The loan rules are changing, and the timing of your start will determine which options you have. More careers require advanced educational degrees. Paying for graduate school is becoming more of a norm for students. The elimination of Grad PLUS loans, starting on July 1, 2026, will change how students and parents pay for graduate and professional education. This article will explain the steps you need to avoid costly mistakes and maximize this investment in yourself or your child.
People pursuing a graduate or doctoral degree will see several differences from their undergraduate experience. One of the most significant differences is the financial aid process. In most cases, scholarships or free money are less available. The other major difference is the student body. The student body will include students just out of college, people with experience trying to advance their careers with more knowledge, and others making career changes.
The most significant change is due to the new One Big Beautiful Bill Act (OBBBA). The federal government can no longer subsidize college education and beyond. Based on a CBO study, it is losing approximately $0.20 per dollar lent. As a result, they have put limits on federal loans depending on the level of education, both annually and over a lifetime. These changes will impact graduate programs the most due to a lack of alternatives.
People should review these topics regardless of their financial situation before pursuing a graduate or professional education degree.
Understand the Federal Loan Limits for Graduate and Professional School.
The OBBBA changes the loan limits significantly for graduate and professional schools. Under the current system, students could borrow up to the school’s Cost of Attendance (COA) each year, less any financial aid received. Under the new rules, they will be limited to either $20,500 or $50,000, depending on the degree being pursued.
They will also have a lifetime limit of $100,000 for graduate degrees and $200,000 for professional degrees. Professional degrees include medicine, dentistry, law, and other similar careers. These changes will result in an increased need for and use of private student loans. Unlike federal loans, private student loans undergo a formal underwriting process, similar to that of a mortgage or auto loan. With a formal underwriting process, the students’ undergraduate debt and other debts will be factored into their interest rate and approval.
Due to the increased need for private graduate school loans, parent cosigners will likely be required more often, depending on the student’s financial situation. Cosigning any loan will appear on the cosigner’s credit report. Parents will need to be more aware in the future due to the consequences of these commitments, especially for younger siblings.
Post-graduate School Start Date Will Be Critical Due to New Federal Loan Limit Rules
The start date of graduate or professional school will be critical due to the new federal limit rules. Under the OBBBA rules, a three-year transition period is in effect, utilizing the current rules. These rules allow current enrolled students to continue using Grad PLUS loans until June 30, 2028, or at the time of degree completion, whichever comes first.
To benefit from those legacy rules, the student must be enrolled in an approved program and have taken a Grad PLUS loan before June 30, 2026. Students should contact the school’s financial aid office to confirm if that is possible.
The chart below compares the two programs based on the student’s start date. As stated above, this may also impact parents, as the future will require the use of more private loans after July 1, 2026.
The chart also shows the reduction of loan forgiveness opportunities under the new rules. Future federal loan amounts will be lower, resulting in lower forgiveness amounts. Both of these outcomes are part of the bigger plan related to the US Government’s overall exposure.
Create a plan
The plan will differ for each student depending on the entering student’s educational and work background. This plan will also depend on the graduate degree a person pursues. The student must plan for both the academic path and financial path due to these new changes.
Specific courses may also be required on a student’s transcript before they can be considered for admission. Depending on the degree and program, many schools offer foundation courses that can be taken as alternatives. Understanding these requirements can help a student better estimate the number of courses required, the time needed, and the additional costs.
Having a graduation plan will improve your financial outcome. The first step should include your total cost, debt, and income potential.
Understand the income potential.
A graduate or professional degree is an investment in yourself, and it should be treated as such. The cost of the program, along with the complete salary projection, needs to be analyzed so that the borrower can review whether it generates the income necessary to support the student loan debt. This step is often minimized or overlooked.
A great example of this is the medical student. The cost of completing medical school is significant, and many students incur hundreds of thousands of dollars in student loan debt. Initially, they move into their medical residence and earn a minimal salary in comparison to the level of their debt. After their medical residency, the income potential is measurable and will support the earlier debt incurred.
This process should be done for each person pursuing any degree, regardless of the program.
Diagnosing Current and Future Demands of a Career.
We live in a supply-and-demand economy. More than selecting a potentially high-income career is required. Students must evaluate the demand for that career and the competitiveness of the job market after graduation. The work environment is changing very quickly due to a multitude of factors. The internet and artificial intelligence (AI) have revolutionized the way we conduct business today. These business changes need to be considered before investing in a graduate degree.
A law degree is a prime example of how the supply and demand environment works. A few years ago, the need for elder law attorneys was relatively low. As people live longer, long-term care becomes a factor, and estate planning grows more complex, the demand for elder law attorneys is increasing. This change in market demand is an excellent example of identifying niches within a degree.
Determine the cost and total debt.
I discussed having a plan as the first step for borrowers. As part of the plan, you need to determine the program’s cost and include the living expenses needed until graduation. The majority of students will need to finance a significant amount of this cost. Since 2014, Federal Grad Plus loans have increased by 185% and will be eliminated after July 1, 2026, unless you are grandfathered in.
An essential item to remember is that your debt structure and amount will determine your repayment and forgiveness options. Having a plan and minimizing your debt will improve your investment return and financial future.
In most cases, federal student loans should be considered the first option for debt due to their repayment flexibility. Federal student loans can be more expensive than private loans. Federal loans have high fees and a semi-fixed interest rate. On the other hand, private student loan fees are usually lower and adhere to traditional loan underwriting rules, resulting in an interest rate based on the borrower’s credit score.
As discussed before, at the current program’s cost, most future borrowers will need to have a combination of both. This analysis highlights why proper planning is becoming increasingly critical.
The PayForED In-College Payer helps students customize debt projections and loan repayment options, and graphically displays their financial life after graduation. We also have a list of advisors who can assist families in this new transition of rules.
Identify repayment options
Due to the OBBBA, the repayment process is also changing. Your debt structure and the timing of your debt will determine your options. Proper planning will be complex during this transition period, as there are numerous moving pieces.
The first type of loans to consider is federal loans. Federal loans have more repayment flexibility, forgiveness options, and other benefits than private loans. These are the reasons why I usually recommend them as a first option. It makes repayment easier and more affordable on a cash flow basis. You could always prepay your federal loans or refinance them with a private lender.
From a purely financial point of view, private loans are usually more cost-effective. If you have better credit, your interest rate will be lower, and the repayment period will be shorter, resulting in lower overall interest payments. This review is important to understand before making your borrowing decision.
Over the next year, three major groups of borrowers will need to make decisions. These decisions are based on the combination of both the debt timing and new repayment rules.
Group 1 – End All Federal Borrowing by 6/30/26 and be entered into an Income-Driven Repayment (IDR) Option
By starting repayment before June 30, 2026, these borrowers will have the most flexibility due to the changes. They will have access to both legacy and new repayment options. This group would include graduates before 6/30/2026, borrowers who graduate after 6/30/2026 but will not use the federal loan system, and Parent PLUS borrowers who stop borrowing before 6/30/2026.
The dates listed here are the program end dates but borrowers will need to start the process before that date to ensure access.
Group 2 – Federal Borrowers who will be using the federal loans system after July 1, 2026, and stop borrowing before June 30, 2028.
These borrowers will have access to loan limits up to the Cost of Attendance but will only have access to the two new repayment methods. They are the new standard and the new Repayment Assistance Plan (RAP). The federal loan forgiveness programs will still be available to these borrowers. Parent PLUS borrowers will no longer have an IDR option.
Group 3 – New Federal Borrowers who will be using the federal loans system after July 1, 2026
All new federal student loan borrowers who use the federal loan system after July 1, 2026, will only have access to federal loans under the new limits by grade. They will have access to only the two new repayment methods. They are the new standard and the new Repayment Assistance Plan (RAP). The federal loan forgiveness programs will still be available to these borrowers. Parent PLUS borrowers will no longer have an IDR option.
All borrowers will face a more complex repayment process, as the federal methods are changing and have specific rules. At the same time, more borrowers will have private system loans with various repayment timeframes.
Analyze Loan Forgiveness Possibilities
Initially, I discussed the increased fear of taking on the associated debt to reach your dream career. As part of the plan review, individuals should consider the possibility of loan forgiveness. A great way to mitigate the debt is to use the IDR methods and qualify for loan forgiveness.
Under the federal loan repayment process, there are two major loan forgiveness programs: the Public Service Loan Forgiveness (PSLF) program and the IDR end-of-term forgiveness program. Each has its own rules, which are discussed in more detail in our Student Loan Forgiveness Guide and Ultimate Guide to Student Loan Repayment.
With proper planning and the right employment, undergraduate and graduate school debt could be eliminated after ten years or 120 on-time payments for federal borrowers.
Plan for life events
I have mentioned a few times the importance of a plan. They are needed, but life is not a straight line. The plan needs to be flexible to meet today’s changing environment. Most people will face life events such as marriage, having children, and purchasing a home, to name a few. You need to include these events as possibilities within your plan.
As borrowers transition to the new rules, a new level of complexity will arise. One major benefit maintained in the OBBBA is tax filing status for married couples. It may help married borrowers reduce their monthly repayment if proper planning is done.
As an example, if one spouse has student debt and the other does not, they may need to file their taxes as a married and separate couple. As a result, their tax bill may increase, but the IDR student loan repayment may decrease substantially. If that situation exists, a couple will need to run their numbers to evaluate those options.
Paying For Graduate School Summary
These essential tips can help you maximize the return on investment in your graduate school experience. Paying for graduate school is expensive. With all of these new rules and transition periods, getting help will be beneficial. To help you navigate the process, PayForED’s In-College Payer generates the customized numbers discussed in the article. It will correctly identify your debt structure, loan repayment options, and life after graduation.
This journey is manageable with a plan. PayForED aims to help you identify your options and add transparency to informed decision-making. Due to the new changes and the absence of Federal PLUS loans as a fallback, additional planning will be required.
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