New federal loan caps push graduate students toward private lenders

As of 7:39 p.m. ET, Monday, Nov. 9, 2026

Graduate students facing new limits on federal student loans are turning to private lenders to cover the gap, and the largest private lenders say their graduate lending has jumped, The Associated Press reported.

What the law changed

The 2025 tax-and-spending law, Public Law 119-21, rewrote federal student loan limits starting July 1, 2026, according to the amended statute, 20 U.S.C. § 1087e.

Graduate and professional students can no longer receive federal Direct PLUS loans for periods of instruction beginning on or after July 1, 2026. Previously, graduate students had been able to borrow federally up to the full cost of their degree, the AP reported.

Graduate students who are not in professional programs may borrow up to $20,500 a year in Direct Unsubsidized loans, with a $100,000 aggregate limit for graduate study. Professional students may borrow up to $50,000 a year, with a $200,000 aggregate limit.

A lifetime limit of $257,500 applies to all federal student loans a student borrows, not counting Parent PLUS loans. Parent PLUS borrowing is now capped at $20,000 a year and $65,000 in total per dependent student.

Students who were already enrolled and had received a federal loan for their program as of June 30, 2026, can keep borrowing under the old rules for a limited period, the statute says.

Lenders report a surge

Sallie Mae said in its third-quarter results on Oct. 22 that its private education loan originations rose 15% from a year earlier to $3.4 billion, "including 119% growth in Graduate Loan originations during the first academic year following PLUS reform." Sallie Mae controls more than half of the private student loan market, the AP reported.

SoFi said in its third-quarter results that student loan volume reached $2.9 billion, up 96% from a year earlier, the highest quarter of student loan originations in its history.

At South Carolina Student Loan, graduate borrowing increased 400% this year, and the University of Kansas law school has begun making its own loans, the AP reported. "Now, frankly, private banks get to choose who goes to law school," Steven Freedman, the law school's associate dean of admissions, told the AP.

Federal loans offer more flexible repayment, the possibility of forgiveness after 10 years in public service and, for many borrowers, lower interest rates, the AP noted.

Supporters and critics

The Trump administration has argued the limits will curb "excessive borrowing" and push schools to evaluate their costs, the AP reported. At least 40 schools have cut the cost of at least some programs since the caps took effect, according to the American Enterprise Institute, as cited by the AP.

Critics say most colleges cannot afford to lower tuition and that the changes will add hurdles for students from low-income families, the AP reported. When the changes are fully phased in, more than half a million borrowers will need to borrow an extra $20,000 a year outside the federal program, estimated Jordan Matsudaira, director of American University's Postsecondary Education & Economics Research Center, according to the AP.

A legal fight over which graduate programs count as "professional," and so qualify for the higher limits, lasted until days before the new rule took effect, the AP reported. Students in nursing, physical therapy and several other fields were deemed eligible for the higher limits, at least for now, after a federal judge blocked part of an administration rule, according to the AP.