Federal Loan Caps Push Students Into Private Lending Boom

SoFi's student loan originations reached $2.9 billion in the third quarter, nearly double the figure from a year earlier, as new federal borrowing caps pushed students toward private lenders. The shift is the first hard evidence that President Donald Trump's loan limits are restructuring how America finances graduate education.

Days before SoFi's late-October report, Sallie Mae — which controls more than half the private student loan market — said its graduate loan volume was up 119% year-over-year. The numbers translate into billions of dollars migrating from a federal program with flexible repayment and public-service forgiveness after 10 years toward private contracts with fewer protections.

What did the 'Big Beautiful Bill' change?

Trump's legislation capped federal borrowing for graduate students: $200,000 for programs designated as professional degrees and $100,000 for other graduate programs. Previously, graduate students could borrow up to the full cost of their degree. New borrowers also face a lifetime cap of $257,500, and parents now face limits on what they can borrow for their children.

Jordan Matsudaira, director of the Postsecondary Education & Economics Research Center at American University, estimated that once all changes phase in, more than half a million borrowers will need an extra $20,000 per year from sources other than the federal program. The hardest-hit students, according to the center's analysis, are in expensive programs such as medicine, law and dentistry, and in high-cost-of-living states.

The administration argues the caps will curb "excessive borrowing" and force schools to reevaluate their prices, pointing to uncapped federal lending as a driver of soaring tuition. The conservative American Enterprise Institute counts at least 40 schools that have cut the cost of at least some programs since the caps took effect. Critics counter that most colleges cannot afford to cut tuition and warn the changes create new hurdles for students from poor families.

How are colleges responding?

South Carolina Student Loan reported a 400% increase in graduate student borrowing this year. The University of Kansas School of Law has entered lending itself, approving eight loans so far with more in process. Associate Dean of Admissions Steven Freedman framed the stakes bluntly: "Now, frankly, private banks get to choose who goes to law school."

Lewis & Clark College in Portland, Oregon, has seen more private loans flow through its aid office, and its graduate school of education and counseling launched a new scholarship this fall for students in financial need because of the caps. Anastacia Dillon, associate vice president for financial aid, called the changes "really disruptive." At the University of Mount Saint Vincent in the Bronx, more first-year students rely on private loans even as the school boosted need-based aid.

The market has been here before. Private lending boomed in the 1990s and early 2000s under federal loan limits, then collapsed after the Graduate PLUS program extended federal borrowing to the full cost of attendance. Critics of Graduate PLUS argue it fed high default rates by letting students borrow beyond their ability to repay.

Some observers predicted mass denials under the new caps. Marc Schoonover, general manager of lender ELFI, said that has not materialized: "What we're hearing and seeing now is that the number of students who truly can't find an option is a lot smaller than many initially feared." He spoke on a media call organized by the National Council of Higher Education Resources. The untested question is whether students who find loans can repay them.

Why are students confused?

A legal fight over which graduate programs count as "professional" — and thus qualify for higher limits — ended only days before the rule took effect. A federal judge blocked part of the administration's rule, preserving higher loan eligibility for students in nursing, physical therapy and several other fields, at least for now.

The delays slowed the software updates needed to process loans, said Kristina Ortiz Donohue, vice president for strategic enrollment and retention at Mount Saint Vincent. Sallie Mae CEO Jon Witter told investors the last-minute changes delayed financial aid packages and stretched peak lending season into October. Dr. Robert Harrington, dean of Weill Cornell Medicine, said the school fielded dozens of calls from confused students and families.

Chloe Frabotta, 25, a first-year physician assistant student in New York, borrowed only about $6,000 in federal loans for her first trimester and turned to private loans, with her mother as cosigner. Her program ultimately earned professional designation with up to $50,000 in annual federal eligibility, but she stayed cautious, fearing further changes. "At least in my circles a lot of people were like, 'I guess that's what I'm going to have to do, and I'm going to try to make it work,'" she said.

Classmate Madison Jessen drained most of her savings to pay her first semester out of pocket and said several friends abandoned PA-school plans after the caps took effect. That outcome haunts Harrington, himself a first-generation college graduate: "What we don't want to see is our programs just becoming the purview of people whose family can afford to pay that bill."

If private volume keeps compounding at the current pace, the loan caps may do less to restrain college costs than to redefine who can afford the door in the first place.