
date(s) that it
engaged in activity
that had a
substantial illegal
purpose or when the
Secretary approves
a corrective action
plan signed by the
employer.
Borrower notification....... 685.219(k).......... Would require the
Secretary to update
the qualifying
employer list,
which is accessible
to borrowers for
purposes of
certification or
application, if an
employer regains
eligibility.
------------------------------------------------------------------------

3. Discussion of Costs and Benefits
The PSLF program is a component of Federal student loan policy,
designed to encourage individuals to enter and continue in public
service employment by offering cancellation of remaining Direct student
loan balances after 120 qualifying monthly payments and 10 years of
full-time employment in a public service job. However, over time, the
program has faced significant challenges, including confusion about
qualifying employers, and the disbursement of benefits to borrowers
employed by organizations whose activities do not align with the
program's public service objectives. To address these issues, the
Department has proposed a series of regulatory changes. These proposed
regulations aim to enhance the program's integrity, improve its
efficiency, and ensure that taxpayer funds are allocated appropriately.
While these changes are

[[Page 40168]]

expected to incur certain costs, the long-term benefits are
substantial, making the program more effective, transparent, and
equitable. Below is an analysis of both the costs and benefits of these
proposed regulations.
Costs of the Proposed Regulations:
The Department acknowledges that implementing the proposed
regulations will incur costs. These costs primarily fall into three
categories: Department administrative costs, compliance costs for
employers, and potential disruptions for borrowers. However, these
costs must be viewed in the context of the long-term benefits that the
regulations will bring.
One of the immediate costs associated with these regulatory changes
will be the need for the Department to update its systems, train staff,
and implement new compliance and monitoring processes. The Department
will need to track and verify employer eligibility more rigorously, and
it will also need to enhance communication systems to notify employers
and borrowers of any changes to their status in the PSLF program. These
changes will require new investments in staffing, technology upgrades,
and outreach programs.
Initial estimates suggest that the administrative costs for the
Department will range from $1.5 million to $3 million annually during
the first two years of implementation. These funds will be used to
ensure that the Department can effectively manage the new employer
eligibility determination process, update systems, and conduct
necessary training for staff and stakeholders. Using information from
prior implementation and of income-driven repayment and PSLF program
changes, the Department spent an estimated $2.5 million annually for
similar updates. Given the complexity of these new regulations, it is
reasonable to expect similar administrative expenditures in the short
term.
Employers will need to ensure that they meet the new eligibility
criteria under the proposed regulations. This will involve reviewing
their activities to ensure they are not engaged in any actions that
would disqualify them from participating in the PSLF program. For many
employers, especially smaller organizations or those with limited
resources, this process may necessitate consultations with legal
counsel, operational adjustments, and revisions to their hiring
practices.
Compliance costs for employers are expected to vary per
organization, depending on the organization's size and complexity.
Larger organizations, such as hospitals or universities, may incur
higher costs as they assess their practices and make any necessary
changes to align with the new rules. A 2021 survey by the National
Council of Nonprofits found that a significant percentage of nonprofit
organizations may face challenges in meeting changing eligibility
standards.\26\ These costs primarily result from the costs of legal
counsel, restructuring efforts, and changes to the organization's
documentation processes. At the same time, many organizations are
accustomed to attesting to the fact that they are not violating State
and Federal law as a condition to participating in other government or
nongovernmental programs. As such, in some circumstances, organizations
may not need to exert any more than a de minimis amount of additional
resources in order make attestations under the proposed regulations.
Rather, such organizations will rely on the work already done within
the organization that supports their ability to attest they are in
compliance with Federal and State law for other purposes.
---------------------------------------------------------------------------

\26\ <a href="https://www.councilofnonprofits.org/reports/nonprofit-workforce-shortages-crisis-affects-everyone">https://www.councilofnonprofits.org/reports/nonprofit-workforce-shortages-crisis-affects-everyone</a>.
---------------------------------------------------------------------------

The most significant impacts on borrowers may stem from: (1)
potential delays in loan forgiveness processing during the transition
to the new regulations that may stem from changes in employer
eligibility databases or open employer eligibility reviews; and (2)
potential misunderstandings of the new regulations that lead to
borrower confusion that delays application of the forgiveness benefit.
Borrowers who are employed by organizations disqualified under the new
rules may experience a temporary disruption in their progress toward
loan forgiveness. These borrowers will need to transition to qualifying
employers to continue receiving credit for their payments. Borrowers
who misunderstand the new rules may apply for forgiveness without
knowing or understanding the implications of the new rule on their
former or current employer as they may no longer be a qualifying
employer.
The transition and any misunderstanding of the proposed changes to
the program may slightly increase the time it takes borrowers to
achieve forgiveness; however, long-term processing efficiencies are
expected to be gained. Borrowers frequently encountered confusion and
delays in PSLF application due to employer eligibility issues. A 2018
Government Accountability Office (GAO) audit found that over 370,000
certified borrowers had still made zero qualifying payments, suggesting
misunderstandings about eligibility criteria or documentation.\27\ A
2020 joint investigation by the American Federation of Teachers (AFT)
and the Student Borrower Protection Center (SBPC) revealed that the
PSLF process had rejected employer eligibility more than 50,000 times,
even inconsistently for employees at the same institution.\28\ GAO
further warned that the absence of clear guidance for loan servicers
significantly increases the risk of improper denials. While the
Department is taking steps to minimize these delays and inform
borrowers of these changes to standard marketing and communication
channels, borrowers may experience disruptions as the new regulatory
framework is implemented.
---------------------------------------------------------------------------

\27\ <a href="https://www.gao.gov/assets/700/694506.pdf">https://www.gao.gov/assets/700/694506.pdf</a>.
\28\ <a href="https://protectborrowers.org/wp-content/uploads/2020/08/ECF-Failures.pdf">https://protectborrowers.org/wp-content/uploads/2020/08/ECF-Failures.pdf</a>.
---------------------------------------------------------------------------

Benefits of the Proposed Regulations:
Despite the initial costs, the long-term benefits of the proposed
regulations far outweigh the short-term expenditures. These benefits
are significant and include increased program integrity, improved
efficiency, reduced borrower confusion, and long-term savings for
taxpayers.
The most significant benefit of the proposed regulations is the
improvement in the integrity of the PSLF program. By excluding
employers engaged in substantial illegal activities from the program,
the Department ensures that taxpayer dollars are only used to support
borrowers working for organizations that are not engaged in activities
that have a substantial illegal purpose. This change will directly
address concerns about improper disbursements and misuse of Federal
funds. This change also addresses concerns that the Department is
indirectly subsidizing illegal activities that the government broadly
aims to prevent.

[[Page 40169]]

The proposed regulations will also streamline the PSLF process by
providing more explicit eligibility criteria and verification process.
This will make it easier for borrowers to track their progress and
ensure that they meet the requirements for loan forgiveness.
Additionally, employers will benefit from more straightforward
guidelines regarding their obligations under the PSLF program.
Recent data from the Consumer Financial Protection Bureau (CFPB)
found that a significant fraction of borrowers experienced confusion
regarding their employer's eligibility for PSLF.\29\ With the new rules
in place, the Department anticipates reducing borrower confusion
through making the process more transparent and efficient, especially
over the long term. This will likely result in faster processing of
PSLF applications and fewer errors, as both borrowers and institutions
will have a clearer understanding of the program's requirements.
---------------------------------------------------------------------------

\29\ Consumer Financial Protection Bureau, Staying on Track
While Giving Back: The Cost of Student Loan Servicing Breakdowns for
People Serving Their Communities (Washington, DC: June 2017).
---------------------------------------------------------------------------

By helping ensure that PSLF benefits are directed only to borrowers
working for legitimate public service employers, the proposed
regulations will help strengthen public service careers. The PSLF
program has been a key factor in attracting and retaining individuals
in public service, and these changes will make the program more
accessible and reliable.
There is significant research, both academic and private sector,
which documents that public service employees cited PSLF as a
significant factor in their decision to pursue and remain in public
service. Recently, a 2025 student by Mission Square Research Institute,
found that 56% of public sector employees and 62% of private sector
employees may job decisions based on their student loan debt
levels.\30\ As the program becomes more transparent and efficient, the
Department anticipates growth in public service recruitment and
retention in the future. One of the most important benefits of the
proposed regulations will be the long-term savings for taxpayers. By
eliminating improper payments, the Department estimates that these
regulations will save taxpayers a significant amount of money over the
next ten years. These savings will result from a reduction in wasteful
disbursements. The expected reduction in improper payments will ensure
that taxpayer dollars are spent more efficiently and effectively.
---------------------------------------------------------------------------

\30\ Liu, Z., Korankye, T. (February 2025). The Ripple Effect of
Student Debt: Shaping Careers, Financial Choices, and Well-Being in
Public and Private Sectors. Mission Square Research Institute.
---------------------------------------------------------------------------

The proposed regulatory changes for the PSLF program aim to enhance
the program's efficiency and integrity. Although there will be initial
costs associated with administrative updates and compliance efforts,
the long-term benefits far outweigh these expenditures. The regulations
will help reduce improper payments, streamline processing times, reduce
borrower confusion, and ensure that the program supports individuals
employed by organizations that genuinely contribute to the public good.
With these changes, the PSLF program will become more transparent,
efficient, and practical, fulfilling its original mission of rewarding
public service careers while safeguarding taxpayer funds.
4. Net Budget Impact
Table 4.1 provides an estimate of the net Federal budgetary impact
of these proposed regulations that are summarized in Table 2.1 of this
RIA. This includes both the effects of a modification to existing loan
cohorts and costs for loan cohorts from 2026 to 2035. A cohort reflects
all loans originated in a given fiscal year. Consistent with the
requirements of the Credit Reform Act of 1990, budget cost estimates
for the student loan programs reflect the estimated net present value
of all future non-administrative Federal costs associated with a cohort
of loans. The baseline for estimating the cost of these final
regulations is the President's Budget for 2026 (PB2026).

Table 4.1--Estimated Budget Impact of the NPRM
[$ in millions]
----------------------------------------------------------------------------------------------------------------
Modification
Section Description score (1994- Outyear score Total (1994-
2025) (2026-2035) 2035)
----------------------------------------------------------------------------------------------------------------
Sec. 685.219(h)..................... Amended definition of -$640 -$897 -$1,537
qualifying employer.
----------------------------------------------------------------------------------------------------------------

As noted in the Need for Regulatory Action section of this RIA, the
proposed regulations define several terms related to qualifying
employment for PSLF and amend the definition of a qualified employer to
exclude organizations that engage in activities that have a substantial
illegal purpose. This is consistent with E.O. 14235, signed March 7,
2025. As proposed in subsection Sec. 685.219(h), the Secretary will
determine based on a preponderance of the evidence, and after notice
and opportunity to respond, that employers have engaged in activities
with a substantial illegal purpose on or after July 1, 2026, by
considering the materiality of any illegal activities or actions. The
Department will presume that any of the following is conclusive
evidence that the employer engaged in activities that have a
substantial illegal purpose:
1. A final judgment by a State or Federal court, whereby the
employer is found to have engaged in activities that have a substantial
illegal purpose;
2. A plea of guilty or nolo contendere, whereby the employer admits
to have engaged in activities that have substantial illegal purpose or
pleads nolo contendere to allegations that the employer engaged in
activities that have substantial illegal purpose; or
3. A settlement that includes admission by the employer that it
engaged in activities that have a substantial illegal purpose described
in subsection (h) of this section.
Employer qualification will be linked to the EIN used for reporting
to the IRS so employees in one area or agency may be affected by the
activities of employees in other organizations under the same EIN. For
example, the County of Los Angeles has a single EIN covering various
departments including the Los Angeles County Public Defender, Los
Angeles County Department of Children and Family Services, Harbor-UCLA
Medical Center, and the County of Los Angeles Fire Department.
Government agencies in particular may have many service areas under a
single EIN.
The PSLF application data includes variables that distinguish non-
profit

[[Page 40170]]

employers and government employers, as well as the level of government
employers. Table 4.2 summarizes the split between borrowers receiving
PSLF whose greatest time in qualifying employment was with government
or non-profit organizations.

Table 4.2--Number of Borrowers Receiving PSLF and Average Forgiveness by
Employment Sector
------------------------------------------------------------------------
Number of
borrowers who Average
Employment sector have received forgiveness
forgiveness amount
------------------------------------------------------------------------
Government........................ 677,500 $ 73,000
Nonprofit......................... 296,600 82,100
-------------------------------------
Total......................... 974,100 75,800
------------------------------------------------------------------------
Note: The total number of borrowers who have received forgiveness may be
less than most recent Department estimates due to timing, data
availability, and data cleaning. Borrowers are sorted into the sector
with the maximum time working towards forgiveness. The numbers of
borrowers and average forgiveness amounts are rounded to the nearest
hundred.

Table 4.3 splits the government category into Federal, State, and
local levels. We assume that Federal agencies will comply with the law.
Therefore, we do not expect a reduction in forgiveness for Federal
employees.

Table 4.3--Number of Borrowers Receiving PSLF and Average Forgiveness by
Government Subsector
------------------------------------------------------------------------
Number of
borrowers who Average
Government subsector have received forgiveness
forgiveness amount
------------------------------------------------------------------------
Federal Government................ 97,800 $71,900
Local Government.................. 415,300 71,200
State Government.................. 161,900 78,400
Unknown........................... 2,500 75,000
-------------------------------------
Total......................... 677,500 73,000
------------------------------------------------------------------------
Note: The total number of borrowers who have received forgiveness may be
less than most recent Department estimates due to timing, data
availability, and data cleaning. Borrowers are sorted into the sector
with the maximum time working towards forgiveness. The numbers of
borrowers and average forgiveness amounts are rounded to the nearest
hundred.

Based on the activities identified in the E.O. 14235 it is likely
that organizations in some fields are more likely to be affected than
others, either by loss of eligibility, the deterrent effect on their
activities, difficulty recruiting employees, or by their employees not
being granted PSLF forgiveness and seeking alternate employment.
Regardless of the type of employer, service areas that could be most
affected by the proposed regulation include, but are not limited to,
legal services, governance, social work, healthcare, K-12 education,
and higher education. Existing data on employers of borrowers who
received forgiveness does not include a service category and names do
not always indicate what an organization does, but the Department
analyzed this data to estimate what share of borrowers who have
achieved forgiveness fall into certain service areas and their average
forgiveness.\31\ This was done by matching keywords from various
subsectors to employer names. For example, for healthcare, the keywords
included ``hospital'', ``health'', ``medical'', and ``clinic''.
---------------------------------------------------------------------------

\31\ Turner, J., Blanchard, K., & Darolia, R. (2025, January).
Where Do Borrowers Who Benefit from Public Service Loan Forgiveness
Work?. NEA. <a href="https://www.nea.org/sites/default/files/2025-03/where-do-borrowers-who-benefit-from-pslf-work.pdf">https://www.nea.org/sites/default/files/2025-03/where-do-borrowers-who-benefit-from-pslf-work.pdf</a>.
---------------------------------------------------------------------------

A portion of employers cannot be classified because some employer
names give no indication to their service area, contain misspellings,
or have names that do not contain any of the keywords matched. These
EINs are categorized as ``Other''. Approximately 91 percent of
borrowers who have received PSLF were categorized into a subsector
category, leaving 9 percent in the ``Other'' category. In this
analysis, we assume that the distribution of borrowers and subsectors
in the future will reflect that of those who have received forgiveness.
Table 4.4 summarizes the results by service area.

Table 4.4--Number of Borrowers Receiving PSLF and Average Forgiveness by
Employment Subsector
------------------------------------------------------------------------
Number of
borrowers who Average
Employment subsector have received forgiveness
forgiveness amount
------------------------------------------------------------------------
Agriculture....................... 3,300 $ 64,900
Arts.............................. 2,900 61,600
Early Childhood................... 1,400 63,000

[[Page 40171]]

Environmental..................... 2,600 61,100
Fire Rescue....................... 1,200 52,400
Governance........................ 156,200 67,200
Healthcare........................ 158,600 89,200
Higher Education.................. 105,400 84,200
International..................... 1,200 75,500
K12 Education..................... 296,600 72,500
Law Enforcement................... 20,100 66,500
Legal............................. 13,800 108,500
Military.......................... 48,400 70,200
Other............................. 82,900 72,200
Philanthropy...................... 5,300 73,500
Religious......................... 14,000 69,500
Research.......................... 1,500 65,300
Social Services................... 47,500 75,300
Transportation.................... 5,500 61,400
Utilities & Infrastructure........ 2,500 60,700
Workforce & Labor................. 3,000 80,200
-------------------------------------
All Employment Subsectors..... 974,100 75,800
------------------------------------------------------------------------
Note: The total number of borrowers who have received forgiveness may be
less than most recent Department estimates due to timing, data
availability, and data cleaning. Borrowers are sorted into the sector
with the maximum time working towards forgiveness. The numbers of
borrowers and average forgiveness amounts are rounded to the nearest
hundred.

As we expect most employers to certify that they do not engage in
activities with a substantially illegal purpose, the information in
Table 4.4 informed our estimates of potential reductions in qualified
employers for PSLF but does not directly translate to the percentage of
borrowers assigned to achieve forgiveness in our assumptions for the
proposed regulation. We also recognize that employers in other
employment subsectors could engage in activity that results in a loss
of eligibility but estimate that these will be anomalies or very small
percentages. Therefore, we have included a percentage for all other
categories and some sensitivity runs that are described in the
Methodology for Budget Impact section of this analysis.
Methodology for Budgetary Impact
The Department estimated the budgetary impact of the proposed
provisions in this NPRM through changes to the PSLF assignment within
the Department's income-driven repayment (IDR) assumption. PSLF is
randomly assigned to borrowers in our IDR model sample based on
percentages that vary by the cohort range in which they enter repayment
and highest education level as presented in Table 4.5.

Table 4.5--Change in Assignment of PSLF for Proposed Regulation
----------------------------------------------------------------------------------------------------------------
Percentage of Borrowers Assigned PSLF
-----------------------------------------------------------------------------------------------------------------
Enter repayment cohort range 2-year 4-year Graduate
----------------------------------------------------------------------------------------------------------------
PB2026 Baseline Scenario
----------------------------------------------------------------------------------------------------------------
2016 to 2020.................................................... 10.46 18.05 21.96
2021 and later.................................................. 14.65 28.88 30.74
----------------------------------------------------------------------------------------------------------------
Proposed Regulatory Scenario
----------------------------------------------------------------------------------------------------------------
2016 to 2020.................................................... 10.25 17.69 21.52
2021 and later.................................................. 14.35 28.30 30.13
----------------------------------------------------------------------------------------------------------------
Alternate Regulatory Scenario
----------------------------------------------------------------------------------------------------------------
2016 to 2020.................................................... 9.83 16.96 20.64
2021 and later.................................................. 13.77 27.14 28.90
----------------------------------------------------------------------------------------------------------------

As we expect the proposed regulations to have more of a deterrent
effect reducing the likelihood of qualifying employers engaging in
illegal activities and borrowers have the option of shifting employers
to complete their 120 months of qualifying payments even if on a
delayed basis, we do not expect a significant reduction in the
percentage of borrowers achieving PSLF forgiveness. We have not
increased the effect for future cohorts of loans

[[Page 40172]]

because, while potential ineligibility starts with the July 1, 2026,
effective date, employers' ability to appeal and get reinstated and
employees' ability to shift positions means the pattern is not
necessarily a continued increase in ineligibility.
The changes made in Table 4.5 were derived from applying reductions
between 0-5 percent to the employment subsectors identified in Table
4.4 as being most likely to be affected by the proposed regulation
(legal, healthcare, social work, higher education, K-12 education, and
governance). This results in an estimated total reduction of
approximately 0-2 percent.
As explained in the Paperwork Reduction Act section, the Department
believes that there would be less than 10 employers affected annually.
Given the uncertainties of employer and employee response noted for the
primary estimate, we considered an alternative approach that evaluated
the maximum impact consistent with the PRA analysis. Within the
universe of borrowers who have received forgiveness, approximately 6
percent were employed for their longest time toward forgiveness in the
top 10 EINs by forgiven borrower count, excluding federal employers who
are assumed to comply. Therefore, we also ran a high-impact alternative
that bumped the reductions up to 6 percent.
The combined effect of the changes to the percentages in Table 4.5
reduces the number of borrowers achieving PSLF in our IDR assumption
and results in the cost savings presented in Table 4.6. The Department
welcomes comments on the assumptions related to the reduction in future
qualified employer eligibility and will consider any substantive
comments or information presented in estimating the effects of the
proposed rule.

Table 4.6--Net Budget Impact of Proposed Changes to PSLF
------------------------------------------------------------------------
$ mns PSLF primary PSLF alternate
------------------------------------------------------------------------
Modification...................... -$640 -$1,765
Outlays for Cohorts 2026-2035..... -897 -2,520
------------------------------------------------------------------------
Total......................... -1,537 -4,285
------------------------------------------------------------------------

Accounting Statement:
As required by OMB Circular A-4, we have prepared an accounting
statement showing the classification of the expenditures associated
with the provisions of these proposed regulations. Table 4.7 provides
our best estimate of the changes in annual monetized transfers that may
result from these proposed regulations. Expenditures are classified as
transfers from the Federal government to affected student loan
borrowers.

Table 4.7--Accounting Statement: Classification of Estimated
Expenditures
[In millions]
------------------------------------------------------------------------

------------------------------------------------------------------------
Category Benefits
------------------------------------------------------------------------
Reduction in taxpayer costs Not quantified.
supporting loan forgiveness of
those at organizations engaging
in activities with a
substantial illegal purpose.
Deterrence of activities with a Not quantified.
substantial illegal purpose
done by non-profit or
governmental organizations.
------------------------------------------------------------------------
Category Costs
------------------------------------------------------------------------
3% 7%
------------------------------------------------------------------------
Costs of compliance with $0................ $0.
paperwork requirements.
Costs incurred by organizations Not quantified.... Not quantified.
to ensure compliance with
proposed regulations.
Administrative costs to Federal $0.3.............. $0.4.
government to update systems
and contracts to implement the
proposed regulations.
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
3% 7%
------------------------------------------------------------------------
Increased transfers from -$167............. -$173.
borrowers due to reductions in
borrowers achieving PSLF
forgiveness:
------------------------------------------------------------------------

5. Alternatives Considered
The Department considered many alternatives.
Part of the development of these regulations, the Department
engaged in a negotiated rulemaking process in which we received
comments and proposals from non-Federal negotiators representing
numerous impacted constituencies on a variety of issues. The proposals
were submitted from the following constituencies: proprietary
institutions of higher education, civil rights organizations, consumer
advocates, and legal assistance organizations that represent students
and/or borrowers, student loan borrowers in repayment, organizations
representing taxpayers and the public interest, public institutions of
higher education, financial aid administrators, accrediting agencies,
and State officials, U.S. Military service members. Information about
these proposals is available on our rulemaking website at <a href="https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026">https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026</a>.

[[Page 40173]]

The Department worked with the negotiators and continued to provide
additional proposed regulatory text for consideration. Despite these
efforts, the negotiators did not reach consensus on the proposed
regulations in this NPRM, the Department was not bound to incorporating
any of the negotiators' submitted proposals in the drafting of this
NPRM.
Regulatory Flexibility Act
The Secretary certifies, under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), that this final regulatory action would not have a
significant economic impact on a substantial number of ``small
entities.''
These regulations will not have a significant impact on a
substantial number of small entities because they are focused on
arrangements between the borrower and the Department. They do not
affect institutions of higher education in any way, and these entities
are typically the focus of the Regulatory Flexibility Act analysis. As
noted in the Paperwork Reduction Act section, the burden related to the
final regulations will be assessed in a separate information collection
process and that burden is expected to involve individuals more than
institutions of any size.
Paperwork Reduction Act of 1995
As part of its continuing effort to reduce paperwork and respondent
burden, the Department provides the general public and Federal agencies
with an opportunity to comment on proposed and continuing collections
of information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that the public
understands the Department's collection instructions, respondents can
provide the requested data in the desired format, reporting burden
(time and financial resources) is minimized, collection instruments are
clearly understood, and the Department can properly assess the impact
of collection requirements on respondents.
Section 685.219(i) of these proposed regulatory changes would
require an update to the currently approved Public Service Loan
Forgiveness Certification and Application, OMB # 1845-0110. The
Department would amend the PSLF form to include the ability for a
qualifying employer to certify that it has not engaged in activity that
has a substantial illegal purpose. We do not believe the proposed
changes will significantly change the amount of time currently assessed
for the borrower to complete the form. This form update will be
completed and made available for comment through a full public
clearance package before being made available for use by the effective
date of the regulations. The proposed amendments to the regulation may
reduce the number of respondents or responses for individuals
submitting Employee Certification forms. This is due in part to the
reduction in the number of qualifying employers. As mentioned
previously, the Department anticipates a 10 percent reduction in the
number of individuals submitting Employee Certification Forms because
their employer is no longer eligible for participation. Any burden
changes will be assessed to OMB # 1845-0110, Application and Employment
Certification for Public Service Loan Forgiveness. Section 685.219 (j)
of the proposed regulation would allow an employer to re-establish or
maintain eligibility for PSLF if the Secretary approves a corrective
action plan. The Department believes that annually there would be less
than 10 employers responding to the Department's notice of an initiated
action and/or seeking approval of a corrective action plan. No
additional burden has been assessed based on these proposed rules as
the anticipated number of annual respondents falls below the minimum
required for OMB approval.
A Federal agency may not conduct or sponsor a collection of
information unless OMB approves the collection under the PRA and the
corresponding information collection instrument displays a currently
valid OMB control number. Notwithstanding any other provision of law,
no person is required to comply with or is subject to penalty for
failure to comply with, a collection of information if the collection
instrument does not display a currently valid OMB control number.
In the final regulations we will display the control number numbers
assigned by OMB to any information collection requirements proposed in
this NPRM and adopted in the final regulations.
If you wish to review and comment on the Information Collection
Requests, please follow the instructions in the ADDRESSES section of
this notification. Note: The Office of Information and Regulatory
Affairs in OMB and the Department review all comments posted at
<a href="http://www.regulations.gov">www.regulations.gov</a>. We consider your comments on these proposed
collections of information in--
* Deciding whether the proposed collections are necessary for the
proper performance of our functions, including whether the information
will have practical use.
* Evaluating the accuracy of our estimate of the burden of the
proposed collections, including the validity of our methodology and
assumptions.
* Enhancing the quality, usefulness, and clarity of the information
we collect; and
* Minimizing the burden on those who must respond. Consistent with
5 CFR 1320.8(d), the Department is soliciting comments on the
information collection through this document. Between 30 and 60 days
after publication of this document in the Federal Register, OMB is
required to make a decision concerning the collection of information
contained in these proposed priorities, requirements, definitions, and
selection criteria. Therefore, to ensure that OMB gives your comments
full consideration, it is important that OMB receives your comments on
these Information Collection Requests by September 17, 2025.
Intergovernmental Review
This program is subject to E.O. 12372 and the regulations in 34 CFR
part 79. One of the objectives of the E.O. is to foster an
intergovernmental partnership and strengthened Federalism. The E.O.
relies on processes developed by State and local governments for
coordination and review of proposed Federal financial assistance.
This document provides early notification of our specific plans and
actions for this program.
Assessment of Education Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, the Secretary requests comments on whether
these final regulations would require transmission of information that
any other agency or authority of the United States gathers or makes
available.
Federalism
E.O. 13132 requires us to provide meaningful and timely input by
State and local elected officials in the development of regulatory
policies that have Federalism implications. ``Federalism implications''
means substantial direct effects on the States, on the relationship
between the National Government and the States, or on the distribution
of power and responsibilities among the various levels of government.
The proposed regulations do not have Federalism implications.
Accessible Format: On request to the program contact person(s)
listed under FOR FURTHER INFORMATION CONTACT, individuals with
disabilities can obtain

[[Page 40174]]

this document in an accessible format. The Department will provide the
requestor with an accessible format that may include Rich Text Format
(RTF) or text format (txt), a thumb drive, an MP3 file, braille, large
print, audiotape, or compact disc, or other accessible format.
Electronic Access to This Document: The official version of this
document is the document published in the Federal Register. You may
access the official edition of the Federal Register and the Code of
Federal Regulations at <a href="http://www.govinfo.gov">www.govinfo.gov</a>. At this site you can view this
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You may also access documents of the Department published in the
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by the Department.

List of Subjects in 34 CFR Part 685

Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student aid, Vocational education.

Signing Authority

This document of the U.S. Department of Education was signed on
August 14, 2025, by Linda McMahon, Secretary of Education. That
document with the original signature and date is maintained by the U.S.
Department of Education. For administrative purposes only, and in
compliance with requirements of the Office of the Federal Register, the
undersigned has been authorized to sign the document in electronic
format for publication, as an official document of the U.S. Department
of Education. This administrative process in no way alters the legal
effect of this document upon publication in the Federal Register.

Tracey St. Pierre,
Director, Office of the Executive Secretariat, Office of the Secretary,
U.S. Department of Education.

For the reasons discussed in the preamble, the Secretary of
Education proposes to amend part 685 of title 34 of the Code of Federal
Regulations as follows:

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

0
1. The authority citation for part 685 is revised to read as follows:

Authority: 20 U.S.C. 1070g, 1087a, et seq., unless otherwise
noted.
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2. Amend Sec. 685.219 by:
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a. Adding paragraphs markers to (b);
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b. Adding new subsections (h),(i), (j) and (k).
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c. Adding new paragraphs (b)(1), (b)(3), (b)(4),(b)(10),(b)(12),
(b)(17), (b)(30), (b)(31), (b)(32), (b)(33), (b)(34), (b)(35), (c)(4),
(e)(9),(e)(10), (g)(7); (; and
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c. Amending paragraphs b (27), (c)(2), and (g).
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2. The revisions and additions read as follows:

Sec. 685.219 Public Service Loan Forgiveness Program (PSLF).

(b) * * *
(1) Aiding or abetting has the same meaning as defined under 18
U.S.C. 2.
(2) AmeriCorps service means service in a position approved by the
Corporation for National and Community Service under section 123 of the
National and Community Service Act of 1990 (42 U.S.C. 12573).
(3) Chemical castration or mutilation means--
(i) the use of puberty blockers, including GnRH agonists and other
interventions, to delay the onset or progression of normally timed
puberty in an individual who does not identify as his or her sex; and
(ii) the use of sex hormones, such as androgen blockers, estrogen,
progesterone, or testosterone, to align an individual's physical
appearance with an identity that differs from his or her sex.
(4) Child or children for the sole and specific purpose of this
section means an individual or individuals under 19 years of age.
(5) Civilian service to the military means providing services to or
on behalf of members, veterans, or the families or survivors of
deceased members of the U.S. Armed Forces or the National Guard that is
provided to a person because of the person's status in one of those
groups.
(6) Early childhood education program means an early childhood
education program as defined in section 103(8) of the Act (20 U.S.C.
1003).
(7) Eligible Direct Loan means a Direct Subsidized Loan, a Direct
Unsubsidized Loan, a Direct PLUS Loan, or a Direct Consolidation Loan.
(8) Emergency management means services that help remediate,
lessen, or eliminate the effects or potential effects of emergencies
that threaten human life or health, or real property.
(9) Employee or employed means an individual--
(i) To whom an organization issues an IRS Form W-2;
(ii) Who receives an IRS Form W-2 from an organization that has
contracted with a qualifying employer to provide payroll or similar
services for the qualifying employer, and which provides the Form W-2
under that contract;
(iii) who works as a contracted employee for a qualifying employer
in a position or providing services which, under applicable state law,
cannot be filled or provided by a direct employee of the qualifying
employer.
(10) Foreign Terrorist Organizations mean organizations on the list
published under paragraph (a)(2)(A)(ii) under the Immigration and
Nationality Act (8 U.S.C. 1189).
(11) Full-time means:
(i) Working in qualifying employment in one or more jobs--
(A) A minimum average of 30 hours per week during the period being
certified.
(B) A minimum of 30 hours per week throughout a contractual or
employment period of at least 8 months in a 12-month period, such as
elementary and secondary school teachers and professors and
instructors, in higher education, in which case the borrower is deemed
to have worked full time; or
(C) The equivalent of 30 hours per week as determined by
multiplying each credit or contact hour taught per week by at least
3.35 in non-tenure track employment at an institution of higher
education.
(12) Illegal discrimination means a violation of any Federal
discrimination law including, but not limited to, the Civil Rights Act
of 1964 (42 U.S.C. 1981 et seq.), Americans with Disabilities Act (42
U.S.C. 12101 et seq.), and the Age Discrimination in Employment Act of
1967 (29 U.S.C. 621 et seq.).
(13) Law enforcement means service that is publicly funded and
whose principal activities pertain to crime prevention, control or
reduction of crime, or the enforcement of criminal law.
(14) Military service means ``active duty'' service or ``full-time
National Guard duty'' as defined in section 101(d)(1) and (d)(5) of
title 10 in the United States Code and does not include active duty for
training or attendance at a service school.
(15) Non-governmental public service means services provided by
employees of a non-governmental qualified employer where the employer
has devoted a majority of its full-time equivalent employees to working
in at

[[Page 40175]]

least one of the following areas (as defined in this section):
emergency management, civilian service to military personnel, military
service, public safety, law enforcement, public interest law services,
early childhood education, public service for individuals with
disabilities or the elderly, public health, public education, public
library services, school library, or other school-based services.
Service as a member of the U.S. Congress is not qualifying public
service employment for purposes of this section.
(16) Non-tenure track employment means work performed by adjunct,
contingent or part time faculty, teachers, or lecturers who are paid
based on the credit hours they teach at institutions of higher
education.
(17) Other Federal Immigration laws mean any violation of the
Immigration and Nationality Act (8 U.S.C. 1105 et seq.) or any other
Federal immigration laws.
(18) Other school-based service means the provision of services to
schools or students in a school or a school-like setting that are not
public education services, such as school health services and school
nurse services, social work services in schools, and parent counseling
and training.
(19) Peace Corps position means a full-time assignment under the
Peace Corps Act as provided for under 22 U.S.C. 2504.
(20) Public education service means the provision of educational
enrichment or support to students in a public school or a public
school-like setting, including teaching.
(21) Public health means those engaged in the following occupations
(as those terms are defined by the Bureau of Labor Statistics):
physicians, nurse practitioners, nurses in a clinical setting, health
care practitioners, health care support, counselors, social workers,
and other community and social service specialists.
(22) Public interest law means legal services that are funded in
whole or in part by a local, State, Federal, or Tribal government.
(23) Public library service means the operation of public libraries
or services that support their operation.
(24) Public safety service means services that seek to prevent the
need for emergency management services.
(25) Public service for individuals with disabilities means
services performed for or to assist individuals with disabilities (as
defined in the Americans with Disabilities Act (42 U.S.C. 12102)) that
is provided to a person because of the person's status as an individual
with a disability.
(26) Public service for the elderly means services that are
provided to individuals who are aged 62 years or older and that are
provided to a person because of the person's status as an individual of
that age.
(27) Qualifying employer means:
(i)
(A) A United States-based Federal, State, local, or Tribal
government organization, agency, or entity, including the U.S. Armed
Forces or the National Guard;
(B) A public child or family service agency;
(C) An organization under section 501(c)(3) of the Internal Revenue
Code of 1986 that is exempt from taxation under section 501(a) of the
Internal Revenue Code;
(D) A Tribal college or university; or
(E) A nonprofit organization that--
(1) Provides a non-governmental public service as defined in this
section, attested to by the employer on a form approved by the
Secretary; and
(2) Is not a business organized for profit, a labor union, or a
partisan political organization; and
(ii) Does not include organizations that engage in activities that
have a substantial illegal purpose, as defined in this section.
(28) Qualifying repayment plan means:
(i) An income-driven repayment plan under Sec. 685.209;
(ii) The 10-year standard repayment plan under Sec. 685.208(b) or
the consolidation loan standard repayment plan with a 10-year repayment
term under Sec. 685.208(c); or
(iii) Except for the alternative repayment plan, any other
repayment plan if the monthly payment amount is not less than what
would have been paid under the 10-year standard repayment plan under
Sec. 685.208(b).
(29) School library services mean the operations of school
libraries or services that support their operation.
(30) Substantial illegal purpose means--
(i) aiding or abetting violations of 8 U.S.C. 1325 or other Federal
immigration laws;
(ii) supporting terrorism, including by facilitating funding to, or
the operations of, cartels designated as Foreign Terrorist
Organizations consistent with 8 U.S.C. 1189, or by engaging in violence
for the purpose of obstructing or influencing Federal Government
policy;
(iii) engaging in the chemical and surgical castration or
mutilation of children in violation of Federal or State law;
(iv) engaging in the trafficking of children to states for purposes
of emancipation from their lawful parents in violation of Federal or
State law;
(v) engaging in a pattern of aiding and abetting illegal
discrimination; or
(vi) engaging in a pattern of violating State laws as defined in
paragraph (34) of this subsection.
(31) Surgical castration or mutilation means surgical procedures
that attempt to transform an individual's physical appearance to align
with an identity that differs from his or her sex or that attempt to
alter or remove an individual's sexual organs to minimize or destroy
their natural biological functions.
(32) Terrorism is defined under the Crimes and Criminal Procedure
(18 U.S.C. 2331).
(33) Trafficking means transporting a child or children from their
State of legal residence to another State without permission or legal
consent from the parent or legal guardian for purposes of emancipation
from their lawful parents or legal guardian, in violation of applicable
law.
(34) Violating State law means a final, non-default judgment by a
State court of:
(i) trespassing;
(ii) disorderly conduct;
(iii) public nuisance;
(iv) vandalism; or
(v) obstruction of highways.
(35) Violence for the purpose of obstructing or influencing Federal
Government policy means violating any part of 18 U.S.C. 1501 et seq. by
committing a crime of violence as defined under 18 U.S.C. 16.
(c) Borrower eligibility.
* * * * *
(2) Except as provided in paragraph (c)(4) of this section, a
borrower will be considered to have made monthly payments under
paragraph (c)(1)(iii) of this section by--
* * * * *
(4) Effective on or after July 1, 2026, through a standard as
described in subsection (h) of this section, no payment shall be
credited as a qualifying payment for any month subsequent to a
determination that a qualifying employer engaged in activities that
have a substantial illegal purpose, as described in this section.
* * * * *
(e) Application process.
* * * * *
(9) If the Secretary has notified the borrower's employer that the
employer may no longer satisfy the definition of qualifying employer
set forth in subsection (b)(28) of this section, pending a
determination made under subsection (h) of this section, the

[[Page 40176]]

Secretary notifies the borrower of the potential change in the
employer's status.
(10) If the Secretary has determined the borrower's employer has
ceased to be qualifying employer as a result of a determination made
under subsection (h) of this section, the Secretary notifies the
borrower of the change in the employer's status.
* * * * *
(g) Borrower reconsideration process.
* * * * *
(7) Notwithstanding paragraph (g)(1) of this section, a borrower
may not request reconsideration under this subsection (g) based on the
Secretary's determination that the organization lost its status as a
qualifying employer due to engaging in activities that have a
substantial illegal purpose under the standard described in subsection
(h) of this section.
(h) Standard for determining a qualifying employer engaged in
activities that have a substantial illegal purpose.
(1) The Secretary determines by a preponderance of the evidence,
and after notice and opportunity to respond, that a qualifying employer
has engaged on or after July 1, 2026, in activities that have a
substantial illegal purpose by considering the materiality of any
illegal activities or actions. In making such a determination, the
Secretary shall presume that any of the following is conclusive
evidence that the employer engaged in activities that have a
substantial illegal purpose:
(i) A final judgment by a State or Federal court, whereby the
employer is found to have engaged in activities that have a substantial
illegal purpose;
(ii) A plea of guilty or nolo contendere, whereby the employer
admits to have engaged in activities that have substantial illegal
purpose or pleads nolo contendere to allegations that the employer
engaged in activities that have substantial illegal purpose; or
(iii) A settlement that includes admission by the employer that it
engaged in activities that have a substantial illegal purpose described
in subsection (h) of this section.
(2) Nothing in this subsection shall be construed to authorize the
Secretary to determine an employer has a substantial illegal purpose
based upon the employer or its employees exercising their First
Amendment protected rights, or any other rights protected under the
Constitution.
(i) Process for determining when an employer engaged in activities
that have a substantial illegal purpose.
(1) The Secretary will determine that a qualifying employer
violated the standard under subsection (h) of this section when the
Secretary:
(i) Receives an application as referenced under subsection (e) of
this section in which the employer fails to certify that it did not
participate in activities that have a substantial illegal purpose; or
(ii) Determines that the qualifying employer engaged in activities
that have a substantial illegal purpose under subsection (h) of this
section, unless, prior to the issuance of the Secretary's final
determination, the Secretary which includes the factors set forth in
subsection (j)(2) of this section.
(2) Notwithstanding subsection (i)(1), the Secretary shall, in the
event an employer is operating under a shared identification number or
other unique identifier, consider the organization to be separate if
the employer is operating separately and distinctly, for the purposes
of determining whether an employer is eligible.
(j) Regaining eligibility as a qualifying employer. An organization
that loses eligibility for failure to meet the conditions of paragraph
(b)(27) of this section may regain eligibility to become a qualifying
employer after--
(1) 10 years from the date the Secretary determines the
organization engaged in activities that have a substantial illegal
purpose in accordance with subsection (h) of this section, if, at or
after that time, the organization certifies on a borrower's subsequent
application that the organization is no longer engaged in activities
that have a substantial illegal purpose as defined in paragraph (b)(30)
of this section; or
(2) The Secretary approves a corrective action plan signed by the
employer that includes--
(i) a certification by the employer that it is no longer engaging
in activities that have a substantial illegal purpose as defined in
paragraph (b)(30) of this section;
(ii) a report describing the employer's compliance controls that
are designed to ensure that the employer does not continue to engage in
activities that have a substantial illegal purpose as defined in
paragraph (b)(30) of this section in the future; and
(iii) any other terms or conditions imposed by the Secretary
designed to ensure that employers do not engage in actions or
activities that have a substantial illegal purpose.
(k) Borrower notification of regained eligibility. If an employer
regains eligibility under subsection (j) of this section, the Secretary
shall update the qualifying employer list, which is accessible to
borrowers for purposes of certification or application.

[FR Doc. 2025-15665 Filed 8-15-25; 8:45 am]
BILLING CODE 4000-01-P

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