A major update in student loan forgiveness policy may be looming – and it could leave over 6 million borrowers in the lurch.
As part of a new 2025 GOP tax proposal, a quiet provision buried in the legislative text would give the Treasury Secretary unilateral power to revoke nonprofit status from organizations labeled as terrorist-supporting – without judicial review or IRS oversight. While pitched as a security safeguard, this provision could have devastating consequences for the Public Service Loan Forgiveness (PSLF) program.
PSLF currently allows borrowers to have their federal student loans forgiven after 10 years of payments while working full-time for a qualifying employer – typically a 501(c)(3) nonprofit or government agency. If the employer loses its nonprofit designation, all forgiveness progress for its employees would be voided.
With 12.8 million Americans working in nonprofits and about 6 million likely carrying student loan debt, the fallout could be massive. Healthcare workers, teachers, university staff, social workers – anyone depending on PSLF – could see their path to debt relief abruptly erased.
- 12.8 million nonprofit employees in the U.S.
- About 9.6 million work for PSLF-eligible 501(c)(3) organizations.
- 47% of nonprofit workers with degrees currently hold student loan debt.
- That’s roughly 6 million borrowers with forgiveness on the line.
The threat isn’t abstract. In April 2025, former President Donald Trump publicly targeted Harvard University, threatening its tax-exempt status over campus protests. His administration has also frozen federal funds for Harvard, Columbia, and UPenn – all major nonprofit employers with tens of thousands of PSLF-eligible workers.
Under the new bill, the Treasury Secretary could instantly revoke those universities’ nonprofit status. No IRS review. No court hearing. No warning. The result? Thousands of employees would lose their PSLF eligibility – retroactively.
This proposal builds on a January 2025 executive order from Trump, which directed the Department of Education to tighten PSLF requirements. That order hinted at excluding nonprofits tied to “anti-American” activity, laying the groundwork for this sweeping legislative move.
What was once procedural – requiring formal IRS audits to change nonprofit status – would now be politicized and instantaneous.
Advocacy organizations fear the law could be weaponized against nonprofits tied to:
- Immigration and refugee resettlement
- Climate change and environmental justice
- Racial and social equity
- Higher education institutions with protest histories
The White House has not clarified how “terrorist-supporting” will be defined. That ambiguity alone creates significant uncertainty for the nonprofit sector.
This isn’t just about student debt – it’s about the future of nonprofit work. If forgiveness becomes unpredictable, the already difficult task of recruiting talent into teaching, social work, or community health will get even harder.
It could also chill speech and advocacy efforts, with nonprofits potentially avoiding certain topics or causes to protect their tax status.
While the bill is still early in the legislative process, the implications are immediate. PSLF borrowers should monitor this development closely. A single designation by the Treasury could undo years of progress – and for many, derail their plans for financial recovery.
If passed, this update would redefine what it means to qualify for student loan forgiveness in the U.S.
