Your State Will Lend You What Washington Won't. Read What You're Giving Up.

If you’re starting a graduate program this fall and the federal number came up short, your state may offer to cover the difference. Look hard at that offer before you take it.

Since July 1, new graduate students can borrow $20,500 a year in federal loans, with a $100,000 lifetime cap. Professional students in law, medicine, dentistry and similar programs get $50,000 a year, capped at $200,000. Before that, Grad PLUS let graduate students borrow up to the full cost of attendance. It’s gone.

The gap is not hypothetical. The Century Foundation found that in recent years nearly 30% of graduate borrowers borrowed above the new limits.

The states stepping in

Connecticut, Massachusetts, Minnesota, Pennsylvania and Rhode Island have all moved to expand state loan programs, and some name the new federal caps directly in their marketing. Pennsylvania’s PHEAA said it plainly: “We’re stepping in where federal aid may fall short.”

A state loan is a government-branded product, and government-branded sounds like federal-grade. It isn’t.

Federal Direct Unsubsidized loans for grad students carry a flat 8.07%. Everybody gets that rate. No credit check moves it. State loan rates move with your credit, your income and your program, and The Century Foundation’s July analysis found Pennsylvania’s range runs from 3.29% to nearly 10.5%.

Why the spread? Rich Williams, a former deputy assistant secretary at the Education Department, gave the reason: “Most of these programs are financed by bond sales, not state appropriations, so the program has to generate returns for bondholders.”

Translation: it has to earn. That’s a private loan wearing a state seal.

What comes off the table

State loans sit outside the federal system. No income-driven repayment through the Education Department, and no Public Service Loan Forgiveness. If you’re headed into government or nonprofit work, losing PSLF is the expensive part of this, and it won’t show up anywhere in the rate comparison.

Default is harsher, not gentler, for being run by a state. Carolina Rodriguez, who directs New York’s Education Debt Consumer Assistance Program, says state lenders “have stronger enforcement rights, compared to private lenders,” and that default “can lead to steep fees, leave co-signers on the hook and expose borrowers to aggressive collection practices, including the interception of state tax refunds.”

Expect a co-signer question, too. Above roughly a 700 credit score you can often skip one. Below it you’re asking a parent or a friend to sign for the whole balance, and only a few state programs give them any way out later.

The order of operations

Take every dollar of the federal $20,500 first, even when a state brochure advertises a lower headline rate. The federal loan carries repayment plans and forgiveness the state loan can’t match, and that advertised state rate belongs to their best applicant, who may not be you.

If a gap is still there, get three answers in writing before signing: does this program have its own income-based repayment plan, is there a co-signer release, and what exactly happens on default. Some states do offer real protection. New Jersey has a plan that cuts payments to 10% of discretionary income, Rhode Island’s is earnings-based, and one Kansas loan for certain medical students can be forgiven outright.

Then run the payment through our loan calculator at the top of the state’s rate range, not the bottom. That’s the version you need to be able to live with.

A state loan can still beat the private market, which runs past 20%. It is not the federal loan you were counting on, and nobody handing you the application is going to open with that.

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