States Expand Student Loan Options After Federal Grad PLUS Cuts

Several states have expanded their student loan programs after new federal borrowing caps took effect July 1, 2026, eliminating the Grad PLUS loan program and capping annual federal borrowing for graduate students.

Under the "Working Families Tax Cuts Act," graduate students can now borrow a maximum of $20,500 per year in federal loans. Students in eligible professional programs such as law, medicine, and dentistry are capped at $50,000 annually. The Department of Education also introduced provisions allowing institutions to set their own programmatic loan caps for programs with lower earnings potential.

Connecticut, Massachusetts, Minnesota, Pennsylvania, and Rhode Island have stepped in with state-backed lending to fill the gap. Minnesota's "SELF Grad Select Doctorate" program allows higher borrowing limits for medical and health-related fields.

Consumer advocates and financial experts warn that state loans are not equivalent to federal aid. Key differences include higher interest rates, which can exceed 10 percent in some programs, and exclusion from federal relief programs including Public Service Loan Forgiveness and federal income-driven repayment plans. Some states offer their own limited repayment or forgiveness options.

Many state programs require high credit scores or co-signers, which may exclude students who most need financial help. State lenders may also have stronger enforcement rights than private lenders, including the ability to intercept state tax refunds in the event of default.

Some higher education institutions are responding by reducing tuition or launching their own supplemental loan programs. Federal lawmakers have introduced the "State-Based Education Loan Awareness Act," which would make it easier for colleges to recommend state-based lending options to students.