Issue Briefs

About

As a result of OB3, students enrolled in graduate, non-professional programs will have an annual borrowing limit of $20,500 and an aggregate borrowing limit of $100,000. Students enrolled in professional programs will have an annual lending limit of $50,000 and an aggregate limit of $200,000. NAICU estimates that nearly 90 percent of students are enrolled in programs subject to the lower of the two borrowing caps. These funding constraints are expected to lead to a spike in private education lending, which carry few, if any, protections for borrowers, such as income-driven repayment or loan forgiveness. The limits are also likely to have disparate impacts on certain students, institutions, and regions of the country.

To implement OB3, the Department of Education (ED) published regulations defining “professional” programs for purposes of the new loan limits, but a court has temporarily blocked the rules from going into effect (see “History” section below for more details). Under the rules, the 11 programs that qualify as “professional” for the purposes of student loan borrowing limits include:

• Law (J.D., L.L.B.)

• Medicine (M.D.)

• Osteopathic Medicine (D.O.)

• Dentistry (D.D.S., D.M.D.)

• Pharmacy (Pharm.D.)

• Veterinary Medicine (D.V.M.)

• Optometry (O.D.)

• Podiatry (D.P.M., Pod.D.)

• Chiropractic (D.C., D.C.M.)

• Clinical Psychology (Psy.D., Ph.D. in Clinical Psychology)

• Theology (M.Div., M.H.L.)

If a program is not included in the list above, but it shares the same 4-digit Classification of Instructional Programs (CIP) code as those on the list and meets additional criteria, it may also qualify as “professional.” The additional criteria for a program to qualify as “professional” are:

• It requires completion of the academic requirements for beginning practice in a given profession and a level of professional skill beyond that normally required for a bachelor's degree;

• It is generally at the doctoral level;

• It requires at least six academic years of postsecondary education coursework for completion, including at least two years of post-baccalaureate level coursework; and

• It generally requires professional licensure to begin practice.

ED anticipates roughly 88% of graduate students will not qualify for the higher borrowing limits.

Importantly, a significant portion of professional programs will also need additional funding, despite the higher borrowing limits available to them, as many of these programs are long and expensive to provide, meaning there is little institutions can do to reduce the cost. The higher earning potential of many of these programs, however, will likely allow students to pursue private loans with greater success than students in non-professional programs.

Prior to OB3, graduate students had another, now-defunct program available to them: Graduate PLUS Loans. These loans required a limited credit check and allowed annual borrowing up to full cost of attendance with no aggregate cap, though it carried higher interest rates and origination fees than other federal loans in return. Because graduate students had fewer options for financing than undergraduates, they often relied on Graduate PLUS loans to afford the program of their choice. Without this program, NAICU believes many students, particularly lower-income students, will not be able to afford graduate education, which, in turn, will worsen existing workforce shortages in critical fields, like nursing, education, social work, and more.

In recent years, graduate borrowers have accounted for increasingly large – roughly 40 percent – of total federal student loan dollars disbursed annually despite representing a smaller share of borrowers by headcount than undergraduate borrowers. This is a result of Grad PLUS's borrowing structure, the higher cost of graduate education, and the nature of graduate education financing, which offers far fewer federal and non-federal resources to help students access and afford graduate education. However, the growth in the share of federal loans dollars attributable to graduate students is also the issue that has driven much of the national discourse regarding reducing borrowing limits and led to the elimination of Graduate PLUS and caps on Parent PLUS and graduate lending.

The Private Education Loan Market and its Likely Response

With federal borrowing now capped well below the cost of many graduate and professional programs, private education loans are widely expected to become the primary gap-filler. Several lenders, including Navient and SoFi, have disclosed in letters to Congress that they are preparing for greater demand, and other higher education experts have projected that private student loan volume may significantly increase from its current volume of roughly $10 billion a year. Some lenders have begun adjusting their offerings to capture this demand; Navient, for example, reported introducing automatic co-signer release and eliminating minimum income requirements.

However, the consensus among analysts and consumer advocates is that the private market will not cleanly fill the gap, for several reasons. First, private loans are credit-underwritten, unlike federal loans, which focus on access rather than profitability. An analysis by Protect Borrowers and The Century Foundation of 38 private lenders found many require a minimum credit score around 670 and income near $35,000, thresholds difficult for recent bachelor's graduates to meet (the average credit score for people in their 20s is about 662). A Federal Reserve Bank of Philadelphia study found that about 28% of recent graduate borrowers borrowed above the new limits, and of those, nearly 40% would likely fail to secure private loans without a cosigner under current underwriting.

Second, private lenders today play a minimal role in graduate financing, and it is unclear how willing they will be to extend credit to affected students. Many lenders may decline to fund certain low-earning fields entirely.

Third, approved borrowers may face higher and variable interest rates and terms, and private loans generally lack the income-driven repayment, forgiveness, and discharge protections of federal loans. Likely downstream effects include some students enrolling in lower-cost programs, increased pressure on institutional aid, and some students forgoing graduate education altogether.

History

Federal graduate lending has been relatively stable since its inception. Grad PLUS launched in 2006 and allowed borrowing up to the full cost of attendance. OB3's loan provisions were developed through the Department's RISE negotiated rulemaking, which reached consensus on a 17-provision package in November 2025, followed by a proposed rule in early 2026 and final rules in spring 2026, all effective July 1, 2026.

Recently, litigation against the Department of Education’s narrowing of the professional program definition has temporarily halted the agency from implementing the new rules. The U.S. District Court for the District of Columbia issued a stay on the definition until the case can be heard on the merits. Many of the concerns expressed by Judge Beryl A. Howell echoed the issues NAICU shared with ED in response to this change.

In response, ED issued interim guidance that broadened the number of qualifying professional programs. And while this guidance is temporary and could change at any point, the court case challenging the professional program definition has set a briefing schedule that runs through December, suggesting the interim guidance will remain in effect at least through the end of the year.