States Sue Over New Restrictions On Federal Graduate Student Loans

A coalition of 24 states and Washington, D.C., filed a lawsuit challenging a Department of Education rule that excludes several health care graduate programs from higher federal borrowing limits.

A coalition of Democratic state attorneys general filed a federal lawsuit on May 19 challenging a new Trump administration policy that restricts borrowing limits for students pursuing advanced degrees in several health care fields.

The legal challenge focuses on a Department of Education rule published on May 1, which excludes programs such as physician assistants, nurse practitioners, physical therapists, occupational therapists, and speech-language pathologists from the higher loan caps available to other professional programs.

Under the rule, traditional professional degree programs — including medicine, osteopathic medicine, law, podiatry and theology — retain access to elevated federal student loan limits. The plaintiff states argue that omitting specific master’s and doctoral-level health care tracks from these higher caps will negatively impact the pipeline of essential medical professionals.

“Oregon is already short on nurses, therapists, and other critical healthcare workers – and this rule makes that problem worse,” said Oregon Attorney General Dan Rayfield. “The last thing we should be doing is making it harder and more expensive for people to get the advanced training that fills those gaps.”

The administrative changes follow broader legislative changes to student loans that were enacted last year. In July 2025, President Donald Trump’s One Big Beautiful Bill Act (OBBBA) enacted new federal student loan caps on graduate degree programs.

“Previously, grad students could borrow up to the cost of their program,” NPR reported, “but the new limits cap annual borrowing for most at $20,500 with a total limit of $100,000.”

The implementation of those broader caps is scheduled to begin July 1, 2026.

“The Final Rule narrows the definition incorporated into [OBBBA] and effectively makes the illustrative list of degrees exclusive, thereby excluding many healthcare and other professional degrees that would otherwise be eligible for the higher limits,” according to the lawsuit. “Congress never intended anything of the sort.”

The suit also maintains that the list of examples “was taken from a regulation that had not been changed since the 1950s, a time when graduate programs in nursing and other healthcare professions barely existed and law students still received L.L.B.s [bachelor of laws degrees].”

Supporters of the administration’s restrictions say that unrestricted access to federal student loans allows universities to increase tuition prices without market constraints.

Conversely, state officials and educational advocates contend that the specific program exclusions create unjustified disparities. They argue that because many specialized health care programs require intensive graduate coursework, students will be unable to cover tuition under the standard limits, potentially forcing them to rely on “more expensive private loans, take on unsustainable debt, delay completing their education, or abandon these programs altogether,” according to a press release, which also noted that “public colleges and universities also stand to lose critical tuition revenue.”

This legal battle unfolds alongside data highlighting shifting risks in the existing student loan portfolio. According to a May 12 report from the Federal Reserve Bank of New York’s Center for Microeconomic Data, the share of past-due federal student loan balances has climbed to just over 10%, nearing levels recorded before the COVID-19 pandemic. This shift follows the October 2024 expiration of the Department of Education’s 12-month on-ramp period, during which missed federal student loan payments were not reported to credit bureaus.

The lawsuit is being co-led by Maryland Attorney General Anthony Brown, Colorado Attorney General Phil Weiser, Nevada Attorney General Aaron D. Ford and New York Attorney General Letitia James.

The coalition includes the attorneys general of Arizona, California, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, North Carolina, Oregon, Rhode Island, Vermont, Virginia, Washington and Wisconsin, as well as the governors of Kentucky and Pennsylvania.

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