A coalition of more than 20 states has sued the U.S. Department of Education over a new rule that narrows which graduate degree programs qualify for higher federal student loan limits.
The lawsuit, filed in federal court in Maryland, challenges a May 1 final rule issued by the Department of Education and Education Secretary Linda McMahon following passage of the “One Big Beautiful Bill Act” in 2025. Maryland, New York, California, Illinois, Massachusetts, Pennsylvania, Colorado, Arizona, and more than a dozen other states joined the lawsuit.
State attorneys general argue the rule unlawfully narrowed the federal definition of “professional degree” after Congress revised federal graduate lending rules. Court filings claim the Education Department later tightened eligibility through regulation by adding limits tied to doctoral-level study requirements and federal education program categories.
Under the law, graduate students are generally limited to borrowing up to $20,500 annually and $100,000 total in federal loans, while students enrolled in qualifying professional programs may borrow up to $50,000 annually and $200,000 in aggregate.
According to the complaint, the rule could sharply reduce borrowing access for students pursuing advanced healthcare and other licensed professional fields, including nursing, physical therapy, physician assistant programs, speech-language pathology, and audiology. The coalition points to language in the final rule where the Department acknowledged some advanced nursing and other healthcare programs still met Congress’s original three-part test for professional degrees but were excluded anyway.
Lawmakers adopted the existing definition directly into federal law when Congress created separate borrowing caps for graduate and professional students, the lawsuit argues. The states claim the Department exceeded the authority Congress gave it by later narrowing that definition through regulation.
The complaint argues the rule violates the Administrative Procedure Act, commonly known as the APA, which governs how federal agencies create and enforce regulations. Under the APA, courts can strike down federal agency rules if regulators go beyond the powers granted by Congress or cannot properly explain why a rule changed.
Court filings also claim the Department relied on factors not included in the statute, including whether some workers practice under physician supervision and concerns about what regulators described as “degree inflation.” Attorneys general involved in the lawsuit argue the agency applied those standards inconsistently across healthcare fields that now require advanced clinical education and licensing.
Another challenge targets limits on grandfathering protections for current borrowers. Congress included provisions allowing students already enrolled and borrowing before July 1, 2026, to continue using older loan limits for a limited period. The lawsuit argues the Department improperly excluded students who transfer schools or temporarily withdraw and reenroll, even if they remain in the same academic field.
Lower borrowing limits could discourage enrollment in expensive healthcare graduate programs that require clinical training, specialized faculty, and licensing preparation, the states argue. The complaint also claims some students excluded from the higher federal loan limits may struggle to secure enough financing to complete their degrees and could be pushed toward private loans, which often carry higher interest rates and fewer repayment protections than federal lending.
The rule could worsen shortages in nursing and other healthcare fields, especially in rural and underserved communities, the states argue. Public universities could also lose tuition revenue if students cannot obtain enough financing to remain enrolled, while graduates entering lower-paying public service or healthcare jobs could face greater financial pressure because of increased reliance on private lending.
The states are asking the court to block enforcement of portions of the final rule, declare the challenged provisions unlawful under the Administrative Procedure Act, and vacate the regulations before they take effect on July 1.
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