Education Department proposes ending Grad PLUS, capping graduate loans and extending repayment timeline

When Jasmine Morales runs the numbers on a master’s in social work next year, the 24-year-old knows one thing will look very different from the spreadsheets her older classmates used.

They were able to borrow up to the full cost of attendance through federal Grad PLUS loans. Morales, who plans to enroll after July 1, 2026, will not. Under a sweeping proposal unveiled last week by the U.S. Department of Education, federal loans for many graduate students would be capped well below the price tag of their programs, forcing future borrowers to rely more heavily on private credit, institutional financing or family help.

The proposed regulation, published Jan. 30 in the Federal Register, would carry out major parts of the One Big Beautiful Bill Act, an omnibus law President Donald Trump signed on July 4, 2025. Together, the law and rule would shutter the Grad PLUS program for new borrowers, replace the current maze of repayment options with just two plans for future cohorts, and give borrowers who default on their loans a second chance to clear their records.

Education officials describe it as the most significant rewrite of federal student-loan rules in more than a decade and a central piece of the administration’s broader “Working Families Tax Cuts Act” agenda.

“This is a once-in-a-generation opportunity to lower tuition costs and improve the student loan system,” Under Secretary of Education Nicholas Kent said in a Jan. 29 news release. He said the new income-driven option, called the Repayment Assistance Plan (RAP), would “align repayment with a borrower’s ability to pay” while stopping balances from growing for low-income borrowers.

Advocates for students and colleges, however, are already warning that the plan would make it harder for many people to afford advanced degrees and keep future borrowers in repayment for much longer than today’s options.

End of Grad PLUS and new loan caps

The proposal would phase out new Grad PLUS loans for graduate and professional students starting July 1, 2026. Since 2006, Grad PLUS has allowed these borrowers to cover their full cost of attendance, beyond the fixed caps on standard direct loans. That flexibility helped students finance high-priced degrees in medicine, law and business, but also in fields such as social work, education and the arts.

In its place, the department would rely on capped federal loans with two main tiers:

• Graduate students in nonprofessional programs could borrow up to $20,500 a year, with a lifetime limit of $100,000.
• Students in designated “professional” programs, such as medicine, law and certain health degrees, could borrow up to $50,000 a year, capped at $200,000 total.

Institutions would be allowed to set lower limits for individual programs. Department officials said that authority is intended to align borrowing with the “true cost” of programs and expected earnings.

The rule also implements tighter caps and new restrictions on Parent PLUS loans, which currently let parents borrow up to the full cost of attendance for their children.

Trump administration officials and Republican lawmakers have argued for years that open-ended Grad PLUS and Parent PLUS lending encouraged colleges to raise prices and shifted more risk onto taxpayers, especially when combined with generous income-driven repayment and loan forgiveness.

Critics say the new caps may do little to curb tuition at the most selective institutions while sharply constraining access elsewhere.

The National Association of Independent Colleges and Universities, which represents private nonprofit institutions, called the draft regulation a “sweeping restructuring” that “constrains financing options for post-baccalaureate education.” In a statement to members, the group said it was “particularly concerned” about what it described as an “extremely narrow definition of ‘professional student’” eligible for the higher cap.

That definition, set by statute and the draft rule, covers a fixed list of degrees, leaving many master’s and doctoral programs in emerging or lower-paid fields—from counseling to public health to some STEM disciplines—subject to the lower $100,000 lifetime ceiling even when tuition far exceeds that amount.

Two repayment plans and a 30-year horizon

For borrowers, the changes would not stop at the moment they leave school.

Under the proposal, people who take out their first federal direct loan on or after July 1, 2026—or who consolidate loans after that date—would be limited to two repayment options:

• A new tiered standard plan, assigning them to fixed terms of 10, 15, 20, or 25 years based on how much they owe.
• RAP, a single income-driven plan meant to replace the patchwork of existing programs such as Pay As You Earn and Revised Pay As You Earn.

Current borrowers could remain in their existing plans, including Income-Based Repayment, though some would lose access if they later take out new loans.

RAP would calculate monthly bills as a sliding percentage of a borrower’s adjusted gross income, ranging from 1% to 10% in set brackets. Unlike present plans that exclude income up to a certain multiple of the federal poverty line, RAP would not carve out a guaranteed “protected” slice of income. All borrowers would have to pay at least $10 per month, ending the possibility of $0 payments for those with very low earnings.

In exchange, the department proposes to waive any unpaid interest each month for borrowers whose payments do not fully cover it, so that balances do not grow over time. Officials have also described a modest “principal credit” for on-time payments, which would slightly accelerate progress for low-income borrowers.

The tradeoff is time. Under RAP, borrowers could make payments for as long as 30 years (360 monthly installments) before any remaining balance is forgiven. Most current income-driven plans cancel remaining debt after 20 or 25 years, depending on the borrower’s circumstances.

Legal-aid attorneys and student advocates argue that the combination of required minimum payments, a lack of poverty-line protection, and the extended repayment period will leave many low-income borrowers paying more over their lifetimes than they would under current rules.

One national borrower-rights group has labeled RAP a “debt trap,” warning that a 30-year timeline increases the odds that job loss, illness, servicer errors or future policy changes will disrupt borrowers before they reach forgiveness.

Economists have also raised concerns about the plan’s income brackets, which are not automatically adjusted for inflation. Without indexation, nominal wage growth alone can push borrowers into higher payment tiers over time, even if their purchasing power barely improves.

A second chance after default

For borrowers who fall behind entirely, the rule would make a quieter but meaningful change.

Today, federal law generally gives borrowers only one chance to “rehabilitate” a defaulted loan by making a series of on-time payments and meeting other conditions, which removes the default from their credit history and restores their eligibility for federal aid.

Beginning July 1, 2027, the draft regulation would allow borrowers to rehabilitate a given loan twice. It would apply to loans made under the Direct Loan, Federal Family Education Loan and Perkins programs.

The proposal also clarifies that the temporary Fresh Start initiative created during the COVID-19 payment pause—which allowed millions of borrowers to exit default—does not count as a rehabilitation. Those who used Fresh Start would still have two opportunities in the future.

During any rehabilitation period, involuntary collections such as wage garnishment would be suspended. Before the new rules take effect, garnishment can be halted for only one rehabilitation.

Department officials say the change is designed to give people who stumble again a way to repair their credit and financial standing without erasing incentives to stay current.

Advocates for borrowers have welcomed the additional chance as an improvement but note it does not address deeper causes of default, such as low wages, incomplete degrees and servicing problems.

Billions in savings and a tight timeline

The Congressional Budget Office has estimated that the broader package of student-loan changes in the One Big Beautiful Bill Act—including the end of Biden-era subsidies, the shift to RAP and new loan caps—will reduce federal outlays by roughly $270 billion between fiscal 2025 and 2034.

The Education Department’s own regulatory analysis focuses heavily on administrative costs for colleges and loan servicers. Officials estimate that implementing the new rules will require about 6.5 million additional staff hours annually during the early years, along with system upgrades that will cost hundreds of millions of dollars. Over time, they project recurring savings from having fewer repayment options and streamlined processing.

The proposed rule is open for public comment until March 2. The department must review and respond to comments before issuing a final regulation, a process that could still alter key details but is constrained by the statutory language Congress already enacted.

For Morales and other would-be graduate students, however, the broad outlines are already clear: borrowing would be more limited up front. For those who do take out federal loans, repayment would be simpler on paper but may stretch for decades.

Whether the new system ultimately reins in prices and makes higher education more sustainable—or simply shifts more risk and cost away from the federal government and onto students and families—will not be fully known until the first post-2026 cohorts reach the end of their payment schedules, many years from now.