The U.S. Department of Education issued a proposed rule on January 29, 2026, that would eliminate Grad PLUS loans, cap graduate borrowing at $20,500 per year, and shrink federal student loan repayment to two plans: a tiered standard schedule and a new income-driven Repayment Assistance Plan. The changes would apply to loans first disbursed on or after July 1, 2026, per the department's announcement.
The regulation is the first of three implementing rules flowing from the Working Families Tax Cuts Act, and it follows a consensus reached by the RISE negotiated rulemaking committee in November 2025.
How would borrowing limits change?
New graduate students would be capped at $20,500 per year with a $100,000 aggregate limit, and new professional students at $50,000 per year with a $200,000 aggregate ceiling. The unlimited Grad PLUS program, which allowed borrowing up to a program's full cost of attendance, would end.
Institutions would also gain authority to set program-level borrowing caps below the statutory limits, matching loans to a program's actual cost. The department said schools could use that authority for programs with lower graduate earnings or higher default rates.
What happens to repayment plans?
Multiple existing plans would be phased out in favor of two options for new loans. The tiered standard plan offers fixed terms of 10, 15, 20, or 25 years depending on the loan balance. The Repayment Assistance Plan ties monthly payments to income and prevents balances from growing for low-income borrowers who keep making payments.
The proposal also gives defaulted borrowers a second chance: while current law allows only one loan rehabilitation, the rule would permit another.
What is the timeline?
The public comment window ran 30 days through March 2, 2026, with comments accepted only through regulations.gov. The department may revise the rule before finalizing it ahead of the July 2026 effective date.
Financial aid offices face a compressed implementation window, since loan limits, new counseling points, and plan disclosures must all be reflected in aid offers for the 2026-27 cycle.
Who is affected most?
Professional students in medicine, dentistry, and law face the sharpest change. Many rely on Grad PLUS to finance total costs that exceed $50,000 per year, and the new aggregate ceiling of $200,000 sits well below the typical debt carried by graduates in those fields. Institutions may need to expand institutional scholarships or private loan counseling to close the gap.
Master's students in disciplines such as education, social work, and public administration are less exposed, since typical borrowing already falls near the proposed $20,500 annual limit.
What should borrowers do before July 2026?
Current students who anticipate costs above the caps can consider borrowing before the July 1, 2026 effective date, when the existing Grad PLUS program remains available, though lifetime totals still accumulate. Borrowers already in repayment keep their existing plans; the two-plan structure applies only to loans first disbursed on or after the effective date.
Consumer advocates responding to the proposal urged borrowers in default to use the new second rehabilitation opportunity once finalized, noting that rehabilitation removes the default from credit reports and restores aid eligibility.
For more context, read Education Department Offers One Percent Rate Cut for Auto Pay Enrollment.
For more context, read college accountability framework.
For more context, read graduate earnings rule.