The budget reconciliation bill signed into law on July 4 establishes new limits on how much a graduate student can borrow in federal loans. Currently, the Grad PLUS loan program allows graduate students to borrow up to their full cost of attendance. The new legislation, which goes into effect July 2026, eliminates Grad PLUS loans and caps lending for graduate students on both an annual and aggregate basis. The policy also limits borrowing for parents of college students, who can currently borrow up to the full cost of their child’s college education using Parent PLUS loans.
I find that the new loan limits will have widespread effects on graduate students, likely increasing the need for private borrowing to pay for graduate school. Among families paying for college using a Parent PLUS loan, the new limits are more likely to affect borrowing levels for families with higher incomes than those with lower incomes. Without future adjustments, these limits will decrease in value over time, making graduate school less affordable for students using federal loans.
In recent years, many graduate students borrowed more in federal student loans than will be allowed under the new annual and total limits
The new federal loan limits will cap borrowing for master’s and academic doctoral degree programs at $20,500 per year and $100,000 in total. Professional practice doctoral degrees, such as medicine and law, will have higher limits of $50,000 per year and $200,000 in total.
Some programs will be affected only by the annual limit and not by the aggregate limit. For example, a master’s degree with a standard program length of two years for a full-time student would, in practice, be subject to an aggregate limit of $41,000 rather than $100,000. Because the loan limits are prorated for those attending less than full time, part-time students would be unable to borrow more than $41,000 even if they are in the program for longer than two years. But other programs might be affected by the aggregate limit if the standard program length is longer.
Using data from the 2020 National Postsecondary Student Aid Study, I estimate the share of graduate students who will be affected by the new loan limits by calculating the share of students who borrowed above the proposed limits during the 2019–20 academic year by degree type.
I find the largest share of students affected will likely be in dentistry programs. An estimated 56 percent of full-time dentistry students borrowed above the new annual limit of $50,000 in 2019–20, and 58 percent of dentistry students who completed their degree that year had cumulative debt greater than the new aggregate limit of $200,000.
Students in medicine or osteopathic medicine borrowed above the annual limit at a 41 percent rate. Among professional degree programs, at least 1 in 5 students in veterinary medicine, optometry, and law are likely to be affected by the annual limit.
In addition, a substantial number of master’s degree students will likely be affected by the new limits. Twenty-nine percent of public health students, 26 percent of fine arts students, and 24 percent of social work students pursuing a master’s degree borrowed more than the new annual limit ($20,500). These numbers are considerably higher among borrowers. More than half of students who took out a loan for a public health master’s degree borrowed above the new annual cap.
Graduate students who received Pell grants as undergraduates because they’re from low- or middle-income families are more likely to be affected by the new loan limits than those who didn’t receive a Pell grant. I estimate that 17 percent of former Pell recipients in master’s or academic doctoral programs borrowed above the new annual limit in 2019–20, compared with 10 percent of non-Pell students. In professional practice degree programs, 38 percent of former Pell recipients are likely to be affected by the annual limit, compared with 25 percent of non-Pell students. Among borrowers only, these shares are more similar across Pell status.
Though only a small share of families use a Parent PLUS loan, about a third of these borrowers will be affected by the new loan cap
The new legislation limits loans to parents of college students known as Parent PLUS loans. Starting July 2026, parent borrowers will be subject to an annual limit of $20,000 per child and an aggregate limit of $65,000 per child.
In the 2019–20 academic year, 4 percent of undergraduate students had a parent who took out a Parent PLUS loan. Nine percent of students who completed their program that year had a parent who received a Parent PLUS loan at some point during their studies.
Because relatively few families use these loans, the new limits will affect just 2 percent of students overall. Among those who do use Parent PLUS loans, 30 percent of borrowers are likely to be affected by the annual cap, and 17 percent of borrowers are likely to be affected by the aggregate cap.
Higher-income families are more likely to borrow at levels above the new loan limits. I estimate 57 percent of parent borrowers with household incomes above $200,000 per year borrowed above the annual Parent PLUS limit. Only 18 percent of borrowers from families who make no more than $50,000 would exceed the new limit.
Evidence suggests the current Parent PLUS loan program has left many low-income parents with unaffordable debt. My analysis suggests this could continue under the new federal loan limits. Though the new caps will likely reduce federal borrowing among some low-income parents, it still allows some low-income families to take on unaffordable debt.
How policymakers can help ensure graduate students are not left with unaffordable debt
The new loan limits for graduate students will likely lead many students to borrow from the private market, as has been true of undergraduates subject to loan limits. Others could opt for less expensive programs that fall within the federal loan limits.
If private borrowing increases, it will be important for policymakers to monitor financial value transparency data for the programs students are using private loans to pay for and whether the loans are affordable in the long term. Researchers could also examine what types of loan terms would be available to different students in the private market.
Though the new Parent PLUS caps will decrease borrowing for some low-income families, many will still be able to borrow at unaffordable levels. To mitigate this, policymakers could limit Parent PLUS borrowing based on the Student Aid Index so lower-income parents would not be left with unaffordable debt.
Because the bill doesn’t include future adjustments to loan limits, these limits will decrease in value with inflation. Students often use these loans to pay for living expenses, which increase in nominal cost over time. Leaving the limits unchanged could eventually lead to decreased affordability. For example, undergraduate loan limits have not changed since 2008, which has caused them to decrease in value by more than 20 percent. To prevent graduate and parent loan limits from losing value, Congress could require regular increases to the limits based on inflation (e.g., every five years).
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