By Janet H. Cho

The Trump administration's Education Department is making major changes to the federal student loan program, limiting who is eligible, reducing how much students and families can borrow, and changing how loans must be repaid.

Critics say the changes will increase borrowing costs for students and their families, and may discourage students from pursuing more expensive graduate school programs, including those aspiring to become nurses, social workers, teachers, firefighters, and physical and occupational therapists.

The changes took effect July 1.

Notably, the Grad PLUS program that let graduate students borrow as much as they needed to pay for the cost of their graduate degrees, at lower interest rates and with more flexible repayment options than private sector loans, has ended.

Instead, there are new limits on how much students can borrow. Graduate students can borrow up to $20,500 a year or a total of $100,000, while professional school students can borrow up to $50,000 a year, or a total of $200,000.

The Education Department also said that only certain degree programs under 11 categories qualified as "professional:" chiropractic, clinical psychology, dentistry, law, medicine, optometry, osteopathic medicine, pharmacy, podiatry, theology, and veterinary medicine. Organizations representing fields including nursing, therapy, public health, education, and physician assistants filed lawsuits challenging the Education Department's narrower definitions.

Last week, U.S. District Court Judge Beryl A. Howell of the District of Columbia ruled that the Education Department's efforts to narrow what programs qualified as "professional," thus limiting who was eligible to borrow more money, were "misguided."

The Education Department could not immediately be reached.

Under the Republicans' "One Big Beautiful Bill Act" that President Donald Trump signed into law a year ago, the Education Department replaced the Biden administration's loan repayment program with its own Reimagining and Improving Student Education (RISE) initiative. The changes, in addition to limiting how much graduate students can borrow, require those with current loans to sign up for new repayment plans.

Education Secretary Linda McMahon on May 14 testified before the House Education and Workforce Committee that "college costs are just exorbitant. Students are burdened with debt," and later said that the administration intends the new loan limits to force colleges to lower their prices, NPR reported.

Last year's megabill also changed eligibility for federal Pell Grants for lower-income students, excluding some students who receive scholarships and grants from other sources, those who report foreign income, full-ride student athletes, and students whose student aid index is equal to or greater than $14,790, or twice the maximum Pell Grant. It also introduced a category of Workforce Pell Grants for students taking short-term, career-focused programs.

Starting July 1, new undergraduate student borrowers are now limited to lifetime maximum loan limit of $257,500, including if they go on to borrow money for graduate school. And parents are limited to borrowing $20,000 a student, or $65,000 total a student from all parents.

Also as of July 1, interest rates for federal direct student loans are 6.52% for undergraduate borrowers, 8.07% for direct unsubsidized loans for students in graduate or professional programs, and 9.07% for direct PLUS loans for parent or graduate or professional students, plus loan fees of about 1%. Both interest rates and loan fees are often substantially higher for private sector loans.

Loan amounts that were historically tied to how much borrowers qualified for under FAFSA (the Free Application for Federal Student Aid), will now be determined by the Education Department's limits on how much students can borrow. Not only are loan limits tighter than they were before, but the amount that part-time students can borrow is now pro-rated based on how many credit-hours they are taking.

The federal student loan changes "will put getting a college degree out of reach for millions of students, particularly for low- and middle-income Americans," Rep. Robert C. "Bobby" Scott (D., Va.), the ranking member on the House Committee on Education and Workforce, said after the proposal was released.

"Capping graduate borrowing, removing key pathways that help students afford advanced degrees, and making student loans harder to repay does not 'solve' the student loan crisis — it makes it worse," he said. "This rule simultaneously pushes students towards the often-predatory private lending market, leaving low-income students with fewer protections and higher loan bills."

He added that borrowers don't need more confusion, more costs, and more risk shifted onto their shoulders, "they need a repayment framework that meets them where they are — one built on stability, affordability, and genuine accountability."

President Joe Biden had repeatedly sought to expand access to higher education. His $6 trillion federal budget for 2022 proposed two years of free community college, increasing Pell Grants for lower-income students, and making larger investments in colleges and universities serving low-income, first-generation, or racial or ethnic minority students. His free community college idea was rejected by the lawmakers pushing his bipartisan Infrastructure and Jobs Act.

He paused federal student loan payments for more than three years during the Covid-19 pandemic, and proposed canceling up to $10,000 in federal student loan debt for borrowers making under $125,000 a year, or up to $20,000 in loan debt for federal Pell Grant recipients making less than $125,000 a year. But the Supreme Court struck down his proposal.

In 2024, the Biden administration announced it was accelerating federal student loan forgiveness for a smaller group of borrowers under the SAVE Plan (for Saving on a Valuable Education). Borrowers were eligible if they took out $12,000 or less for undergraduate or graduate programs, and had been making payments for at least 10 years.

But those debt relief proposals were also blocked by the courts, and a federal appeals court ended the SAVE repayment plan in March.

The Education Department has told the more than seven million borrowers currently enrolled in the program that they have to choose between the income-based Repayment Assistance Plan, which requires minimum payments of $10 a month, or a Tiered Standard Repayment Plan, with minimum payments of $50 a month. Both options offer less favorable repayment conditions, including 30 years of loan repayments before students can qualify for Public Service Loan Forgiveness, up from 10 years previously.

Michele Zampini, associate vice president, federal policy and advocacy, for The Institute for College Access & Success, a nonprofit research and policy organization that aims to increase college access, affordability, and success, said the changes mean that more than seven million borrowers "remain in limbo wondering how they're going to afford their payments going forward," and that without the SAVE Plan, "borrowers will be left with more expensive options that will keep the most vulnerable borrowers in debt for longer than ever."

She noted that 45% of borrowers have reported making tradeoffs between covering their basic needs and making their student loan payments.

Zampini said that the Institute for College Access & Success is concerned that the Education Department is not prepared to smoothly manage such a major transition, and urges borrowers to stay informed and be proactive: "Make sure you have access to your loan account, know which plan you're in, what you owe, and who your servicer is, and use resources such as ED's repayment calculator to compare your plan options."

Separately, two federal judges on Tuesday rejected the Trump administration's attempts to reduce eligibility for borrowers hoping to reduce their student debts through Public Service Loan Forgiveness, a 2007 law that cancels debts for borrowers who spent at least a decade working for the government or for nonprofits, and making at least 120 monthly payments.

The Trump administration had sought to change the definition of a qualifying employer, starting July 1, to exclude organizations that "engage in unlawful activities," which critics said could disqualify organizations whose missions the administration disagrees with.

New York Attorney General Letitia James, who lead 22 other attorneys general in objecting to the proposed restrictions, said that "Public servants should not have to pass a political loyalty test to earn the loan forgiveness they were promised. This rule was a blatant attempt to punish teachers, nurses, firefighters, social workers, and other public servants for working in states or for organizations that this administration does not like."

Write to Janet H. Cho at janet.cho@dowjones.com

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