Trump signs bill ending Grad PLUS loans, slashing graduate aid limits

When Donald Trump, President of the United States signed the 2025 Budget Reconciliation Act also dubbed the “One Big Beautiful Bill” (OBBBA) on July 4, 2025, the higher‑education landscape got a seismic jolt. The legislation eradicates the Grad PLUS loan program for anyone applying after July 1 2026 and imposes strict caps on all federal graduate borrowing. Department of Education officials say the changes are meant to curb federal debt, but critics warn they could shut doors to countless graduate programs.

Background: How Grad PLUS became a staple of graduate financing

Back in 2005, Congress created the Grad PLUS loan as a way to fill the financing gap that traditional Direct Unsubsidized Loans left wide open for master’s and doctoral students. The program allowed borrowers to take out up to the full cost of attendance – tuition, books, room, board, even a coffee habit – without the strict borrowing limits that undergraduates face. For many, it acted as a bridge between a modest family contribution and the steep price tags of professional schools.

Fast‑forward two decades, and the loan had morphed into a revenue stream for universities while simultaneously inflating the average graduate‑student debt load to over $40,000, according to a 2024 report by the National Student Loan Data System.

What the new law does: Caps, cuts, and the end of Grad PLUS

The OBBBA changes the rules in three major ways:

• Effective July 1 2026, no new Grad PLUS loans will be issued. Existing borrowers can keep their loans for up to three additional academic years.
• Direct Unsubsidized Loans for graduate students are capped at ​$20,500 per year with a lifetime limit of $100,000.
• Professional‑degree students (e.g., MSOT, OTD) can borrow up to $50,000 annually, $200,000 over a lifetime.

Parent borrowers are not spared either – the annual limit drops to $20,000 with a lifetime ceiling of $65,000 per student, down from the previous “full‑cost” allowance.

Immediate impact on graduate students

For a typical public‑university master’s student facing a $30,000 tuition bill, the new cap means they’ll have to chase private‑sector loans or dip into savings to cover the $9,500 shortfall. Private lenders usually charge rates 1‑2 percentage points higher than the federal 5 percent subsidized rate, and they often require a credit check that many students simply don’t have.

And it’s not just the numbers. The legislation also strips away economic‑hardship deferments and unemployment forbearance, narrowing the safety net that many borrowers have relied on during recessions.

Reactions from experts and institutions

"Are there going to be institutions that close programs? Absolutely. Are there students who say this is not worth the cost? Absolutely," warned Antoinette Flores, director of higher‑education accountability at New America. "But there are others that are going to find ways to make it work."

University financial‑aid officers are scrambling. At Washington, D.C.’s flagship state school, the director of financial aid said the school is already revising its budget models to anticipate a 7‑percent drop in graduate enrollment.

Private‑lender Ascent has issued a press release touting new graduate‑loan products, but industry analysts caution that the increased demand could push rates higher across the board.

Next steps: Rulemaking and committee hearings

The Department of Education has delegated much of the implementation to two advisory bodies. The Reimagining and Improving Student Education (RISE) Committee will convene September 29–October 3, 2025, and again November 3–7, 2025, to hash out the final rules. Meanwhile, the Accountability in Higher Education and Access through Demand‑driven Workforce Pell (AHEAD) Committee will meet December 8–12, 2025, and January 5–9, 2026 to address Pell‑grant interactions.

These sessions are open to the public, and stakeholders – from university presidents to student‑advocacy groups – are lining up to testify. The hope, according to a senior official at the Department, is to finalize the rulebook before the July 1, 2026 deadline.

Historical context: Federal student aid’s evolving philosophy

Since the Higher Education Act of 1965 first introduced Pell Grants, the federal government has oscillated between expanding access and tightening fiscal reins. The 1992 Direct Loan program was a watershed moment, moving loans from private banks to the Treasury. The Grad PLUS loan was the next big push, aiming to democratize graduate education in the post‑9/11 era.

Now, the OBBBA marks a reversal – a policy shift reminiscent of the 1980s “cost‑containment” wave that saw the introduction of caps on undergraduate loans. Critics argue the pendulum has swung too far, potentially stifling the very innovation graduate schools were meant to foster.