As Federal Student Loan Rules Shift, States Step In with Their Own Lending Programs

With 42 million borrowers carrying $1.7 trillion in federal student loan debt and 7.7 million already in default, states are increasingly stepping in to fill gaps left by a shifting federal landscape. At least 16 states now operate their own student loan programs, and several—including Connecticut and Minnesota—are actively expanding them, particularly for graduate students who are now facing new federal borrowing caps under the One Big Beautiful Bill Act, signed last year, which eliminated the Grad PLUS program and capped federal graduate loans at $20,500 per year for most programs and $50,000 for professional programs like medicine and law. OBBBA also reduced borrowers to just two repayment options beginning July 1, 2026, a standard fixed-payment plan and a new income-driven Repayment Assistance Plan with 30-year forgiveness, while introducing an “earnings premium” accountability test that could strip federal aid from programs whose graduates don’t out-earn comparable high school graduates, a provision that threatens roughly 29% of undergraduate certificate programs based on preliminary data. Together, these changes are pushing state legislatures to reconsider the role they play in student lending, with more than 1,100 student loan-related bills considered at the state level since 2016 and more than two dozen state laws enacted on the topic in 2025 alone.