New Lending Rules Starting This Summer Change the Calculus for Grad Students
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A major overhaul to the federal student loan system is coming this July, and graduate students in particular will need to prepare for a spate of new rules.
As part of President Donald Trump’s One Big Beautiful Bill Act (OBBBA), grad students face new annual- and lifetime-lending limits, the elimination of Grad PLUS loans, revamped repayment options and more — all starting on July 1.
“These changes are about as significant as anything we've seen in the graduate lending space in quite some time,” says Megan Walter, a senior policy analyst at the nonprofit National Association of Student Financial Aid Administrators.
While federal officials maintain the new rules are aimed at curbing excessive borrowing and lowering tuition rates, student loan experts and advocates are warning that the changes will push many students into private student loan debt — and could bar others from graduate school entirely.
“Unlike federal loans, private loans are credit-based, and for borrowers without strong credit or a willing, creditworthy cosigner, that gap could translate into a real barrier to affording their program,” Walter says.
What’s changing for new graduate students
Most of the OBBBA changes for grad students affect loans taken out July 1 or later.
For one, the Grad PLUS lending program run by the Department of Education for about two decades is ending. Under this sunsetting program, grad students have been able to borrow up to the full cost of attendance.
Without Grad PLUS loans, the Education Department’s $20,500 annual borrowing limit for unsubsidized loans is what remains, effectively capping federal borrowing for a typical two-year master’s program at $41,000.
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New lifetime borrowing limits are also going into effect. For standard graduate degrees, students are limited to $100,000 in federal loans including what they borrowed for undergraduate studies. For so-called “professional” degrees, the aggregate loan limit will be $257,000.
Before the new lending limits, a “professional degree” had no official definition, though it was largely used to describe degrees in fields that required highly specialized education and usually licensing for a specific career.
The Education Department, for lending purposes, is using a strict definition of "professional degrees," focusing only on the following 11 advanced degree programs:
- Pharmacy (Pharm.D.)
- Dentistry (D.D.S. or D.M.D.)
- Veterinary Medicine (D.V.M.)
- Chiropractic (D.C. or D.C.M.)
- Law (L.L.B. or J.D.)
- Medicine (M.D.)
- Optometry (O.D.)
- Osteopathic Medicine (D.O.)
- Podiatry (D.P.M., D.P., or Pod.D.)
- Theology (M.Div., or M.H.L.)
- Clinical Psychology (Psy.D. or Ph.D.)
The strict definition has sparked backlash from advanced nursing, accounting and engineering groups. According to the National Association of Independent Colleges and Universities, the department's definition now excludes about 90% of all graduate programs, many of which cost well above the $100,000 lifetime lending limit.
In the text of the new rules, the Education Department emphasized that the "professional" designation, or lack thereof, does not reflect a value judgment regarding the quality of the program or whether graduates are professionals — rather it is solely used to distinguish lending limits.
How OBBBA affects current graduate school borrowers
Current grad students are also impacted by the upcoming changes, notably related to the Grad PLUS program.
While this lending program is ending for new graduate students, current borrowers may be able to continue to receive funding through the program under a “limited exception.”
The limited exception essentially lifts the new lending limits. It’s designed for current borrowers who stay enrolled at the same school and in the same program to continue borrowing through Grad PLUS up until the completion of their degree, or for a maximum of three years.
The limited exception is not always automatic. Grad students who have yet to borrow from the federal government must apply on StudentAid.gov for a loan before July to qualify for the exception. As NASFAA notes, borrowing to simply "lock in" eligibility for Grad PLUS exception isn't the right choice for everyone.
Under the limited exception, changing schools, programs or enrollment status becomes all the more consequential for grad students.
“If you withdraw or switch programs, you lose that legacy Grad PLUS borrowing eligibility and become subject to the new borrowing limits,” Walter says. “If you need to make changes to your studies … talk to your financial aid office before taking any action.”
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New loan repayment plans
Lending limits aren’t the only thing changing this summer. All federal student loans taken out July 1 or later are subject to new repayment rules as well.
The new standard repayment plan requires a fixed payment schedule between 10 and 25 years, depending on the principal amount of loans.
The OBBBA also created a brand new income-driven repayment (IDR) option called the Repayment Assistance Plan, or RAP. Under this new arrangement, monthly payments range from 1% to 10% of the borrower’s adjusted gross income, with a minimum payment of $10 a month. After 360 months of on-time payments (roughly 30 years) any remaining balances are forgiven.
RAP has other benefits such as interest-waiving and principal reduction in certain circumstances. But the new plan is replacing a host of repayment options — some of which had more favorable terms for struggling borrowers, since they protected some income from the payment formula.
Public Service Loan Forgiveness (PSLF) is one benefit that skirted major changes ushered in by the OBBBA, because it was separately created by Congress in 2007.
This long-standing program extends loan forgiveness to borrowers who go on to work full-time for the government or a qualifying nonprofit organization after making 120 confirmed monthly payments — or after about 10 years.
For borrowers with all loans taken out before July, they will keep access to several sunsetting IDR plans until 2028. After that, these "old" borrowers must choose between RAP or Income-Based Repayment if they want their monthly payments pegged to their earnings. But borrowers who take out additional loans after July 1 are considered a "new" borrower for the sake of the new repayment options.
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