Vermont's Workforce Crisis: $2.9B in Loans at Stake as States Sue to Save PSLF
Vermont has “more people per capita... employed in government and not-for-profit organizations than in most other states.”
On November 3, 2025, Vermont Attorney General Charity Clark announced that Vermont has joined a 22-state coalition in a federal lawsuit against the U.S. Department of Education (DOE). The suit aims to block a new rule, finalized by the Trump Administration on October 31, 2025, that the attorneys general argue unlawfully restricts eligibility for the Public Service Loan Forgiveness (PSLF) program.
The PSLF program, created by Congress in 2007, forgives the remaining federal student loan debt for government and nonprofit employees after they make 120 qualifying payments over 10 years of public service.
In the announcement, AG Clark called the new rule an “illegal power-grab“ and stated the administration “lacks the legal authority to take this action.” The lawsuit was filed just three days after the rule was finalized, signaling a long-prepared legal challenge from the state coalition.
The Core of the Lawsuit
The lawsuit challenges a new provision that gives the U.S. Department of Education the power to disqualify entire organizations from PSLF eligibility if the department determines they have a “substantial illegal purpose.”
The 22-state coalition argues this standard is intentionally vague and a pretext to punish employers for policies the federal administration opposes. Specifically, the lawsuit claims the rule is targeted at state and local governments or nonprofits that:
Provide gender-affirming health care;
Engage in activities that support undocumented immigrants; or
Promote diversity, equity, and inclusion (DEI) efforts.
The central legal argument is that the DOE is exceeding the authority granted to it by Congress. The coalition contends that the original 2007 law guarantees forgiveness for anyone in qualifying public service and “does not grant the Department of Education discretion to carve out exceptions based on ideology.” The lawsuit asks the court to vacate the rule and permanently block the DOE from implementing it.
The Administration’s Stated Rationale
The U.S. Department of Education has defended the new rule, which is set to take effect in July 2026, as a necessary measure to “protect American taxpayers“ and “restore the... program to its intended purpose.”
The administration’s official position is that employer eligibility standards “have not been adequately monitored” and that the rule will “ensure that PSLF benefits go only to borrowers employed by organizations that genuinely serve the public.”
In an official statement, Under Secretary of Education Nicholas Kent provided a direct link to the policies being targeted. “Taxpayer funds should never directly or indirectly subsidize illegal activity,” Kent said. “The Public Service Loan Forgiveness program was meant to support Americans who dedicate their careers to public service – not to subsidize organizations that violate the law, whether by harboring illegal immigrants or performing prohibited medical procedures that attempt to transition children away from their biological sex.”
News reports confirm the administration’s language, such as “chemical castration,” is defined in the rule as “using hormone therapy or drugs that delay puberty“—common forms of gender-affirming care.
The Stakes for Vermont: $2.9 Billion in Debt and a Public-Service Economy
The legal battle has massive financial implications for Vermont, which has a total outstanding student loan debt of $2.9 billion held by approximately 77,000 federal borrowers.
The threat to PSLF is particularly acute for Vermont due to the structure of its economy. According to the Vermont Student Assistance Corporation (VSAC), Vermont has “more people per capita... employed in government and not-for-profit organizations than in most other states,” making PSLF an “especially important” program for the state.
The new rule places tens of thousands of Vermont’s essential workers at risk, including:
State Government Employees: Approximately 19,600 Vermonters.
Public Education Employees: 7,934 public school teachers and thousands of additional staff across 98 school districts.
Nonprofit Healthcare Employees: This sector is one of the largest and most vulnerable. The UVM Health Network, a nonprofit, employs 8,200 people at the UVM Medical Center in Burlington, 1,700+ at Central Vermont Medical Center, and 670 at Porter Medical Center.
The PSLF program is a critical “tool to recruit and retain qualified professionals“ who often accept lower salaries in exchange for the 10-year promise of loan forgiveness. Losing this incentive could worsen existing workforce shortages in critical fields like healthcare.
A “Catch-22”: How Vermont’s State Laws Conflict With the Federal Rule
The new federal rule creates a direct conflict with established Vermont state laws and policies, placing public employees in a “Catch-22” where following state law could jeopardize their financial future.
1. Gender-Affirming Care
Federal Position: The rule targets employers involved in “prohibited medical procedures,” which are defined as gender-affirming care.
Vermont’s Conflict: Vermont law protects access to this care. In February 2025, AG Clark joined a brief to protect gender-affirming care, and the legislature is considering a bill (H.55) to expand insurance coverage for it.
The “Catch-22”: A doctor at the nonprofit UVM Medical Center is bound by state law and medical ethics to provide this care. Under the new rule, this state-mandated action could be used by the DOE to declare the entire UVM Health Network an ineligible employer, putting the PSLF status of its 8,200+ employees at risk.
2. Immigrant Support Policies
Federal Position: The rule targets organizations that are “aiding and abetting illegal immigration.”
Vermont’s Conflict: Vermont has numerous state policies that could be interpreted this way by the federal administration. This includes the state’s “Fair and Impartial Policing Policy,” which limits local police involvement in federal immigration enforcement, and policies that grant in-state tuition and professional licenses regardless of immigration status.
The “Catch-22”: A state employee at the University of Vermont who follows state law by granting in-state tuition to an undocumented student could be accused of “aiding and abetting.” This could, in turn, threaten the PSLF eligibility of all employees in the Vermont state university system.
3. Diversity, Equity, and Inclusion (DEI)
Federal Position: The rule is seen by the AG coalition as a tool to defund DEI initiatives, which the administration has threatened to block federal education funding over.
Vermont’s Conflict: Vermont’s leadership has been openly defiant. In 2025, AG Clark issued guidance assuring schools and businesses that DEI initiatives are “legal, viable and important.” In April, Vermont’s Education Secretary Zoie Saunders publicly rescinded a memo asking schools to comply with a federal anti-DEI directive, stating “diversity, equity, and inclusion practices are lawful and supported in Vermont.”
The “Catch-22”: A Vermont school district following state guidance on DEI could be declared an ineligible employer by the DOE, stripping every teacher, administrator, and staff member in that district of their promised loan forgiveness.
What Happens Next
The new federal rule is scheduled to take effect in July 2026.
The lawsuit filed by the 22-state coalition, including Vermont, seeks to have the rule declared unlawful and permanently blocked before it can be implemented. The coalition will likely ask the court for a preliminary injunction to halt the rule from taking effect while the case proceeds.
In the meantime, public-sector unions and organizations like VSAC warn that the rule, even if ultimately defeated in court, creates a “chilling effect“ that could harm the state’s ability to recruit essential workers, who must now weigh the uncertainty of this 10-year promise.