A coalition of 23 states sued the U.S. Department of Education on Tuesday (PDF File), arguing that the upcoming graduate and professional loan limit rules unlawfully strips nurses, physician assistants, physical therapists, and other healthcare workers of access to the higher federal student loan limits Congress set aside for "professional" degree students.
Why It Matters: The challenged final rule determines who can borrow up to $200,000 in federal student loans for graduate school versus who is held to a $100,000 cap. The states argue the Education Department wrote rules that contradict the statute and exclude entire healthcare professions Congress did not intend to exclude.
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@thecollegeinvestor 23 states sue the Department of Education to block the upcoming graduate and professional student loan limit rules. #studentloans #studentloandebt #gradschool ♬ original sound - The College Investor
Driving The News
- The One Big Beautiful Bill Act capped "professional" student borrowing at $50,000 per year and $200,000 in aggregate.
- "Graduate" students are capped at $20,500 annually and $100,000 in aggregate.
- A new lifetime aggregate cap of $257,500 applies to all federal student borrowing (other than Parent PLUS).
- Grad PLUS Loans were eliminated.
- The caps and other aspects of the Final Rule take effect July 1, 2026.
The Dispute: Congress defined "professional student" by referencing 34 C.F.R. § 668.2 as it existed on July 4, 2025. That regulation lists ten example fields (medicine, law, dentistry, pharmacy, veterinary medicine, chiropractic, optometry, osteopathic medicine, podiatry, and theology) but says professional degrees "include but are not limited to" that list.
The Education Department's Final Rule added four requirements not in the statute: that the degree be "generally at the doctoral level," require at least six years of postsecondary coursework, generally require licensure "to begin practice," and share a four-digit CIP code with the listed fields.
Who Is Excluded: The Final Rule denies "professional" status to advanced practice registered nurses (nurse practitioners, certified nurse anesthetists, certified nurse midwives, and clinical nurse specialists), physician assistants, Doctor of Physical Therapy and Doctor of Occupational Therapy programs, speech-language pathologists, audiologists, and athletic trainers.
The states' complaint highlights that the Department itself conceded several of these programs meet the statute's three-part test but excluded them anyway based on what the Department called "contextual" requirements drawn from the illustrative list.
The Issue With Grandfathering: The OBBBA protected current Grad PLUS borrowers enrolled as of June 30, 2026 from the new limits. However, the Final Rule says those protections end if a student transfers institutions or withdraws and re-enrolls — even in the same program of study. The states call that limitation contrary to the statutory text and arbitrary.
How This Connects: The lawsuit is the latest fight over how the OBBBA reshapes graduate borrowing. The same law that imposed the new caps also eliminated the Grad PLUS program (which had uncapped borrowing), leaving borrowers in programs that fall outside the Department's narrowed "professional degree" definition with private student loans or out-of-pocket payment as the remaining options to cover costs beyond the new $100,000 graduate cap.
The states ask the court to declare the contested portions of the Final Rule unlawful, vacate them, and enjoin the Department and Secretary Linda McMahon from enforcing them before the July 1, 2026 effective date.
It's important to note that the states are asking the court to vacate only "the challenged portions" of the rule and stop enforcement of those portions. Everything else in the Final Rule (such as the Repayment Assistance Plan rollout) stays in place even if the states win.
Common Questions
What are the new graduate and professional student loan caps that start on July 1, 2026?
Beginning July 1, 2026, graduate students can borrow up to $20,500 a year with a $100,000 aggregate cap while "professional" students can borrow $50,000 a year up to $200,000, all under a new $257,500 lifetime cap on federal borrowing (excluding Parent PLUS), with Grad PLUS loans eliminated entirely.
Why did 23 states sue the Education Department over the upcoming graduate loan caps?
The 23 states (filing May 19) argue the Education Department's final rule contradicts the statute by narrowing the "professional student" definition to exclude entire healthcare professions Congress didn't intend to exclude—pushing those students into the lower $100,000 cap—and by stripping grandfathering protections from current borrowers who transfer schools or withdraw and re-enroll, even within the same program.
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Editor: Colin Graves
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.
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