A troubling development for student loan borrowers is taking shape in Washington as a new GOP tax proposal for 2025 contains a provision that could derail loan forgiveness plans for millions of Americans. Hidden within the legislative text is language that would grant the Treasury Secretary unprecedented power to revoke nonprofit status from organizations deemed as “terrorist-supporting” without judicial review or IRS oversight.
This seemingly narrow security measure could have far-reaching consequences for the Public Service Loan Forgiveness (PSLF) program, which currently allows borrowers to have their federal student loans forgiven after making payments for 10 years while working full-time for qualifying employers, typically 501(c)(3) nonprofits or government agencies.
The implications are enormous: if an employer loses its nonprofit designation, all loan forgiveness progress for its employees would be immediately invalidated.
Millions of workers caught in the crossfire
The numbers reveal the potential scale of disruption. Currently, 12.8 million Americans work in the nonprofit sector, with approximately 9.6 million employed by PSLF-eligible 501(c)(3) organizations. Studies indicate that about 47% of nonprofit workers with degrees carry student loan debt.
This translates to roughly 6 million borrowers whose path to financial freedom could be abruptly terminated by a single administrative decision. These affected workers include:
- Healthcare professionals serving in nonprofit hospitals
- Teachers and staff at private educational institutions
- University employees across thousands of campuses
- Social workers addressing community needs
- Public interest attorneys providing legal aid
- Environmental researchers at conservation organizations
For these professionals, many of whom accepted lower salaries with the promise of eventual loan forgiveness, the proposed change represents an existential threat to their financial futures.
Political targeting already underway
This threat isn’t merely theoretical. In April 2025, former President Trump publicly targeted Harvard University, threatening to revoke its tax-exempt status in response to campus protests. His administration has already frozen federal funding for Harvard, Columbia, and the University of Pennsylvania, all major nonprofit employers with substantial numbers of PSLF-eligible employees.
Under the proposed legislation, the Treasury Secretary could immediately strip these institutions of their nonprofit status without the customary protections of IRS review, court hearings, or even advance notice. The result would be devastating: thousands of employees would lose their PSLF eligibility retroactively, erasing years of payment history and service.
Expanding executive authority
The proposal appears to build upon a January 2025 executive order from the Trump administration that directed the Department of Education to strengthen requirements for the PSLF program. That directive suggested excluding nonprofits associated with “anti-American” activity, establishing a precedent for this more comprehensive legislative maneuver.
What once required formal IRS audits and a rigorous legal process to change nonprofit status would become a unilateral decision, potentially influenced by political considerations rather than established tax law.
Targeted organizations and chilling effects
Advocacy groups have expressed alarm that the law could be weaponized against specific types of nonprofits, particularly those working in politically sensitive areas. Organizations potentially at risk include those focused on:
- Immigration and refugee resettlement services
- Climate change and environmental justice initiatives
- Racial and social equity programs
- Higher education institutions where protests have occurred
- International aid organizations working in contested regions
Adding to the uncertainty, the White House has not provided clear guidelines for what constitutes “terrorist-supporting” activities. This ambiguity alone creates significant apprehension throughout the nonprofit sector and among borrowers relying on PSLF.
Beyond student debt
The consequences extend far beyond individual borrowers. The nonprofit sector already faces challenges in recruiting talented professionals willing to accept lower compensation compared to private industry. If loan forgiveness becomes uncertain, attracting qualified candidates into teaching, social work, community health, and other vital fields will become increasingly difficult.
The proposed change could also have a chilling effect on free expression and advocacy efforts. Nonprofits may avoid addressing certain topics or causes to protect their tax status, potentially compromising their missions and effectiveness.
Immediate concerns despite legislative uncertainty
While the bill remains in the early stages of the legislative process, its implications are already being felt. PSLF participants are watching developments with growing anxiety, knowing that a single designation by the Treasury could invalidate years of careful financial planning.
For many borrowers, particularly those nearing the end of their 10-year service period, the proposal threatens to derail long-anticipated financial relief. Some may face the prospect of decades of additional payments on loans they expected to be forgiven.
The changing landscape of student loan forgiveness
If enacted, this provision would fundamentally alter the reliability of the PSLF program, transforming it from a dependable pathway to debt relief into a benefit that could be revoked at any time based on political considerations.
This comes at a particularly challenging moment for student loan borrowers, many of whom have recently resumed payments following the pandemic-era pause. For the millions working in the nonprofit sector, this additional uncertainty compounds their financial stress at a time when economic pressures are already substantial.
As legislative discussions continue, millions of public service workers find themselves in limbo, uncertain whether their years of service will ultimately lead to the loan forgiveness they’ve been counting on.
