A hidden provision in a 2025 tax bill threatens to unravel Public Service Loan Forgiveness for up to 6 million borrowers working in nonprofits, education, and healthcare.
Washington, D.C. — A little-noticed provision buried deep in the GOP’s 2025 tax plan could cause a seismic shift in student loan forgiveness—especially for those enrolled in the Public Service Loan Forgiveness (PSLF) program. The proposal grants the U.S. Treasury Secretary the authority to revoke nonprofit status from organizations labeled as “terrorist-supporting”—a change that could instantly disqualify millions of Americans from PSLF.
With no requirement for judicial review or oversight from the IRS, the forgiveness millions have been counting on for years could disappear overnight—even for borrowers nearing the end of their 10-year service period.
What Is PSLF and Why Is It at Risk?
The Public Service Loan Forgiveness program was created to incentivize careers in public service by forgiving remaining federal student loan balances after 10 years of income-driven payments while working full-time for a qualified employer—most commonly 501(c)(3) nonprofits and government agencies.
But under this new bill, if an organization loses its nonprofit status, even retroactively, borrowers employed there would no longer be eligible, and previous qualifying payments could be invalidated. The proposed language gives sweeping power to the Treasury Department to make these determinations without traditional legal safeguards.
Who Could Be Impacted?
According to the U.S. Bureau of Labor Statistics, over 12.8 million Americans work for nonprofit organizations, with about 9.6 million employed by PSLF-eligible 501(c)(3) employers. Of those, studies show approximately 47% carry student loan debt—roughly 6 million borrowers now facing the possibility of losing forgiveness eligibility.
Key professions at risk include:
- Nurses and doctors at nonprofit hospitals
- Teachers and staff at religious or private schools
- Social workers in underserved communities
- University employees, including faculty and administrators
- Environmental and civil rights advocates
- Public legal aid attorneys
Real-World Examples: Harvard, Columbia, and Penn
This threat isn’t hypothetical. In April 2025, former President Trump publicly called for Harvard University’s nonprofit status to be revoked, citing concerns about “terrorist-inspired ideology” on campus. The administration has already frozen federal funding for Harvard, Columbia, and the University of Pennsylvania—all large employers of PSLF-eligible staff.
Under current law, changing a nonprofit’s status requires an extensive IRS investigation and court oversight. But under the new proposal, the Treasury Secretary could act unilaterally, bypassing due process.
If implemented, PSLF participants at these institutions—and others—could lose eligibility instantly.
The Executive Order Behind the Policy Shift
This legislative push follows a January 2025 executive order by the Trump administration, directing the Department of Education to tighten PSLF eligibility. The order sought to exclude nonprofits engaged in what the administration labeled “anti-American activities”—a broad, undefined category that may include immigration advocacy, campus protests, and climate activism.
This new legislative proposal would go even further, effectively giving the executive branch unchecked authority over who qualifies for student loan forgiveness.
Advocacy Groups Sound the Alarm
Legal experts and nonprofit leaders warn the proposal could be used as a political tool to target organizations working in sensitive or controversial fields. That could include:
- Immigration and refugee support organizations
- Climate and environmental justice groups
- Racial equity and social justice nonprofits
- Academic institutions involved in political protests
- International relief and development agencies
By stripping these groups of tax-exempt status, the bill would simultaneously gut their staff’s PSLF eligibility, discourage advocacy, and threaten vital public service work.
Broader Impacts on the Nonprofit Sector
The consequences go beyond student debt:
- Nonprofits could begin self-censoring to avoid retaliation.
- Talented professionals may be discouraged from public service careers.
- Already-strained sectors like healthcare and education could see higher turnover.
- Confidence in PSLF could plummet, undermining its very purpose.
This would create a chilling effect on freedom of expression, research, and humanitarian services, which depend on nonprofit protections and stable federal policies.
What This Means for Borrowers Today
Although the bill is still in early stages, the implications are clear. PSLF is no longer a guaranteed path to forgiveness.
Borrowers currently enrolled in PSLF—or planning to apply—should:
- Document all employment and payment history
- Monitor legislative developments closely
- Consider alternatives or backup repayment plans
- Advocate through local representatives and nonprofit associations
This proposed legislation could reshape the entire landscape of student loan forgiveness, turning what was once a reliable route to financial freedom into a precarious and politically influenced process. With over 6 million borrowers potentially affected, the stakes could not be higher.
“It’s not just about loan payments—it’s about whether public service still means something in America,” one PSLF-eligible university worker said. “We made career sacrifices to serve others, and now we’re being told it might not count.”