Planning for Grad School? Federal Loan Rules Just Got Much Tighter
Thinking about going to grad school? Before you start picturing yourself on campus, there’s a new piece of the financial puzzle to consider: just how much of that degree the federal government will actually let you pay for.
As of July 1, new federal student loan borrowers face a substantially different system than before, per The College Investor. The changes under the One Big Beautiful Bill Act include hard borrowing caps for graduate students, the elimination of Grad PLUS loans, fewer repayment options and slightly higher interest rates. For anyone planning to start grad school, that means a “figure out the financing later” approach is now far more difficult to pull off.
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Your Federal Loan Has a New Ceiling
The biggest change for grad students is also the simplest: you can no longer borrow up to the full cost of attendance through federal loans.
From July 1 onward, new graduate students can borrow up to $20,500 per year, and $100,000 total, in federal loans. The Grad PLUS program, which previously allowed graduate and professional students to borrow up to the cost of attendance, has been eliminated for all new borrowers.
Students in qualifying professional programs, though, get higher limits; specifically, $50,000 annually and $200,000 total. However, what counts as a professional degree has been subject to changes, with the government temporarily expanding its list to 29 programs after a court paused the earliest list of 11.
So, before enrolling, one number matters far more than it used to, and that is the gap between what your program costs and what federal loans will cover.
Repayment is Changing As Well
New federal borrowers now get two primary repayment choices, the Tiered Standard Plan (with fixed payments over 10 to 25 years, depending on the balance) or the new Repayment Assistance Plan (the sole income-driven option for new loans, also known as RAP). RAP bases payments on income, ranging from 1% to 10% of adjusted gross income, with a $10 monthly minimum for the lowest earners.
RAP includes protections against unpaid interest overwhelming borrowers and provides a principal-matching benefit for lower-income borrowers. That said, forgiveness takes 30 years of payments, compared with 20 or 25 years under some older income-driven plans.
This makes understanding your eventual repayment bill a very large part of figuring out how you’re going to pay for school in the first place.
New Loans Are Slightly More Expensive
Another major change is interest. For loans first disbursed between July 1, 2026, and June 30, 2027, the fixed rate for Direct loans is 8.07%, up from 7.94%. Undergraduate loans are 6.52%, while PLUS loans are 9.07%. Existing borrowers can keep their current fixed rates; these increases apply to new money only borrowed after July 1.
The Bottom Line
These changes don’t mean that grad school is suddenly off the table, but they do mean that how you finance it deserves a spot in the decision-making process before you enroll.
The new rules mean you can’t simply assume that federal loans will cover whatever your program charges. Check the program’s cost against your federal borrowing limit, understand which repayment option you’ll have afterward, and factor in the new interest rate.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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