When the federal government capped professional student borrowing at $50,000 per year beginning July 1, some universities aren’t waiting for a policy reversal. They’re becoming lenders themselves.
Washington University in St. Louis School of Law (WashU Law) and Midwestern University (MWU) are among the institutions that have launched or expanded internal loan programs to help students navigate the financial shortfall created by the One Big Beautiful Bill Act, the federal budget reconciliation law passed in 2025.
The legislation not only introduced annual and aggregate borrowing limits for graduate and professional students, but also eliminated the Direct Graduate PLUS Loan program entirely, a significant source of funding that, prior to its elimination, was used by nearly half of all medical students nationwide.
For law school students, the math is stark. WashU Law estimates total annual attendance costs at roughly $100,000. With federal loans now capped at $50,000 per year, incoming students face a potential gap of $50,000 annually.
To address this, the school launched the WashU Law supplemental loan, which allows incoming JD students who are U.S. citizens and have exhausted their federal loan options to borrow up to $25,000 per year at a fixed 7.5% interest rate. No credit check, no collateral, and no origination fees are required.
“At WashU Law, we are deeply committed to supporting our students in every dimension of their experience, from the classroom to the broader community and the financial realities of legal education,” says Elizabeth Walsh, associate dean of student life. “This supplemental loan helps ensure that financial barriers do not limit our students’ ability to thrive during law school and beyond.”
The loan is funded directly by the university, according to Carrie Burns, the law school’s director of financial aid. She acknowledged that the scale of the program and its cost to the institution remains to be seen, but said they view it as a sound investment.
“The university thinks it’s a good investment in students when we statistically have a very low default rate generally at the law school,” Burns says.
Midwestern University, which serves graduate and professional students across health-related fields, has taken a similar approach with its MWU loan. The program offers fixed interest rates, currently at 7.00% for loans disbursed on or after January 13, 2026, with no origination fees and eligibility standards tailored to graduate students, including a cosigner option for those who don’t meet the minimum credit score requirement. The university frames the loan as a more stable alternative to the private market, where interest rates can reach double digits and terms are structured with lender profitability in mind rather than borrower circumstances.
Both programs share a significant limitation in that neither qualifies for Public Service Loan Forgiveness, a federal program that forgives remaining balances for borrowers in government or nonprofit roles after 10 years of payments. That exclusion matters considerably for students planning careers in public interest law, medicine, or education, the very fields many professional schools are ostensibly training students to enter.
Chris Chapman, JD, president and CEO of AccessLex Institute, an organization that advocates for access and affordability in legal education, offered cautious praise for the WashU model while tempering expectations for how widely it could be replicated.
“The Wash U expanded [loan] program can be an option for schools with ample resources and a willingness to put them at risk, but the number of those schools which exist is limited,” he says.
That constraint points to a deeper problem the new borrowing caps have exposed.
Institutional loan programs may be a viable stopgap for well-endowed schools, but the majority of graduate and professional programs, particularly those at historically Black colleges and universities, lack the financial reserves to absorb the risk.
Research from The Century Foundation found that HBCU medical schools, which produce nearly half of all Black doctors in the United States, enroll disproportionately high numbers of low-income and first-generation students who are likely to face significant barriers in securing private loans to fill federal funding gaps.
At Meharry Medical College, where average student debt approaches $250,000, the new annual borrowing cap could leave entire cohorts without a viable path to financing their degrees.
Critics of the policy argue that the federal government imposed borrowing limits without accompanying support structures for students or under-resourced institutions, pushing vulnerable borrowers toward a private lending market that was not designed for them.
Supporters of the caps contend they will pressure schools to reduce tuition, an outcome that, advocates counter, is unlikely to materialize quickly enough to help students enrolling this fall.
States are also beginning to respond. Connecticut lawmakers recently proposed a $30 million expansion of their existing higher education loan authority to create a new graduate loan program for Connecticut students, positioning it as a direct response to the federal changes.
Whether institutional loans become a widespread model or remain the province of a small number of wealthy universities may ultimately depend on how many schools are willing and able to put their own capital on the line.
