States are stepping in to help graduate students finance their studies now that federal Graduate PLUS loans have been eliminated for new borrowers.
Minnesota and Connecticut are among the states that have announced expansions of their student loan programs as of July 1 to fill the financing shortfall for graduate borrowers. “We see it as a substitute program, to fill the financial gap,” said Josh Hurlock, deputy director of the quasi-public Connecticut Higher Education Supplemental Loan Authority.
Without the state programs, some graduate students would have no alternative besides taking out private student loans from banks and other lenders. But private loans can be riskier than federal loans because they generally don’t have the same protections, like the ability to pause loan payments during a financial setback, to cancel loans for public-service work and to repay loans on a plan tied to a borrower’s income.
Students, however, should carefully review terms for state graduate loans, just as they would when borrowing from private lenders, experts say. State loan programs set their own rules and don’t necessarily offer the same benefits that federal loans do. “Borrowers shouldn’t assume they’re the equivalent of a federal loan,” said Tiara Moultrie, a fellow focusing on higher education at the Century Foundation, a progressive think tank.
Before the Graduate PLUS program was curtailed, graduate and professional students could first max out borrowing from the federal Stafford loan program — generally, up to $20,500 per academic year, up to a total of $138,500 (limits were higher for some programs). Then, if they still needed more funding to pay for their studies, they could borrow Graduate PLUS loans, up to their school’s full cost of attendance.
Just 16 percent of graduate students borrowed under the Graduate PLUS program, but they accounted for almost a third of federal dollars lent to graduate students in 2023, and that share was expected to grow over the next decade, according to a 2024 report from the Georgetown University Center on Education and the Workforce. Those students tended to borrow large sums to pay for more expensive programs, like those in health care and law. (Federal direct loans accounted for the other two-thirds).
Why are states expanding their graduate loan offerings?
The federal Graduate PLUS program was eliminated for new borrowers on July 1 under the Republican budget and policy bill that was passed last year. That opened a new funding hole, and states are aiming to fill it.
The law also capped total borrowing for graduate students. Previously, students could borrow up to the full cost of attendance for their graduate degree programs by taking out both federal direct loans and Graduate PLUS loans. But lawmakers said they were concerned that some students were struggling with excess debt and that an absence of borrowing caps encouraged schools to raise tuition.
Now, federal borrowing by students in many graduate programs is limited to $20,500 a year, and $100,000 total. (So-called legacy graduate students, who enrolled and borrowed federal loans before July 1, are exempt from the new caps as long as they remain in the same program.)
Different limits apply to graduate students pursuing degrees in certain generally high-paying fields like medicine, veterinary medicine, law and dentistry. Under the new rules, they can borrow up to $50,000 a year, and $200,000 overall.
(A court recently found that the Education Department’s definition of what it calls professional programs, which qualify for the higher borrowing limits, was too narrow, and it temporarily blocked the department from using it. So the department released an expanded list of accepted degrees, including physical therapy and occupational therapy. The government said they remained eligible for now, but the list might change as the court case proceeds.)
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The total cost of many graduate programs exceeds the new federal caps, meaning that more than a third of all graduate borrowers could be affected and would need to seek other sources of financing to pursue their degrees, a study in 2025 by the Philadelphia Federal Reserve found. In programs like law and medicine, more than half of recent graduates had more than $200,000 in debt, with many borrowing more than $300,000, the study found.
State programs may provide an alternative to private student loans to help cover the full cost of obtaining a degree.
Are state graduate loan programs new?
More than a dozen states already offered graduate loan programs, but some are now looking to expand their menus, said Emily Rounds, a senior higher education policy adviser at Third Way, an advocacy group and think tank.
Minnesota recently announced the expansion of its loan offerings to include the SELF Grad Loan program. Rates on the loans vary by different factors, such as whether the borrower has a co-signer — another adult who agrees to repay the loan if the student can’t — and the length of the loan repayment term, said Marilyn Kosir, manager of the loan program. “It’s very new, so we’re just seeing applications now,” she said.
The interest rate for a borrower with a co-signer and a 10-year repayment term, for instance, is 6 percent. That compares with the current rate of 8.07 percent on direct federal loans available to graduate students. The rate on federal Graduate PLUS loans for legacy borrowers is 9.07 percent.
Borrowers without a co-signer can qualify on their own, but they must pass a credit check. They must have a FICO score of at least 670 — the national average score was 676 last year for borrowers ages 18 to 29 — and can’t have a history of defaulting on other student loans.
Students in certain programs, including dentistry, medicine, veterinary medicine and pharmacy, can borrow up to $300,000 total, with no annual maximum. The limit for other programs is $50,000 a year, up to a maximum of $150,000.
Connecticut’s MyCHESLA Grad Loan, offered by the Connecticut Higher Education Supplemental Loan Authority, offers fixed-rate loans ranging from 5.50 percent to 7.99 percent, depending on the repayment option chosen. Approved borrowers have access to all of the options. There’s no required minimum credit score, but applicants are evaluated on their debt-to-income ratio and screened for negative financial circumstances like foreclosures, bankruptcies and accounts in collection.
Because many borrowers don’t have a co-signer, Mr. Hurlock said, the program allows student borrowers to qualify based on their expected earnings. The expected earnings are determined by the Connecticut average for the degree they are pursuing. “We felt like we needed to create a new program to meet the needs of the students,” Mr. Hurlock said.
The program sets a borrowing limit of $250,000. It is initially limited to certain degrees, but is expected to expand to cover all graduate and professional programs, he said.
Who can use state graduate loan programs?
It varies. Minnesota’s program is open to students who are either residents of the state or out-of-state students attending a participating in-state college or university. Connecticut’s program is available to Connecticut residents, or residents of seven other states (Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont) who are attending an eligible Connecticut institution.
What should students look for when evaluating state programs?
Abby Shafroth, managing director of advocacy at the National Consumer Law Center, said borrowers should carefully review the details of the state loans, including the interest rate. “Research and compare terms with the same sort of critical eye as you would with a private loan,” she said. If a loan advertises rates “as low as” a certain number, she said, make sure that rate applies to you.
Also consider what happens if you fail to make your payments, she said. “Very few people think about that when they take out their loans,” she said, because they typically expect all will go well.
Some states “can and will,” for instance, seize tax refunds to cover payments if borrowers fall behind on their state loans, she said. “It depends on the state.” That’s similar to federal loans, in which a default can lead to seizure of tax refunds or garnishing wages to repay the debt.
What if I want to consider a private lender?
Some schools suggest lenders. Georgetown’s website, for instance, includes a list of six preferred lenders, based on available loan terms and “commitment to customer support.” Rates and terms for each lender are included. The school says its “vetting” of lenders includes their “history and financial stability, value and lifetime loan cost to borrowers, flexibility for the borrower, customer service and innovation of product offerings.”
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