San Francisco, Santa Clara County, and broad coalition triumph in protecting Public Service Loan Forgiveness program

San Francisco, CA (July 2, 2026)—San Francisco City Attorney David Chiu and Santa Clara County Counsel Tony LoPresti announced that a federal court has ordered the Federal Administration to stop its unlawful rewriting of the Public Service Loan Forgiveness (PSLF) program as a way of silencing local governments and non-profit organizations that do work that goes against the administration’s political agenda. The ruling comes in National Council of Nonprofits et al. v. McMahon, a case brought by a broad coalition of over a dozen cities, labor unions, and nonprofit organizations against the U.S. Department of Education. The case sought to stop a new rule that would allow the Secretary of Education to disqualify government and nonprofit employers that disagree with the administration’s policies from a program intended to support borrowers working in public service jobs.

“Millions of people in our country struggle under crushing student loan debt, so we’re grateful the Court upheld the promise of loan forgiveness made to public servants who have dedicated their careers to bettering our communities,” said San Francisco City Attorney David Chiu. “This victory preserves a financial lifeline for public service workers, and it ensures the Public Service Loan Forgiveness program can continue to function as Congress intended. This vital program will allow our teachers, emergency responders, public health professionals, and other public servants to build stable futures while serving their communities.”

"Student debt is a real barrier to economic security, and PSLF has helped thousands of San Franciscans build stable financial lives while serving their communities,” said Treasurer José Cisneros. “We fought to keep that promise intact, and the court agreed."

“This Federal Administration has been hell-bent on punishing dedicated public servants, from its unlawful reductions to the federal workforce to its attempt to politicize Public Service Loan Forgiveness for nurses, teachers, first responders, and other government workers,” said Santa Clara County Counsel Tony LoPresti. “The court’s decision confirms what we argued from the start: the Administration cannot unlawfully impose its own ideological conditions on a congressionally created program. Public Service Loan Forgiveness is critical to recruiting and retaining talented public servants, and the court’s ruling protects the promise made to those who dedicate their careers to serving their communities.”

Background

Congress created the Public Service Loan Forgiveness program in 2007 to provide federal student loan debt relief to people working in public service in all levels of government or at a non-profit organization. PSLF forgives the remaining balance on direct federal loans after a participant makes 120 qualifying payments while working full-time for a public service employer.

San Francisco employs approximately 34,000 people across its departments and relies on PSLF to recruit and retain talented workers in a region with a high cost of living. The City’s Office of Financial Empowerment supports PSLF access and hosted workshops in 2023 that registered more than 2,100 public service employees from San Francisco and other eligible employers.

The new PSLF rule, meant to take effect July 1, 2026, would have allowed the Secretary of Education to disqualify government and nonprofit employers that disagree with the Federal Administration’s policies. This would have given the Administration a tool to attack sanctuary jurisdictions, immigrant rights groups, healthcare providers that offer gender affirming care, schools, colleges, and universities, and employers committed to equal opportunity employment. This effort to weaponize PSLF would have had a chilling effect on the entire public service workforce and would have unfairly punished workers for the entirely lawful policies of their employers.

The lawsuit alleged that the new PSLF rule is arbitrary and capricious, and a blatant violation of the Administrative Procedure Act and the Higher Education Act passed by Congress, which categorically provides that government and 501(c)(3) nonprofit employers are PSLF-eligible employers. By denying debt relief to those employed at organizations the Federal Administration dislikes, the rule would have deprived government and non-profit employers of highly qualified individuals to do work benefitting those in need across the country.

On June 30, 2026, U.S. District Court Judge Myong J. Joun vacated the new PSLF final rule. The court concluded, “The Final Rule is contrary to law and promulgated in excess of statutory authority, is arbitrary and capricious, and violates the First Amendment. I therefore hold it unlawful and set it aside. The Final Rule is vacated.”

In addition to San Francisco and Santa Clara County, the coalition of plaintiffs in the lawsuit includes the City of Albuquerque, City of Boston, City of Chicago, Amica Center for Immigrant Rights, Coalition for Humane Immigrant Rights, Legal Aid DC, National Association of Social Workers, National Council of Nonprofits, Oasis Legal Services, American Federation of Teachers, American Federation of State, County and Municipal Employees (AFSCME), and National Education Association. The coalition is represented by Democracy Forward and Protect Borrowers in this matter. San Francisco and Santa Clara County represent themselves.

The case is National Council of Nonprofits, et al. v. Linda McMahon, et al., U.S. District Court for the District of Massachusetts, Case No. 1:25-cv-13242. View the court’s opinion.