The Department of Education yesterday issued a proposed rule aimed at reducing the cost of higher education and simplifying federal student loan repayment, a move that could materially reshape how graduate and professional student loans are originated, repaid, and resolved in default. The Notice of Proposed Rulemaking follows last year’s enactment of President Trump’s Working Families Tax Cuts Act and opens a 30-day public comment period for stakeholders across the student loan ecosystem.
At a high level, the proposal seeks to curb overborrowing, streamline repayment options, and give borrowers additional off-ramps from default. For organizations that collect, service, or otherwise engage with borrowers holding federal student loans, the changes signal meaningful shifts in portfolio composition and borrower behavior starting as early as mid-2026.
Key elements of the proposed rule include:
- Elimination of Grad PLUS loans. The Department would phase out the Graduate PLUS program, which previously allowed borrowing up to the full cost of attendance.
- New loan caps for graduate and professional students. Beginning July 2026, graduate students would be limited to $20,500 per year and $100,000 in aggregate, while professional students would be capped at $50,000 annually and $200,000 total.
- Program-level borrowing limits. Colleges could impose lower loan caps for specific programs based on cost, earnings outcomes, or default risk, potentially altering future debt profiles.
- Simplified repayment structure. Existing repayment plans would be phased out in favor of two options: a tiered standard plan with fixed terms tied to loan balance, and a new income-driven Repayment Assistance Plan designed to prevent negative amortization.
- Expanded default rehabilitation. Borrowers would be allowed a second opportunity to rehabilitate a defaulted loan, restoring it to good standing after successful completion.
According to the Department, the proposal reflects consensus language developed by the Reimagining and Improving Student Education negotiated rulemaking committee, which included representatives from institutions, borrowers, servicers, and the business community.
Comments on the proposed rule must be submitted by March 2. The Department has indicated this is the first of three planned rules to implement the Act, suggesting further regulatory activity that could continue to reshape the federal student loan landscape.
