Two decades ago, Uncle Sam offered a helping hand for college graduates who desired careers that required advanced degrees by establishing a loan program known as Grad PLUS. That hand has now been withdrawn. Also known as Direct PLUS loans, this program allowed students to borrow beyond the $20,500 limit available through direct unsubsidized loans to cover their full cost of attendance. With the One Big Beautiful Bill Act signed into law last summer, Grad PLUS loans will no longer be an option for prospective graduate students after July 2026.

The question of whether colleges and universities raise their tuition prices as the availability of federal aid increases has been a hotly debated topic for more than four decades, with contradictory findings. One recent study found that institutions increased their tuition prices after the creation of Grad PLUS, and determined that the funds did not increase access (or completion) for graduate education in general or for underrepresented groups in particular. These findings echo previous studies that also support a positive relationship between government aid and college prices. In contrast, other studies and analyses at the undergraduate level, as well as for graduate business, medical and law programs, have found little evidence of nonprofit institutions increasing tuition in relation to government subsidies. (The for-profit sector is another story.)

In any case, the elimination of Grad PLUS is a new reality that incoming graduate students will have to face. Now, students in master’s and doctoral programs will only be able to borrow up to $20,500 annually (with a maximum of $100,000). Students in professional degree programs, like law and medicine, will have a higher cap of $50,000 annually (up to $200,000 total). Additionally, the maximum amount students can borrow from the federal government for their undergraduate and graduate studies combined is $257,500. Students who borrow beyond any of these limits annually will have to turn to private loans to finance the remaining costs, which are less accessible for low-income students (who have less credit) and often come with higher interest rates.

The specific impact of these new limits on students is not yet known, but if we look at data for borrowers from previous years, we see potential impacts. In 2019–20, approximately 38 percent of all graduate borrowers borrowed beyond these caps, according to an analysis by Jobs for the Future. When disaggregated by degree type, 41 percent of graduate borrowers pursuing master’s degrees, 37 percent pursuing Ph.D. degrees and 25 percent pursuing professional degrees borrowed beyond the loan caps set by OBBBA.

A recent analysis published by American University’s Postsecondary Education & Economics Research Center shows potential impacts not just by graduate degree type but also by specific field of study. For professional degrees (with the higher loan cap), more than half of borrowers for chiropractic, medicine, osteopathy and dentistry programs borrowed more than $200,000 for their degrees in recent years. Among the master’s programs reviewed, half or more of borrowers in programs including audiology/speech pathology, public health, nursing and school and mental health counseling, to name a few, borrowed beyond the new limits.

Based on these analyses, it is clear that many prospective graduate students will be impacted by the new loan caps, at least in the short term. The rationale for these loan caps is that graduate programs will lower their costs to make graduate education more affordable, although it is doubtful that colleges will decrease the costs of graduate programs within just a year. It should be noted that many students do not borrow at all to obtain their degrees. In 2019–20, approximately 40 percent of full-time domestic students enrolled in master’s degrees did not borrow.

For programs that attract students from high-income backgrounds (usually selective elite institutions), what incentive is there to decrease costs if enough students can pay out of pocket? For instance, between 2014 and 2019, medical school matriculants from high-income backgrounds (over $200,000) increased substantially. The number of students attending law schools from wealthy backgrounds has also increased in the past couple of decades, particularly at selective elite institutions. Graduate education, at least at elite schools, has become less accessible for many low-income students.

Without financial support, options for low-income students will become even more limited. These students will largely be relegated to less selective public universities, and the more elite private schools will become even less economically diverse than they already are. Financial aid offices will become the de facto second admissions office. Using Massachusetts as an example, our analysis found that the annual cost of attendance exceeded the annual loan limit of $50,000 in the case of every accredited law and medical school in the state, with the gap between the cost of attendance and the limit ranging from about $5,600 in the case of the lone public law school (the University of Massachusetts at Dartmouth), and $33,000 in the case of the only public medical school option (University of Massachusetts Chan), to as high as $71,000 for Harvard Law School and $64,000 for Harvard Medical School.

This simple analysis, of course, does not take into account any institutional grants or scholarships students may be awarded, but those funds vary by institutional budgets.

What happens when a deserving medical school applicant gains admission and a financial aid offer, only to realize that they still have a balance of $40,000 after institutional and federal aid is applied? For students to turn to private lenders, they will likely need either good credit and a substantial income or a cosigner, which may not be an option for many students from underresourced backgrounds. Almost 93 percent of private student loans given last year had a cosigner. Almost 51 percent of individuals from low/moderate incomes have limited or poor to fair credit. Even if they are lucky to be offered loans, the interest rates will likely be much higher.

With Washington Out, States May Have to Intervene

With the recent federal cuts to Medicaid likely to lead to decreases in state funding for postsecondary education, states may be hesitant to award funds to support students pursuing graduate education—but there are frameworks to help states determine which graduate programs deserve state funding and which type of funding to provide students. Third Way recently produced a framework that categorizes programs by personal return on investment and social value. One possible solution would be to offer accessible loans and state subsidies based on how a state places certain programs in this model.

For programs that lead to high ROI and social value—for example, dentistry—states that are facing a shortage of dentists could offer accessible (and lower than market rate) loans in exchange for working in certain geographic areas in that state. Providing low-interest loans instead of grants would make sense for this category because dentists are more likely to have high enough earnings (postresidency) that they can repay their loans. Certain localities have set up zero-interest loans for students pursuing specific industries, such as a San Diego County program for aspiring behavioral health professionals (a type of pay-it-forward program).

Some states, such as Pennsylvania, do have loan repayment programs for certain health occupations in exchange for working in specific areas of their states. Offering this solution without providing accessible loans will only benefit students who come from wealthier families, as they are more likely to have good enough credit or relationships with creditworthy cosigners to access private loans in the first place.

For programs that are high in social value but low in personal ROI, such as teaching or social work, if a state determines this is an area of need, they can offer grants to lower the cost of attending these programs and minimize the amount of loans students will have to take out, in exchange for service in these fields for a specific period of time. Offering accessible, low-interest loans to students pursuing these careers could still be an option, but should be secondary, or supplemental to, grants.

In line with recommendations from a jointly authored report from the American Enterprise Institute, EducationCounsel and the Century Foundation, states can offer grants to graduate students who demonstrate financial need, in addition to targeted grant aid for certain programs. Already, certain states, such as Maryland, New Mexico, Virginia and Washington, offer grant aid to graduate students in specific fields or based on financial need. Massachusetts also offers a tuition waiver to incentivize students to enroll in graduate programs at its public universities.

Unfortunately, I was unable to find a single repository of state aid specifically for graduate students from various states. The closest I could find was a report released by the National Association of State Student Grant and Aid Programs for the 2023–24 academic year with data on state-funded expenditures for both undergraduate and graduate student aid. The report shows that only a handful of states allocated more than a million dollars to need-based graduate aid (Arizona, Colorado, Maryland, Minnesota, New Jersey, Texas and Virginia), but does not specify for which programs, nor does it detail how aid is awarded and to which institutions.

The Education Finance Council also maintains a list of nonprofit loan providers in different states that offer lower-interest or more accessible loans, many of which are state-administered, such as the Massachusetts Educational Financing Authority. States that already administer conditional loans, scholarships, grants or loan forgiveness programs at the undergraduate level should consider expanding these programs to high- demand industries that require postbaccalaureate credentials if they have not already.

What Can Institutions Do?

Institutions are the closest to students, and they can play a role as well. Beyond offering need-based grants/scholarships to lower the cost of attendance, institutions can also guide students in the lending process, such as by publishing preferred lenders on financial aid websites. These lenders should have a good reputation with borrowers and offer low interest rates. Examples of institutions that advertise preferred lenders include Baylor University, the University of Iowa and the University of Central Missouri.

Institutions with more financial resources can either directly partner with lenders to offer lower fixed interest rates through risk sharing or provide loans themselves. Harvard Law School makes loans available to graduate students through a partnership with the Harvard Federal Credit Union. Some private loan providers looking to get into the graduate lending space are now in conversations with institutions about developing new risk-sharing models.

Many occupations that typically require graduate degrees, such as teaching, nursing and medicine, will face steep shortages in the coming years. States should align aid programs with current and future workforce shortages, determine which graduate programs will exceed federal loan caps and by how much, offer targeted grants for high-social-value but low-earning fields where costs exceed caps, and provide below-market or zero-interest (and accessible) loans for high-social-value, high-earning fields.

Institutions must act urgently by partnering with accessible, ethical lenders; increasing need-based aid for students who need it most; and protecting students from predatory options. At the very least, institutions can advertise the upcoming student loan changes on their websites. With OBBBA loan caps, Washington is stepping back. Will states and institutions be able to step forward and lead the way in preserving access and promoting economic mobility? Only 2026 will tell.