New federal loan caps push students to private lenders

Graduate students are increasingly turning to private banks and online lenders to cover the gap between their tuition costs and the new federal borrowing limits. These restrictions, which took effect at the start of the fall semester, cap the amount new students can borrow from the government. As a result, many are seeking alternative financing to complete their degrees.

The shift is visible in recent financial reports from major lending institutions. SoFi, a private lender, reported that student loan originations reached $2.9 billion in the third quarter. This figure nearly doubled compared to the same period last year. Sallie Mae, which holds more than half of the private student loan market, announced that graduate loan volume increased by 119% year over year.

The changes stem from the federal legislation known as the “Big Beautiful Bill.” This law reduced the maximum federal borrowing for new graduate students. Programs designated as professional degrees now face a cap of $200,000. Other graduate programs are limited to $100,000. Previously, students could borrow up to the full cost of their degree from the federal government. New borrowers also face a lifetime borrowing cap of $257,500, and limits were placed on the amount parents can borrow for their children's education.

Jordan Matsudaira, director of the Postsecondary Education & Economics Research Center at American University, estimated that more than 500,000 borrowers will need to secure an additional $20,000 annually from non-federal sources once the changes are fully implemented. His analysis indicates that students in high-cost fields such as medicine, law, and dentistry face the greatest burden.

The administration argues these limits will reduce excessive borrowing and prompt schools to lower their prices. According to the American Enterprise Institute, at least 40 schools have cut the cost of some programs since the caps took effect. Critics, however, contend that most colleges cannot lower tuition and that the changes will disproportionately affect students from low-income families.

Several universities are responding to the shift in demand. South Carolina Student Loan reported a 400% increase in graduate student borrowing this year. The University of Kansas School of Law has entered the lending business itself, approving eight loans so far with more pending. Steven Freedman, associate dean of admissions at the institution, noted that private banks are now determining who can attend law school.

A legal dispute delayed the finalization of which programs qualify as professional, a status that allows for higher loan limits. A federal judge blocked part of a rule that would have lowered limits for fields such as nursing and physical therapy. This late change caused administrative delays. Jon Witter, CEO of Sallie Mae, said the peak lending season extended into October because schools delayed delivering financial aid packages.

Chloe Frabotta, a 25-year-old physician assistant student in New York City, borrowed $6,000 in federal loans for her first trimester. She used private loans, with her mother as a cosigner, for the remainder of her costs. Her program was eventually deemed professional, making her eligible for up to $50,000 in annual federal loans. She chose to take less from the federal program due to uncertainty about future rules.

Madison Jessen, another first-year physician assistant student at Weill Cornell Medicine, used most of her personal savings to pay for her first semester. She cited the uncertainty surrounding loan caps as the primary reason for her decision. Jessen noted that several younger friends had planned to attend physician assistant programs but changed their plans after the new limits took effect.

Dr. Robert Harrington, dean of Weill Cornell Medicine, said the school received dozens of calls from confused students and families. He expressed concern that the changes might restrict access to expensive medical programs. Harrington, a first-generation college graduate, stated that he hopes the programs do not become accessible only to those whose families can afford the bills.