How new federal guidelines affect grad loans

New classifications for professional degree programs may impact loan eligibility for students currently enrolled in or planning to attend graduate school in the near future. As a result of recent legislation, federal loan limits for graduate-level education have been updated, with the most significant changes affecting students in pre-professional programs in fields such as law and medicine.

Updated definitions of “professional degrees” set by the U.S. Department of Education (ED) now formally tie financial aid levels to program categories. Students pursuing certain careers in healthcare, education, social services, and other domains are likely to be affected by this legislation. Other changes, such as the elimination of the Federal Direct Graduate PLUS Loan program, will also affect potential funding opportunities for all graduate students starting as early as next year.

Background and context

On July 4, 2025, President Donald Trump signed Public Law 119-21, a landmark reconciliation bill focused on spending and tax reforms. Formally recognized as the One Big Beautiful Bill Act (OBBBA), this piece of legislation shapes the future of federal student aid programs through a range of impactful provisions. While certain initiatives, such as immediate updates to federal student loan repayment programs, took effect directly after enactment, many other elements of the law will begin rolling out next year.

Following OBBBA’s passage, the U.S. Department of Education (ED) convened the Reimagining and Improving Student Education (RISE) rulemaking committee to establish detailed regulations stemming from higher education mandates. Concluding negotiations on November 6, the RISE committee reached agreement on a suite of new rules. These reconciled regulations address federal student loan access, repayment options, and default management, along with introducing significant changes to borrowing for graduate and professional education.

What does the “professional degree” designation mean?

Possibly the most significant update introduced by OBBBA is the official codification of “graduate” and “professional” degree terminology, as well as the new federal loan limits associated with these categories. Starting July 1, 2026, students pursuing most graduate degrees will be subject to an annual loan cap of $20,500 and an aggregate loan maximum of $100,000. These amounts align closely with the existing federal unsubsidized loan parameters for graduate borrowers. Meanwhile, students in approved professional degree programs will have access to increased annual borrowing limits of $50,000, with a cap of $200,000 for the duration of their studies. Currently, there are no measures in place to adjust loan caps over time based on inflation.

Graduate students should be aware that Graduate PLUS loans, also known as Graduate and Professional PLUS loans, are also set to be phased out under OBBBA’s new regulations. Historically, the Graduate PLUS loan program allowed graduate and professional students (and their families) to borrow amounts up to the total cost of attendance minus other financial aid received, offering unique flexibility in funding advanced degrees such as master’s, PhDs, MDs, and similar programs.

For current students or individuals entering graduate study for the 2026 academic year, a transition period will be in effect: a grace window equivalent to the shorter of three years or the remaining duration of their program, during which they can still access PLUS loans and other borrowing within previously established limits by the ED. The flowchart above illustrates student loan policies set by the OBBBA as interpreted by the National Association of Student Financial Aid Administrators (NASFAA) to help you evaluate your next steps. Please note that eligibility details, professional degree definitions, and final loan amounts are subject to ongoing updates, pending the completion of certain rulemakings.

According to the Department of Education, the “professional degree” designation is not intended to undermine the value of other advanced degrees in career preparation; instead, it serves as an internal and technical classification that guides available federal loan programs and borrowing limits.

Disciplines classified as professional degrees

To be officially recognized as a professional degree, as defined by OBBBA and RISE, an educational program must meet all of the following core requirements:

• The program must confer a doctoral-level professional degree
• Completion of at least six years of higher education is required, including a minimum of two years of study at the post-baccalaureate level
• Graduates must obtain professional licensure in order to practice in their chosen field

The regulatory framework for professional degree definitions goes back to a 1965 law, which had not been strictly enforced until now. The following fields of study and associated degree titles are now classified under the definition of a professional degree:

• Pharmacy (PharmD)
• Dentistry (DDS or DMD)
• Veterinary Medicine (DVM)
• Chiropractic (DC or DCM)
• Law (LLB or JD)
• Medicine (MD)
• Optometry (OD)
• Osteopathic Medicine (DO)
• Podiatry (DPM, DP, or PodD)
• Theology (MDiv or MHL)
• Clinical Psychology (PsyD or PhD)

Any academic programs sharing an identical four-digit Classification of Instructional Programs (CIP) code, a standardized taxonomy used for categorizing higher education degree programs, to the programs above are also included within the professional degree category. Specific CIP codes for all disciplines can be found on the National Center for Education Statistics’ official directory.

By meeting these criteria, a graduate program is formally designated as a professional degree, qualifying it for distinct recognition and benefits under new policies.

Disciplines not classified as professional degrees

The following areas of study and related degree programs are not classified as professional degrees under the OBBBA guidelines, and as a result, they face stricter limitations on graduate student financing compared to designated professional degree programs:

• Nursing (MSN, DNP)
• Physical Therapy (DPT)
• Physician Assistant programs (MPAS, MSPAS, MHS)
• Audiology (AuD)
• Architecture (MArch, DArch)
• Accounting (MAcc)
• Education (MEd, MAEd, EdS, EdD)
• Social Work (MSW, DSW)

Although several of these academic areas and advanced degrees meet many of the standard requirements for a professional designation as defined by the ED, the department has adopted a narrower definition of what counts as a program eligible for expanded federal student aid under the most recent regulations. Currently, graduate programs in engineering, business (at the master’s level), counseling and therapy, and speech-language pathology are also excluded from the OBBBA professional degree classification and do not qualify for enhanced student finance options.

Other aid-related provisions in the OBBBA

In addition to the professional degree reclassification, several other major reforms to federal student aid have been enacted under the reconciliation bill. These significant changes impact loan limits, borrowing policies for graduates and undergraduates, and student loan repayment options, including the introduction of the RAP Plan:

• New annual loan limits have been established for parents borrowing on behalf of dependent undergraduate students, now set at $20,000 per year, with a total aggregate limit of $65,000.
  • Previously, parents of undergraduate students could take out enough money to cover attendance costs, minus any financial aid received through the Parent PLUS program.
  • These new loan limits are prorated for part-time students, ensuring that federal student loan amounts reflect enrollment status.
  • Certain academic programs may now be subject to reduced federal loan amounts based on updated eligibility criteria.
• Under the new guidelines, loan limits will no longer be automatically decreased if a student temporarily drops from full-time to part-time status, as long as they return to full-time enrollment the following semester.
• Universities and similar institutions now have greater flexibility to set lower annual borrowing limits for both students and parents in selected programs of study.
• Eligibility for Pell Grants for undergrads has tightened: students who receive financial aid that covers or exceeds the cost of attendance at a given institution will no longer be eligible for a grant.

Student loan repayment plans have also undergone sweeping changes, reversing many policies put in place under President Joe Biden’s administration:

• For new borrowers, student loan repayment options are streamlined to just two choices: a standard repayment plan and the new income-driven Repayment Assistance Plan (RAP Plan) for student loans. The Income-Contingent Repayment (ICR) option will be discontinued.
• Updates to Income-Based Repayment (IBR) requirements now allow existing borrowers, including those without a partial financial hardship and those with consolidated Parent PLUS Loans, to benefit from revised terms.
• The new RAP Plan for student loans allows married couples who file jointly to make payments proportional to their individual share of the debt, rather than basing payments solely on combined household income.
• Borrowers with defaulted loans are now permitted a second opportunity to rehabilitate their federal student loans, which offers expanded borrower protections.
• However, unemployment and economic hardship deferments will be gradually eliminated, and the maximum period for general forbearance will be reduced from three years to nine months within any 24-month period.
• The bill introduces stricter requirements regarding monthly payment deadlines for all federal student loan borrowers.

While OBBBA narrows some repayment and forbearance options, it also enhances support for borrowers in default. These updates are designed to help individuals exit default status more easily, ultimately reducing the risks of extreme financial hardship and associated penalties.

When will these changes go into effect?

Several changes to student loan regulations and repayment frameworks took effect immediately in July 2025. Regulations related to certain student loan forgiveness programs established under the previous administration were suspended at that time, while additional updates, such as graduate school loan provisions, will be introduced gradually.

For both graduate students and eligible parent borrowers, a transitional “phase-in” period is provided. As previously mentioned, individuals currently enrolled in a post-secondary program can continue to access current loan options, such as Direct Unsubsidized Loans, at their existing borrowing limits for up to three years. This ensures that qualified students can benefit from available loans throughout their degree program. On the other hand, part-time students or individuals restricted by new program-level loan caps set by their institutions do not participate in this phase-in period. Starting in July 2026, their student loan disbursements will adhere to prorated or institutionally determined thresholds.

Borrowers who are qualified for enhanced repayment options may enroll in recognized IBR, ICR, and PAYE plans beginning July 1, 2026, provided they do not accept disbursements from new student loans after enrollment. To maintain eligibility for these specialized repayment programs, all non-eligible loans (i.e., Parent PLUS loans) must be consolidated by June 30, 2026. Participation in these plans can extend through June 30, 2028. After that deadline, borrowers will have access to standard repayment plans and the federal RAP Plan for student loans only.

Additional guidance regarding federal loan limits and roll-out timelines for specific programs will continue to be issued by the Department of Education. Students seeking clarity on whether changes impact their school or program should speak directly with their institution’s financial aid office. Current forbearance policies, as well as updated information on how court decisions have affected income-driven repayment plans, may be found at studentaid.gov.

What this means for you

With new restrictions on Graduate PLUS loans for non-professional degrees, overall loan reductions, and a narrowing of graduate student loan options, students must be especially strategic in financing their graduate studies. Many graduate students in the U.S. are acutely aware of the growing financial challenges in higher education, as changes to federal support for graduate programs coincide with tuition costs at an all-time high. From the 1989-1990 academic year through 2021-2022, tuition for graduate school at public institutions increased at an average annual rate of nearly 6%, while the total average cost of graduate school surged by nearly 180% over the last 30 years.

This upward trend highlights the importance of graduate student financial aid and accessible funding for graduate school. In fact, the past year alone has seen an uptick in students pursuing graduate programs to broaden their professional opportunities, despite these developments. Education policy and research centers have noted that recent changes may create barriers to affordability for graduate students who have or would have borrowed loans above the newly set limits to manage their expenses. Some advocates and professional organizations have also expressed concerns that new limits may deter students from entering specific programs, especially in the healthcare field. On the other hand, some predict that new limits may prompt higher ed institutions to reduce tuition costs or offer more direct support to students to offset loan reductions. Regardless of the ultimate impact new loan limits will have, it’s important for all students using federal assistance (including current, future, and former students) to anticipate these changes and plan accordingly.

When exploring your graduate student loan options, remember that federal assistance is only a part of how to pay for grad school. Planning ahead is vital: research scholarship opportunities, grants, assistantships, and other grad school funding sources that can help reduce tuition costs before enrolling. Importantly, choosing a program that aligns your career ambitions with tangible return on investment is critical, since pursuing an advanced degree requires a substantial financial commitment.

As you develop your funding strategy, consider the loan amounts available in your specific field and supplement these with professional work experience, savings, and other funding resources whenever possible. Given the heightened regulations surrounding student loan repayment, students should develop an organized repayment strategy designed for long-term security. If you’ve already completed your degree or hold existing PLUS loans, consider consolidating them ahead of time to increase access to current repayment plans. However, you may find that today’s simplified repayment options may make managing your student debt a little easier, reducing some of the complexity previously faced by graduate borrowers.

Other graduate student funding sources

Aside from federal student loans, graduate students have several funding options and resources available to help cover the costs of graduate school. Most students use a combination of grants, loans, and alternative grad school funding opportunities to finance their education, including:

• Scholarships, fellowships, and other types of merit-based aid that do not require repayment
• Teaching, research assistantships, and work-study programs, enabling students to offset costs while gaining tangible experience
• Employer tuition assistance programs, which are especially popular among business and management graduate degrees
• Service-based repayment and loan forgiveness programs offered at the federal level to support civically involved students:
• Public Service Loan Forgiveness (PSLF) for graduates employed by government or eligible non-profit organizations
  • Please note that stricter guidelines have been put in place for what counts as a qualifying employer for loan eligibility, also effective July 1, 2026
• Military loan repayment programs and benefits for veterans
• Healthcare professional loan repayment options, often reserved for those who serve in high-need or underserved communities
• Education-related programs, such as Teacher Loan Forgiveness (TLF) or AmeriCorps awards
• Private student loans
  • Pro tip: Before using private lenders to fund graduate school, carefully compare interest rates and repayment terms, since private loans do not provide the same borrower protections as federal graduate student loan options

For a deeper look at how to pay for graduate school, see our guide on graduate student education funding strategies, which explores ways to maximize financing while minimizing debt.

Key takeaways

Federal graduate school support remains available for students seeking advanced degrees, but recent regulatory changes are reshaping loan options and setting stricter eligibility standards, particularly for programs not classified as professional degrees. Updates, such as the discontinuation of PLUS loans and the rollout of new repayment plans, will significantly influence how students approach paying for graduate school and higher education in general. Both current and prospective students need to closely monitor these evolving graduate school funding policies, as professional program designations may now play a significantly greater role in determining borrowing options, program enrollment, and competition, as well as overall access to financial aid.

It’s important to acknowledge that the federal policy landscape remains in flux, with final regulations regarding graduate student loan options not expected until early 2026. Changes to loan programs, implementation timelines, and potential legal challenges could further affect how to pay for grad school in the coming years. As you plan your grad school funding strategy for the 2026 - 2027 academic year, regularly consult official Department of Education updates to stay informed about the latest developments impacting graduate student loan options and other funding resources. A trusted school counselor at your school’s financial aid office can also clarify some of the confusion surrounding these new provisions and help you build a path forward.