Federal loan caps push graduate students to private lenders
New borrowing limits under the Big Beautiful Bill have caused private student loan originations to nearly double as students seek alternative funding.
By Ricardo Alvarez ·
Graduate students are increasingly turning to private lenders to cover education costs after federal borrowing limits took effect this fall. The new rules cap loans for professional degrees at $200,000 and other graduate programs at $100,000. Previously, students could borrow up to the full cost of their degrees. These changes include a lifetime borrowing cap of $257,500 for new borrowers and restrictions on parent borrowing.
The shift toward private financing began with the passage of the Big Beautiful Bill, which aimed to curb excessive borrowing and influence school pricing. Jordan Matsudaira, director of the Postsecondary Education & Economics Research Center at American University, estimates that more than 500,000 borrowers will need to find an additional $20,000 annually from non-federal sources once the changes are fully phased in. The financial burden falls most heavily on students in expensive fields such as medicine, law, and dentistry.
Private lenders have seen a surge in activity as a result. SoFi reported in late October that its student loan originations reached $2.9 billion in the third quarter, nearly doubling from the same period a year earlier. Sallie Mae, which holds more than half of the private student loan market, reported that graduate loans increased by 119% year-over-year. Jon Witter, CEO of Sallie Mae, noted on an earnings call that the peak lending season extended into October due to delayed financial aid packages caused by last-minute regulatory changes.
Colleges are responding by expanding their own financial aid options. The University of Kansas School of Law has approved eight private loans so far, with more in process. Steven Freedman, associate dean of admissions, stated that private banks are now choosing who attends law school. Lewis & Clark College in Portland, Oregon, launched a new scholarship this fall for students in financial need. Anastacia Dillon, associate vice president for financial aid at Lewis & Clark, described the regulatory changes as really disruptive.
A legal dispute over which programs qualified as professional degrees delayed the implementation of the rules until just weeks before the start of the academic year. A federal judge blocked part of the administration's rule, allowing students in nursing, physical therapy, and similar fields to access higher loan limits for now. This delay slowed software updates and confused applicants. Dr. Robert Harrington, dean of Weill Cornell Medicine, said the school received dozens of calls from students and families trying to understand their options.
Chloe Frabotta, a 25-year-old physician assistant student in New York City, borrowed approximately $6,000 in federal loans for her first trimester and took out private loans for the remainder with her mother as a cosigner. Her program was eventually deemed professional, making her eligible for up to $50,000 annually in federal loans, but she chose to limit her federal borrowing due to uncertainty about future changes. Madison Jessen, another first-year student at Weill Cornell Medicine, used most of her savings to pay for her first semester out of pocket after the caps took effect.
Marc Schoonover, general manager of lender ELFI, said that while many groups predicted widespread loan denials, most students are finding ways to finance their education. He noted that the number of students who cannot find any option is smaller than initially feared. The administration argues the caps will force schools to evaluate their costs, and at least 40 schools have cut program prices since the limits took effect, according to the American Enterprise Institute.
