GOP Tax Bill Would Let Treasury Revoke Eligibility Unilaterally

Huge Threat To Public Service Loan Forgiveness Eligibility In GOP Tax Bill

Public Service Loan Forgiveness, the federal program that forgives student loan debt for public servants after 10 years of qualifying payments, is facing a new and unexpected threat. Tucked inside the House GOP’s newly release 2025 tax bill is a controversial provision that would empower the U.S. Treasury Secretary to unilaterally strip specific nonprofits of their tax-exempt status by designating them as “terrorist supporting organizations.” If enacted, this move could instantly disqualify employees of targeted nonprofits from PSLF, upending the financial plans of thousands of student loan borrowers who rely on the program for student loan forgiveness.

House GOP Tax Bill’s New Power To Strip Nonprofit Status Would Impact Public Service Loan Forgiveness

Many are raising alarms over the House Republicans’ tax legislation, which includes a measure granting unilateral power to the Treasury Secretary to deem any nonprofit a terrorist supporting organization. Under this provision, an organization’s tax-exempt status could be stripped at the sole discretion of the Secretary. The bill’s text defines a “terrorist supporting organization” broadly as any nonprofit that the Secretary designates as having provided “material support or resources” to a terrorist organization within the past three years. This gives the executive branch sweeping authority to suspend a nonprofit’s 501(c)(3) status without the traditional due process or court oversight.

Critics warn that this power could be easily abused for political purposes. U.S. Representative Jamie Raskin, a constitutional law expert, had called a similar 2024 proposal “a werewolf in sheep’s clothing,” noting to PBS that providing support to terrorists is already a felony and arguing the new law would “capsize” due process protections.

Current law does not allow the president, IRS, or Treasury to revoke a nonprofit’s status with the mere stroke of a pen. By contrast, the House tax plan would hand Treasury Secretary Scott Bessent and future secretaries unchecked power to punish organizations by labeling them terrorist supporters “without due process, without a third-party investigation and public evidence,” warns Diane Yentel, CEO of the National Council of Nonprofits in a Nonprofit Quarterly article. Yentel and others describe the measure as a direct assault on charities, churches, universities, and other groups that might not align with the administration’s ideology.”

This isn’t the first attempt to arm the Treasury Department with such authority. A similar proposal surfaced in late 2024 and was widely seen as a way to punish dissenting nonprofits. Although the 2024 effort was blocked, Republicans have revived the concept in their new 2025 tax package. In the Nonprofit Quarterly article, Cole Leiter of Americans Against Government Censorship calls it a “power grab” that would let “any administration… punish any group that doesn’t fully align with its political agenda.” In short, the Treasury secretary could single-handedly block nonprofits, with severe fallout for those organizations and their stakeholders.

Losing Nonprofit Status Means Losing Public Service Loan Forgiveness Eligibility

For nonprofit employees, the stakes of this proposal are especially acute. Under current Department of Education rules, PSLF eligibility depends on working full-time for a qualifying employer, primarily government agencies or 501(c)(3) nonprofit organizations. If an employer loses its 501(c)(3) nonprofit status, it ceases to be a qualifying employer for the Public Service Loan Forgiveness program. Public Service Loan Forgiveness requires 120 months of service with eligible public-interest employers; those months only count if the employer retains its qualifying status. In practical terms, a sudden revocation of a nonprofit’s status would instantly derail PSLF credit for its employees through no fault of their own.

Importantly, PSLF is an all-or-nothing benefit: after 10 years of service and loan payments, the remaining balance is forgiven tax-free. Many public service workers accept lower salaries because their student debt will be forgiven after a decade of work in the nonprofit sector. If their employer is disqualified partway through that journey, those workers could find themselves with years of payments made toward forgiveness, but with the clock effectively reset. They would transfer to another qualifying employer to continue accruing PSLF credit or abandon their forgiveness plans altogether.

In March 2025, President Donald Trump signed an executive order directing the Department of Education to draft regulations excluding specific nonprofits from PSLF if they are found to have a substantial illegal purpose. The order explicitly targets organizations that support terrorism or violate other laws, signaling an intention to tighten PSLF rules.

In combination with the tax bill’s terrorism designation power, this creates a one-two punch: the administration could first strip a nonprofit’s tax-exempt status via the Treasury Department, and the Education Department could then formally declare that the nonprofit’s employees are ineligible for loan forgiveness. The result would be Public Service Loan Forgiveness in name only for those workers, as their years of service would no longer count toward the program.

Harvard University As A Case Study In Public Service Loan Forgiveness Risk

To understand how this could play out on the ground, consider Harvard University, one of the nation’s premier nonprofits and a 501(c)(3) institution. Harvard employs over 18,000 people in Massachusetts alone, including professors, staff, researchers, and healthcare workers at affiliated hospitals. Many of these employees carry student loan debt and have built their financial futures around the Public Service Loan Forgiveness program. Yet Harvard has already found itself in the political crosshairs. In April 2025, Trump threatened on social media to revoke the tax-exempt status of Harvard University, accusing the school of “pushing political, ideological, and terrorist inspired/supporting ‘sickness.’ ”

Had the Treasury secretary possessed the unilateral power now proposed, Harvard’s nonprofit status could have been stripped overnight following that standoff. The immediate consequence for Harvard’s workforce would be stark: Every employee’s PSLF plan would be jeopardized. In essence, the rug would be pulled out from under thousands of dedicated public service professionals, from librarians and lab technicians to professors and nurses.

Harvard’s situation is not unique. The provision’s broad language means any number of nonprofits could be targeted. A charitable organization assisting immigrants, a faith-based charity in a conflict zone, or a civil rights group supporting protest movements could all be vulnerable. “In practice, this creates a serious risk for nonprofits engaged in contentious but lawful work: environmental groups, organizations supporting Palestinian rights, protest networks, or those working in international conflict zones,” noted public affairs expert Matt Watkins in response to the House bill in Nonprofit Quarterly. Employees of these organizations would likewise see their loan forgiveness hopes dashed if their employer’s status was revoked. The PSLF program, which was designed to encourage service in schools, hospitals, and charities, would instead become a source of financial uncertainty.

For now, the House GOP’s tax bill, dubbed “The One, Big, Beautiful Bill,” is still making its way through Congress, and any such provision would also need Senate approval and the president’s signature to become law; however, an ostensibly small tax provision could have life-altering consequences, potentially transforming public service loan forgiveness for millions.