The Trump administration proposed new rules earlier this month that could revoke the tax-exempt status of certain nonprofit private schools and educational institutions. If enacted, the regulatory updates could directly impact borrowers hoping to get their student loans forgiven through Public Service Loan Forgiveness (or PSLF), adding to a recent string of challenges that is threatening the popular student loan forgiveness program .

The proposed tax rules, released by the Treasury Department in early September, would allow the government to rescind or deny 501(c)(3) tax-exempt status to nonprofit private secondary schools, colleges, and universities whose policies, in the IRS’s determination, are racially discriminatory.

“Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education,” said Treasury Secretary Scott Bessent in a statement announcing the proposed rule earlier this month. “Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature. Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”

But critics warned that the new tax rules, if enacted, could be weaponized against educational institutions that simply oppose the Trump administration’s policy priorities. And the rules could also be used to target nonprofit schools that employ student loan borrowers pursuing PSLF. That would essentially create a workaround for the administration to try to block student loan forgiveness under the program after separate rules targeting PSLF that the Education Department had proposed earlier this year were struck down by federal courts in June . Here’s the latest.

New Tax Rules Could Curtail Student Loan Forgiveness Under PSLF

The proposed new tax regulations, if enacted, would deny federal 501(c)(3) tax-exempt status to private schools if the government determines that the institution is engaged in racial discrimination. Any 501(c)(3) institution, including private schools, colleges, and universities, is an eligible organization for borrowers pursuing student loan forgiveness under PSLF. The PSLF program allows borrowers to get their student loans forgiven after making at least 10 years of qualifying payments while working full-time for eligible nonprofit organizations, such as tax-exempt private schools and universities.

The Trump administration indicated that the new rules are necessary to enforce a recent U.S. Supreme Court ruling that effectively struck down affirmative action policies in university admissions.

“Under the proposed rule, a private school would not qualify for Federal tax-exempt status under section 501(c)(3) if it adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin,” said the Treasury Department in a summary of the proposal in its statement earlier this month. “The rule would apply across admissions, educational policies, scholarships and loans, athletics, and every other school-administered or school-supported program.”

But critics argued that the proposed rules could be easily used to coerce and punish educational institutions (many of which have already been the subject of the Trump administration’s ire) that are doing nothing illegal under the recent Supreme Court holdings.

“Weaponizing the I.R.S. to attack colleges and universities that uphold and expand civil rights is outrageous,” said Todd Wolfson, president of American Association of University Professors, in a statement to The New York Times and other media outlets following the Treasury Department’s announcement. “This is blatantly racist political coercion intended to deny minority students reparative opportunities to further their education.”

If a nonprofit school loses its tax-exempt status, it would no longer be a qualifying employer for PSLF. That, in turn, would prevent all student loan borrowers employed by that institution from getting their student loans forgiven under the program. Borrowers would have no recourse and no individual right to appeal if their employer loses PSLF eligibility under the new rules.

Proposed Rules Mirror Education Department’s Efforts To Restrict Student Loan Forgiveness Under PSLF

The Treasury Department’s proposed new regulations are not entirely dissimilar from rules proposed by the Education Department earlier this year that would have cut off nonprofit employers from participating in the PSLF program if they engaged in certain activities that Education Secretary Linda McMahon determined had a “ substantial illegal purpose .” That phrase, “substantial illegal purpose,” would have included certain forms of “discrimination,” as well as other activities encompassing healthcare for transgender youth, work to help or protect immigrants, and certain forms of public protest.

While the Education Department had argued that the new PSLF rules were necessary to ensure that student loan forgiveness was only available for organizations engaged in lawful activities, critics had argued (similar to the newly proposed tax rules) that the regulations would have effectively weaponized the PSLF program, allowing the Trump administration to target nonprofit schools and other organizations that were not doing anything illegal, but simply opposed the administration’s policies.

In late June, just hours before the PSLF rules were set to go into effect, two federal district court judges struck them down. The courts held that the regulations were unlawful and not authorized by Congress, which had created the program through legislation in 2007 and had included all 501(c)(3) nonprofit organizations as eligible institutions for student loan forgiveness under PSLF.

“The Final Rule is unlawful because it permits the Secretary to disqualify statutorily eligible employers upon determining that they have a ‘substantial illegal purpose,’” said one of the two courts striking down the PSLF rules. “The Final Rule plainly contradicts the unambiguous text of the PSLF Statute and exceeds the scope of the Department’s authority because Congress does not require such a hurdle and did not specifically instruct the Department to impose it.”

The Education Department just announced in August that it is appealing the PSLF rulings , leaving the future of student loan forgiveness under the program even more uncertain.

Student Loan Forgiveness Under PSLF Faces Multiple Threats

The Treasury Department’s proposed new rules to rescind tax-exempt status from nonprofit private schools and universities are not in effect yet, and will likely be challenged in court. But the proposal, along with the administration’s recent announcement that it will appeal the two court decisions striking down the Education Department’s proposed student loan forgiveness restrictions for PSLF, are not the only threats to the program.

Last month, scores of borrowers began reporting that the Education Department had unilaterally revoked qualifying PSLF payments , pushing them further away from getting their student loans forgiven. The department has maintained that it is simply correcting data problems that had resulted in some borrowers erroneously receiving PSLF credit for non-qualifying periods, such as ineligible months spent in a forbearance or in a non-qualifying repayment plan. But other borrowers have reported losing student loan forgiveness credit for periods when they were making on-time payments under qualifying repayment plans and meeting all other PSLF eligibility requirements. Meanwhile, some borrowers have separately reported that they cannot get recent months counted toward PSLF, while others are experiencing problems enrolling in qualifying repayment plans. The department has not acknowledged the turmoil surrounding PSLF that many borrowers are now finding themselves embroiled in.