Trump's student loan cancellation overhaul: Why hospitals, schools and non-profit organisations are at risk

Mint

08-07-2025

US President Donald Trump is planning to reshape a student loan cancellation programme that experts say may become a tool for political retribution, aimed at organisations that serve immigrants and transgender youth.
According to an AP report, the loan cancellation programme, Public Service Loan Forgiveness, allows government employees, such as teachers and firefighters, plus many who work for nonprofits, to have their student loans cancelled after they've made payments for 10 years.
An overhaul of this programme, which the Education Department is reportedly working on, could strip the benefit from organisations involved in 'illegal activities'. A draft proposal released by the department includes definitions of illegal activity that centre on immigration, terrorism and transgender issues, the report said.
Several advocates invited to weigh in on the draft proposal raised concerns it would give the department subjective authority to decide if an organisation is engaged in anything illegal — a power that could be used to remove entire hospital systems or state governments from the programme, AP report said.
'That's definitely an indicator for me that this is politically motivated and perhaps will be used as a tool for political punishment,' said Betsy Mayotte, president of the Institute of Student Loan Advisors and one of the advocates asked to review the policy as part of a rulemaking process.
According to the report, over 1 million Americans have had loans cancelled through the programme, including nurses, college staffers, and park rangers.
Started in 2007 by the Congress, the programme aimed to encourage college graduates to work in the public sector, where salaries are often lower than at for-profit companies.
The programme promises to cancel all remaining debt after borrowers make 120 monthly loan payments while working for any level of government. Currently, nonprofits also are eligible if they focus on certain areas including public interest law, public health or education, the report added.
President Trump had ordered changes in the programme in March, declaring it had 'misdirected tax dollars into activist organisations' that harm national security.
Trump directed the Education Department to remove organisations tied to illegal activities, singling out those that work with immigrants or transgender youth or those that support terrorism – a label he often applies to pro-Palestinian activists.
A federal database of eligible nonprofits currently includes some that provide grants to transgender youth and their families so they can travel to states that permit gender-affirming care for minors. It also includes some that provide legal services to immigrants regardless of their legal status, an AP report said.
The planned overhaul could potentially block huge numbers of student loan borrowers from cancellation. Those who work for an ineligible employer would no longer be able to make progress toward cancellation, effectively forcing them to find a new job or forgo loan forgiveness.
Needless to say, hospitals, schools, and nonprofits could be at the risk of being blocked if the overhaul of the loan forgiveness programme goes through, the report added.
The proposal classifies 'illegal activities' as 'aiding or abetting' and supporting any group designated as a foreign terrorist organisation as 'in the violation of federal immigration law'. Also on the list are violations of the Civil Rights Act of 1964, a law Trump officials have invoked to root out diversity, equity and inclusion policies.
'Engaging in the chemical and surgical castration or mutilation of children" is considered illegal and "in violation of Federal or State law.' The proposal says this includes the use of hormone therapy or drugs that delay puberty, and defines children as those under the age of 19.
It raises concerns that entire hospital systems could become ineligible if a single department provides certain care to transgender youth. Likewise, the federal government could potentially strip the benefit from entire cities that limit cooperation with federal immigration officials, as AP reported.
'I could see entire cities and entire civil structures being targeted,' said Alyssa Dobson, financial aid director at Slippery Rock University and a member of the rulemaking panel. It could also give the administration another tool in its campaign against universities that run afoul of the president's politics, she said.