New limits on federal student loans are steering many borrowers toward
private lenders
[November 06, 2026] By
HEATHER HOLLINGSWORTH and ALI SWENSON
NEW YORK (AP) — New limits on federal student loans filled Chloe
Frabotta with anxiety as she began studying in New York City to become a
physician assistant.
The changes that took effect this fall include caps on loans for
particular programs as well as limits on the amount parents can borrow
to pay for their children’s schooling. Up until weeks before Frabotta,
25, started her program, it was up in the air whether it would count as
a “professional” program with higher loan limits.
Amid the uncertainty, she borrowed around $6,000 in federal loans for
her first trimester, taking out private loans for the rest with her
mother as a cosigner.
“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,’”
Frabotta said.
Students have been turning to private lenders to make up the difference
between the cost of their educational programs and the amount they can
borrow from the federal government, which offers more flexible repayment
terms, the possibility of forgiveness after 10 years in public service,
and — for many — lower interest rates.
It's showing up in banks' bottom lines. Private lender SoFi reported in
late October that student loan originations hit $2.9 billion in the
third quarter, nearly doubling from a year earlier. Days earlier, Sallie
Mae, which controls more than half of the private student loan market,
said graduate loans were up 119% year-over-year.
Trump’s ‘Big Beautiful Bill’ put new caps on student loans
President Donald Trump's “Big Beautiful Bill” slashed the amount new
graduate students can borrow. Programs designated as professional
degrees face federal student loan caps of $200,000, while other graduate
programs are capped at $100,000. Previously, graduate students had been
able to take out federal loans up to the full cost of their degree.
For new borrowers, the changes include an overall lifetime borrowing cap
of $257,500 and limits to the amount parents can borrow to pay for their
children’s schooling.
When all the changes are fully phased in, more than half a million
borrowers are going to need to borrow an extra $20,000 a year from
somewhere other than the federal loan program, estimated Jordan
Matsudaira, the director of the Postsecondary Education & Economics
Research Center at American University. The hardest-hit students are in
expensive programs like medicine, law and dentistry and states with a
high cost of living, an analysis by the center found.
The Trump administration has argued the new limits will curb “excessive
borrowing” and force schools to evaluate their costs, describing
uncapped access to federal student loans as a driver of the soaring cost
of college. Since the loan caps took effect, at least 40 schools have
cut the cost of at least some of their programs, according to the
conservative American Enterprise Institute.
But critics say most colleges cannot afford to lower tuition and have
raised concerns that the changes will add new hurdles for students from
poor families in particular.
Colleges are stepping in to help
At South Carolina Student Loan, graduate student borrowing increased
400% this year as it rolled out more options to help students. Some
schools, like the law school at the University of Kansas, got into the
lending game, too. So far, it has approved eight loans, with more in
process.
Steven Freedman, associate dean of admissions at the University of
Kansas School of Law, said the loans are important to help provide
access to all students.
“Now, frankly, private banks get to choose who goes to law school,” he
said.
At Lewis & Clark College, a private liberal arts school in Portland,
Oregon, the student aid office has been seeing more private student
loans. Its graduate school of education and counseling also began
offering a new scholarship this fall for students in financial need
because of the loan caps.
Anastacia Dillon, associate vice president for financial aid, described
the changes as “really disruptive.”
At the University of Mount Saint Vincent in the Bronx, more first-year
students are relying on private loans, even as the school boosted aid to
students in financial need.
[to top of second column] |
President Donald Trump signs his signature bill of tax breaks and
spending cuts at the White House, July 4, 2025, in Washington,
surrounded by members of Congress. (AP Photo/Julia Demaree Nikhinson,
File)
 The private loan market boomed in
the 1990s and early 2000s during an era of loan limits. After
Graduate PLUS, a federal program, extended how much students could
borrow up to the full cost of attendance, private lending began to
collapse. But critics argue that Graduate PLUS ushered in new
problems, contributing to high default rates because students were
borrowing more than they could repay.
Some groups predicted the new loan caps could lead to large numbers
of borrowers being denied loans from traditional lenders. But
students on the whole appear to be finding ways to finance their
education, even if they are turning more to private lenders, said
Marc Schoonover, general manager of the lender ELFI.
“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,” Schoonover said during a media call organized by the
National Council of Higher Education Resources.
Students struggle to understand changes
A legal fight over which graduate programs would be deemed
professional — and therefore eligible for larger loans — extended
until just days before the new rule was set to take effect.
Ultimately, students pursuing graduate degrees in nursing, physical
therapy and several other fields were deemed eligible to take out
higher federal student loan amounts — at least for now — after a
federal judge blocked part of a Trump administration rule that held
them to lower limits.
But that slowed software updates needed to process loans, said
Kristina Ortiz Donohue, vice president for strategic enrollment and
retention at the University of Mount Saint Vincent.
The last-minute changes also caused schools to delay delivering
financial aid packages, Jon Witter, the CEO of Sallie Mae, said on
an earnings call with investors. He said the peak lending season
extended into October as a result.
Dr. Robert Harrington, dean of Weill Cornell Medicine and provost
for medical affairs of Cornell University, said the school received
dozens of calls from confused students and their families.
Frabotta’s physician assistant program was ultimately deemed
professional and eligible for up to $50,000 annually in federal
loans. But she decided to borrow just a fraction of that from the
federal loan program, fearful of other changes that might be in
store.
Before returning to school, she earned a bachelor’s degree from
Boston College and worked as a medical assistant in a dermatology
practice.
“This is what I want to do, so if this is the means of how I get
there, then if I have to sacrifice at some point,” she said.
Madison Jessen, another first-year Weill Cornell Medicine physician
assistant student, said the uncertainty around loan caps prompted
her to use most of her savings to pay for her first semester out of
pocket. Jessen said she has several younger friends who had planned
to go to PA school but pivoted when the loan caps took effect.
That's Harrington's biggest fear.
“What we don’t want to see," said Harrington, himself a
first-generation college graduate, "is our programs just becoming
the purview of people whose family can afford to pay that bill.”
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