What psychologists need to know about new federal student loan rules

On July 1, student loans will change. The new federal borrowing rules taking effect that day will reshape how students can finance graduate education in psychology—and who can afford to pursue it.

The rules set new borrowing caps on Federal Direct Unsubsidized Loans, the standard loans used for graduate education, and eliminated Federal Direct Graduate PLUS (Grad PLUS) Loans, which many students use to cover living expenses. The changes were part of the 2025 One Big Beautiful Bill Act, which also included deep cuts to Medicaid and the Supplemental Nutrition Assistance Program.

“This is a significant change, both for psychology students and the field as a whole—one that is poised to affect access to higher education, the clinical workforce pathway, and our scientific research infrastructure,” said Debra Kawahara, PhD, associate dean of academic affairs at Alliant University and APA’s 2025 president.

Under the new rules, postbaccalaureate programs are divided into two federally-defined categories: “professional programs” and “graduate programs.” Students in “professional programs”—doctoral programs in certain fields that lead to licensure and practice—will be able to borrow twice as much as students in “graduate programs.” After persistent advocacy efforts by APA and its partners, clinical psychology was added to the list of professional programs. By extension, students in counseling psychology, school psychology, and certain applied psychology programs will also qualify for the higher borrowing limits.

Nevertheless, the changes come at a challenging time for higher education, as universities navigate shrinking federal grant funding; rolling back of equity, diversity, and inclusion initiatives; and demographic pressures on enrollment. Programs, institutions, and the field of psychology will be forced to adapt.

“This was a huge victory for clinical psychology programs, but there’s still more work to do. We’ve got to get people at the table—and quickly—to figure out how to reduce the cost of these programs,” said Andy Vaughn, EdD, president and CEO of Alliant University and one of three negotiators who represented higher education institutions during the federal rulemaking process.

Under the new rules, postbaccalaureate programs are divided into two categories: professional and graduate.

Professional programs include doctoral degree programs in the following fields: pharmacy, dentistry, veterinary medicine, chiropractic, law, medicine, optometry, osteopathic medicine, podiatry, theology, and clinical psychology. Programs with matching Classification of Instructional Programs (CIP) codes—federal codes used to classify academic programs—will also make the cut if these programs are generally doctoral level, take at least 6 years to complete, and generally lead to professional licensure and practice.

For that reason, counseling psychology and school psychology also gain the professional designation, along with certain applied programs, as estimated by a Department of Education analysis. All other programs, including research-oriented psychology degrees, will fall under the graduate designation.

With the new caps on Federal Direct Unsubsidized Loans (formerly called Stafford loans), students in professional programs can borrow up to $50,000 annually and up to $200,000 throughout their graduate studies. Students in graduate programs can borrow up to $20,500 annually and up to $100,000 overall. These total borrowing limits include loans taken out for both master’s and doctoral programs and exclude any undergraduate borrowing at the federal level. These funds can be used to cover tuition, fees, housing, and other living expenses.

In addition to the new borrowing caps, the rules eliminate the Grad PLUS loan program, which allowed students to borrow additional funds—up to the total cost of attendance—after reaching the limit on Federal Direct Unsubsidized Loans. Many students used these funds to cover living expenses while enrolled full-time.

A legacy clause will allow students who enrolled in postbaccalaureate programs by June 30, 2026, and are already receiving federal student aid, to continue accessing Grad PLUS loans and Federal Direct Unsubsidized Loans under the previous federal loan limits. The extension lasts either three academic years (through June 30, 2029) or until the student’s expected program completion date, whichever comes first. Students who withdraw or delay completing a program will be subject to the new rules if they re-enroll, while most students on an approved leave of absence will remain protected under the legacy clause.

Debt levels in psychology graduate programs vary widely by degree type, subfield, and location. In a 2016 survey of 1,283 graduate students and early career psychologists, the average anticipated debt was $130,000. PsyD students had the highest debt, averaging $173,000, followed by health service psychology doctoral students at $136,000 and research-oriented doctoral students at $76,000 (Doran, J. M., et al., Training and Education in Professional Psychology, Vol. 10, No. 1, 2016opens in new window). Those figures have almost certainly grown in the past decade—surveys show that clinical psychology doctoral students continue to face significant financial strain and that program stipends have not kept up with rising living costs (Szkody, E., et al., Journal of Clinical Psychology, Vol. 79, No. 3, 2023opens in new window).

“Students attending private and for-profit schools in high-cost-of-living areas could be some of the most affected by these changes,” said Kenneth Polishchuk, APA’s deputy chief for education and training policy.

The elimination of Grad PLUS loans is likely to have a substantial impact. Internal data from Alliant and similar institutions suggest that up to half of students in licensure-oriented programs rely on these loans to cover part of their costs.

“With that going away, the question is how students will pay for rent and food when they can’t work full time—or in most cases, even part time,” Vaughn said. Projections from his team estimate that clinical psychology programs could face a 10% to 20% drop in enrollment now that these loans have been eliminated—a decline that could have been far worse if those programs were excluded from the professional designation.

The Grad PLUS program, which began in 2006, was designed to help students attend graduate school without relying on personal funds or private loans. It has been particularly important for first-generation, low-income, and other underrepresented students.

Critics of the program argued that the ability to borrow up to the cost of attendance pushed universities to raise tuition prices. But research suggests that rising housing costs rather than tuition increases may be the larger burden for many students (Wood, C., & Schuch, C., University of North Carolina at Charlotte Undergraduate Research Journal, Vol. 1., No. 1, 2021opens in new window; Jiang-Brittan, S., UC Berkeley: Center for Studies in Higher Education, 2025opens in new window).

“When we account for inflation, tuition has stayed relatively stable over the past few years,” Polishchuk said. “But the cost of living has risen substantially—and that’s primarily what’s driving up the price of higher education.”

Now, experts note that students will once again turn to private lenders, as they routinely did before 2006. Loans from private lenders can carry higher interest rates, stricter credit requirements, and fewer borrower protections than federal loans. Those policies could increase students’ debt burden over the long term or lock some out of graduate school entirely.

Relying on private loans, nonfederal loans offered by banks, credit unions, and other lenders could also make it harder for some students to start or complete their education. Students who lack credit history or a cosigner may not qualify, while others may qualify initially but lose access later. Private lending timelines may not line up with academic calendars, further complicating enrollment. These barriers are likely to disproportionately affect students from groups historically excluded from higher education, Kawahara said.

“We anticipate that underrepresented and lower-income students will struggle to afford psychology doctoral programs,” she said. “That could deepen the diversity and equity gaps that we already see in the field.”

The new borrowing limits could have ripple effects across higher education, a sector already under strain. Universities are facing an enrollment crisis due to the “Great Cliff,” a demographic drop-off in college-age students that started in 2025 and is expected to continue through 2037 (see January/February Monitor). Amid those pressures, The George Washington University, for example, paused admissions to its clinical psychology program in 2026, citing financial constraints and small incoming class sizes (Alonso, J., Inside Higher Ed, January 26, 2026opens in new window). Over time, changes like these could constrain the pathway of future clinicians as the nation continues to face a mental health crisis.

Research-oriented programs are also vulnerable to the new borrowing limits. Many support students through grant-funded stipends, but those funds are already contracting and often do not fully cover students’ living costs. With lower loan caps now in place for programs classified as “graduate,” some students may find it even harder to afford research training. This could weaken the research infrastructure that supports breakthroughs in suicide prevention, youth mental health, human-technology interaction, and much more.

“If we don’t train the next generation, the U.S. risks falling behind in psychological science, with far-reaching effects on our country’s health and overall well-being,” Kawahara said.

On the financial side, institutions can do several things to support students. Some may use university endowment income or other funds to offer additional financial aid. Schools can also explore partnering with private lenders to make funding available under pre-agreed-upon terms, as well as provide financial counseling and education to help students understand the changes and their options.

Many of these steps would take time to implement and require additional staffing or training in financial aid offices. Ultimately, the larger goal is to bring program costs down so students need to borrow less money.

Experts say these financial realities may require psychology programs to modify curricula, meet competencies in creative ways, and even reconsider time to degree completion. For example, Vaughn suggests cutting coursework that duplicates undergraduate work from clinical psychology doctoral requirements.

One major way to reduce program cost is to create hybrid programs that let students live where they choose—for example, in a less expensive city or with their parents—for part of their training. In one model, students might spend 2 years on site and complete the rest of their coursework remotely. That could reduce students’ living expenses and borrowing needs, while giving schools more flexibility in how they use space and deliver instruction.

“These are very expensive programs to run,” Vaughn said. “With APA’s help, schools need to figure out how we can keep the quality high while reducing the cost to deliver them.”