Washington University in St. Louis spent the spring watching a $257,500 lifetime federal loan cap collide with a law degree that costs roughly $105,600 a year, and did the math nobody wants to do out loud: even at the new $50,000 annual professional-student limit, incoming JD students were staring at a gap of tens of thousands of dollars a year with no federal source left to fill it. So the school built one. The WashU Law Supplemental Loan opened this spring for JD students who’ve maxed out federal borrowing — up to $25,000 a year, fixed at 7.5%, no credit check, no collateral, no origination fees. WashU didn’t become a bank because it wanted to diversify its balance sheet. It became one because the alternative was students who couldn’t enroll.

That’s the story playing out at a handful of well-funded schools right now, and almost nobody outside financial aid offices has noticed yet. Grad PLUS loans — the federal program that let graduate and professional students borrow up to the full cost of attendance — are gone for anyone starting a new program. In their place: hard annual and lifetime caps that don’t come close to covering what law, medical, and other professional degrees actually cost. Schools with the balance sheet to absorb the risk are quietly stepping into the gap as lenders themselves. Schools without one aren’t, which means the fix is arriving unevenly before most families even know there’s a hole to fill.

Quick Verdict

What changed	Grad PLUS eliminated for new borrowers; new annual/lifetime caps on federal grad and professional loans, both effective July 1, 2026
New grad student cap	$20,500/year, $100,000 program lifetime
New professional student cap	$50,000/year, $200,000 program lifetime
Overall federal lifetime cap	$257,500 across all federal borrowing (undergrad + grad + professional combined)
Parent PLUS cap	$20,000/year per student, $65,000 lifetime per student — down from unlimited
Who’s filling the gap	A small number of well-endowed schools (WashU Law, University of Kansas, Midwestern University) with in-house loan programs
The catch	Institutional loans are private loans — none qualify for Public Service Loan Forgiveness
Who can’t do this	Less-endowed schools, including many HBCUs, lack the capital reserves to absorb the lending risk

What Are the New Federal Loan Caps for Grad Students in 2026?

The One Big Beautiful Bill Act rewrote federal student borrowing, and the grad and professional provisions took effect July 1, 2026:

1. Grad PLUS is eliminated for anyone starting a new graduate or professional program on or after July 1, 2026. Borrowers who already had a Grad PLUS loan before that date are grandfathered in for up to three more years or until their program ends, whichever comes first.
2. Graduate students (master’s programs, most PhDs) are now capped at $20,500 a year in federal Direct Loans, with a $100,000 lifetime aggregate for that category.
3. Professional students (law, medicine, dentistry, and similar degrees) are capped at $50,000 a year, with a $200,000 program lifetime aggregate.
4. A hard overall ceiling of $257,500 applies across all federal borrowing combined — undergraduate, graduate, and professional loans together, excluding Parent PLUS.
5. Parent PLUS loans survive but are no longer unlimited: $20,000 per student per year, $65,000 per student over the loan’s lifetime, combined across both parents rather than doubled.

None of that is close to controversial as policy description — it’s what NASFAA’s summary of the federal changes confirms and what university financial aid offices have been briefing incoming students on since spring. The controversy is what happens next, because a $50,000 annual cap on a professional degree that costs double that isn’t a rounding error. It’s a structural gap, and for the first cohort hitting it this fall, “figure it out yourself” was the only answer on the table until a few schools decided it wasn’t good enough.

WashU Law’s $25,000-a-Year Fix

WashU isn’t the first school to try this — the University of Kansas beat it by a few months with J-HELPS, a 5% fixed-rate program funded straight out of the university’s endowment. But WashU’s version, launched this spring, is the more closely watched one — the first private law school in the U.S. to create an in-house loan program, according to LSAC.

The math that pushed WashU there is specific. Tuition runs about $75,600 a year; add roughly $30,000 in living expenses and you’re near $105,600 for a single year of law school. Dean Stefanie Lindquist put the trigger plainly: “We have determined that there would definitely have been a gap if the federal student loans had been capped at $50,000 a year.” That’s not a hypothetical — it’s the actual cap that took effect this July, and it leaves roughly $50,000 a year uncovered by anything federal.

The loan itself is designed to look as un-predatory as an in-house lender can manage: up to $25,000 a year, fixed at 7.5%, available only to students who’ve already exhausted federal loan options, with no credit check, no collateral requirement, and no origination, guarantee, or repayment fees. Assistant Dean Megan Peabody called the rate “appropriate” and explicitly “not something that’s predatory” — a fair read next to private lenders, whose rates on unsecured grad loans can run well into double digits depending on credit.

Midwestern University Built the Same Thing for Health Programs

The same pressure hit health professional programs, and Midwestern University answered with the MWU Loan — available to graduate and professional students in its health programs once federal aid runs out. It carries a fixed 7.00% rate for loans first disbursed on or after January 13, 2026 (up slightly from 6.75% for loans disbursed before that date), no origination fee, and independent qualification for students with a credit score in the high 600s or a cosigner for those who don’t clear that bar. Loan limits are set program by program, scaled to what each degree actually costs rather than a flat number across the board.

Midwestern’s framing is almost identical to WashU’s: this exists to give students an alternative to the private lending market, where rates can hit double digits, not to replace federal aid as a first resort. The MWU Loan only becomes relevant once a student has already borrowed everything available through the Direct Loan program’s new caps.

Does an Institutional Loan Qualify for PSLF? No — and That’s the Part Getting Buried

Here’s the fine print that matters more than the interest rate. An institutional loan is a private loan, full stop, and private loans don’t qualify for Public Service Loan Forgiveness no matter which school issues them or how borrower-friendly the terms look. Neither the WashU Law Supplemental Loan nor the MWU Loan counts toward PSLF. Neither is eligible for federal income-driven repayment either — no RAP, no IBR, nothing that scales payments to income if a graduate’s first job doesn’t pay what a law firm associate role does.

That’s not a footnote for a chunk of the students taking these loans. Grad PLUS combined with income-driven repayment and PSLF used to be the financing path that made it possible to take a $65,000 public defender job or a nonprofit legal aid position without the loan payment eating the paycheck. Take away Grad PLUS and swap in a private institutional loan for the gap, and that math changes — a portion of every future public-interest borrower’s debt now sits permanently outside forgiveness, accruing at a fixed rate regardless of what they end up earning. Third-year WashU law student Eric Kubo said it plainly: “It will definitely be part of the calculus that people have. People want to make sure that while they’re serving their communities, they’re also able to serve themselves.” That’s a student doing the tradeoff math in real time, and it’s the same tradeoff every incoming class at these schools is now doing with them.

Why Not Every School Can Do This

The uncomfortable part of this story isn’t the loan terms. It’s who gets to offer one at all. Running an institutional lending program means carrying real credit risk on the school’s own books — if graduates don’t repay, the university eats the loss, not a federal agency. That only pencils out for schools sitting on the kind of endowment or reserve fund that can absorb defaults without blinking, which narrows the list fast.

Daniel Collier, a higher education professor at the University of Memphis, put the equity problem bluntly: “those who need the most money, on average, are going to be those from less affluent circumstances,” which means the institutions serving those students face the highest repayment risk right when they have the least capital to absorb it. Not every school has the money to launch a program like this, he noted — and the schools most likely to lack it are often the ones whose students needed a workaround the most. The Century Foundation has flagged the same dynamic specifically for HBCU medical schools, which tend to operate on thinner financial cushions than the private, endowment-heavy institutions now building their own lending arms.

So the “schools become the lender” fix isn’t a fix for the system. It’s a fix available to the system’s wealthiest corners, while everyone else’s students are left choosing between the private lending market, a lower-cost program, or not enrolling at all. That’s worth sitting with before treating WashU or Midwestern’s programs as a template other schools can just copy.

What to Do If You’re Applying to Grad or Professional School Right Now

Ask your target schools directly whether they have an institutional loan program, and if so, get the rate, the annual and lifetime caps, and written confirmation it’s a private loan with no PSLF or IDR eligibility before you assume it behaves like a federal loan.

Run the actual gap math before you enroll. Take your program’s full cost of attendance, subtract the new federal caps ($20,500/year for grad, $50,000/year for professional), and that’s the number you need from savings, an institutional loan, or a private lender. Don’t wait until spring of your first year to do this arithmetic.

If public-interest work is the plan, weigh the PSLF math carefully. A $25,000-a-year institutional loan at 7.5% accruing for three years of law school is real money that will never qualify for forgiveness under any repayment plan. Our breakdown of the PSLF credit reversal mess this year is a useful reminder that PSLF is worth protecting, not something to casually trade away for convenience at enrollment.

Parents hitting the new Parent PLUS caps should treat $20,000/year and $65,000 lifetime as a hard ceiling, not a starting point for negotiation with a servicer. If you were counting on Parent PLUS to cover a gap that’s now bigger than the cap allows, our comparison of Trump accounts versus 529 plans is worth a look for families with younger kids who still have years to build a cushion before this hits them too.

If you’re already carrying debt from an earlier degree, the caps don’t touch what you’ve already borrowed — but a debt payoff tracker that separates federal balances (PSLF-eligible, IDR-eligible) from any private or institutional balance keeps you from accidentally treating the two as interchangeable when you’re choosing where to send extra payments.

Watch your federal loan servicing regardless of which type you carry. The student loan default and collections pause situation and the broader servicing chaos this year haven’t been contained to any one loan type — a new institutional loan doesn’t insulate you from the federal side going sideways.

The Bottom Line

Grad PLUS didn’t get replaced. It got capped, and a handful of schools with the balance sheet to spare are quietly filling the hole with loans that look generous on paper — no credit check, no origination fees, rates below what private lenders charge — and carry the one condition that matters most for a chunk of borrowers: no path to Public Service Loan Forgiveness, ever. WashU Law and Midwestern University built something real for their students. Most schools can’t, and most families haven’t heard about any of this yet. If you’re applying this cycle, ask the gap question before the acceptance letter, not after.

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Federal loan cap details from NASFAA and University of Washington’s financial aid office. Institutional loan program details from WashU Law, Midwestern University, and reporting by Inside Higher Ed, Student Life, and National Jurist. Current as of September 2026 — verify your own program’s cost of attendance and financing options directly with the school’s financial aid office.