(GEN-26-02) Implementing New Institutional Authority to Set Program-Level Federal Student Loan Limits

Dear Colleague:

We are writing to make you aware of the new authority, effective July 1, 2026, under 34 CFR 685.203 (m)(2), implementing the Working Families Tax Cuts Act (the Act), which permits institutions of higher education to establish lower annual loan limits for specific programs, provided that any such limit is applied consistently to all students enrolled in that program of study. We also discuss this new authority in the context of the broader policy goal of helping borrowers effectively manage and successfully repay their federal student loans. 

For decades, members of the financial aid community have advocated for giving institutions the authority to set lower federal loan limits for specific programs to help prevent students from overborrowing, make loan repayment more affordable, and reduce delinquency and default. Surveys of financial aid administrators have consistently shown strong support for this approach, with nearly two-thirds of respondents favoring the ability to limit borrowing for certain programs at their institutions.¹

There are a number of prudent and innovative ways institutions can begin using this new authority in the 2026-27 award year. For example, the Act allows students enrolled in professional programs to borrow up to $50,000 annually, compared with the $20,500 annual limit for other graduate-level programs. Institutions may wish to establish loan limits lower than these statutory caps for specific programs eligible for the higher loan amounts, particularly those associated with lower post-graduate earnings, as reflected in the College Scorecard and the FAFSA Earnings Indicator, or with higher rates of delinquency and default, which may affect an institution’s ability to meet the cohort default rate requirements. 

Additionally, for undergraduate and graduate programs where the Act did not change annual borrowing limits but did establish new aggregate loan caps and lifetime loan limits, institutions may also wish to consider setting loan limits below the statutory maximums for certain programs. For example, institutions may want to consider annual loan limits for a program in the context of the new aggregate loan limits and overall cost of the program of study to help ensure that students have sufficient resources to complete their studies while also maintaining a manageable debt burden after graduation.

Finally, we also encourage institutions to counsel students to borrow only what they need and to avoid financing unnecessary non-tuition and fee expenses with federal student loans. Many students do not need to borrow up to the full cost of attendance. One innovative practice we have seen at some institutions is by providing students, at the end of each semester, with a snapshot of their cumulative student loan debt, including an estimate of their projected average monthly payment after graduation, along with a reminder that the student can reduce future loan disbursements if they choose.

We are committed to working with you and the broader financial aid community to maximize the new benefits available under the Act, helping borrowers limit unnecessary borrowing, and ensuring they are well positioned to successfully manage their federal student loan debt after graduation.

Sincerely,

Jeffrey R. Andrade
Deputy Assistant Secretary for Policy, Planning and Innovation