Key Points
- Beginning in July 2026, new federal law will cap how much graduate students can borrow, ending the long-standing ability to finance the full cost of attendance with federal loans.
- Roughly one in three recent graduate borrowers would have exceeded the new limits under current borrowing patterns, according to a new Federal Reserve analysis.
- Nearly 40 percent of those high-balance borrowers may struggle to qualify for private loans without a cosigner, raising concerns about access to graduate education.
When Congress passed the One Big Beautiful Bill Act, it changed a central feature of how graduate education in the United States is financed. For nearly two decades, federal policy allowed graduate students to borrow up to the full cost of attendance through the Graduate PLUS loan program. That option will end in June 2026.
A new report from the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute (PDF File) offers one of the clearest pictures yet of what that change could mean for students, families, and lenders.
The analysis finds that millions of future graduate students may face a new financing gap — and that private lenders may not be ready or willing to fill it.
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Changes To Federal Graduate Student Lending
Under the new law, graduate students will be limited to $20,500 per year and $100,000 total in federal loans. Students in professional programs such as law and medicine will have higher limits ($50,000 annually and $200,000 in total) but even those caps are well below what many borrowers currently take on.
There's also controversy on what counts as graduate school versus professional school.
Using anonymized credit bureau data matched with graduate enrollment records, the researchers examined borrowing patterns among students who entered graduate school between 2015 and 2024. The findings suggest that the new caps will bind for a substantial share of borrowers if past trends continue.
About 28 percent of all federal graduate borrowers borrowed more than the new annual limits. For professional degree programs, the share was even higher: more than one-third of federal borrowers exceeded what will soon be allowed. Doctoral programs also showed high exposure, with roughly four in ten borrowers surpassing the new thresholds.
Even in master’s programs (where borrowing is typically lower due to shorter programs) nearly one in four federal borrowers would have needed additional financing beyond the new caps.
How Big Is The Funding Gap?
For students who hit the new limits, the gap is not trivial. The report estimates that borrowers exceeding the caps would need, on average, about $21,700 per year in supplemental funding to continue their programs.
That figure varies by institution type and degree. Master’s students at public institutions would need roughly $15,500 annually, while those at private nonprofit schools would face closer to $23,600. In doctoral and professional programs, average gaps often exceed $25,000 per year, especially at private nonprofit institutions.
The scale of these gaps matters because federal student loans come with fixed interest rates, income-driven repayment options, and student loan forgiveness programs. This is especially important in fields like education, social work, and health sciences. Replacing federal dollars with private student loans could significantly raise costs and financial risk for students.
Private Loans Are Not A Simple Substitute
One of the report’s central questions is whether private lenders can realistically step in. Historically, they have played only a limited role in financing graduate education while students are still enrolled. Our own conversations with private lenders have highlighted that generally, no - private lenders will not be able to fill in the full gap.
Among the graduate students studied, 43 percent used federal loans, but only 4 percent relied on private loans during enrollment. Even among those who borrowed privately, most did so with a cosigner. More than half of private graduate borrowers had someone else backing their loan.
Credit profiles help explain why. About 38 percent of graduate students in the sample either had no credit score or a score below 670 — a common threshold for qualifying for private student loans without a cosigner. Roughly 13 percent also met the federal government’s “adverse credit history” standard, which private lenders generally view as a minimum screen rather than a target.
These patterns become more concerning among students who borrowed above the new federal limits. Nearly four in ten of those high-balance borrowers had weak or missing credit histories, making them unlikely to qualify for private loans on their own.
At for-profit institutions, the risk is even more pronounced. Although fewer students at those schools borrowed above the caps, about 60 percent of those who did had subprime or nonexistent credit scores.
What This Means For Future Graduate Students
For students planning graduate school after 2026, the report’s findings point to several immediate realities.
First, many students who previously relied entirely on federal loans will need to line up additional financing well before enrollment. That may mean improving credit scores, securing a cosigner, or reconsidering programs altogether.
Second, private loans for graduate school (if available for your program) are likely to come with higher interest rates and fewer protections than federal loans. Students facing income volatility after graduation may find those terms harder to manage.
Third, access concerns may be most acute for students from less advantaged backgrounds, those with limited credit histories, and those whose families cannot provide financial backing.
The report cautions that these students could be disproportionately deterred from graduate education if financing options shrink.
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Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.