The road map for families paying for higher education used to read something like this: Step one, save if you can. Step two, apply for aid and hope the schools will help.
Step three, borrow money from the federal government, up to the total cost of attending, if you’re sure that is prudent and can’t pay the cost out of current income.
Now, step three is changing, thanks to President Trump’s domestic policy bill. Starting July 1, 2026, the federal government will add new limits to what many people can borrow for college and graduate school.
Parents will be able to borrow only $20,000 per year, or $65,000 total per student, from the federal Parent PLUS program. Graduate students will have a $20,500 annual cap on their federal loans and a $100,000 total limit in most instances, not including their undergraduate debt. And professional schools — medical, law and the like — will generally have a cap of $50,000 per year and a $200,000 total limit.
High-priced professional schools, particularly those training doctors, veterinarians and dentists, can cost much more than the $200,000 cap. Even at some undergraduate institutions, the average PLUS-loan debt is currently higher than $65,000.
That creates an opportunity for so-called private student loan lenders that could add up to billions of dollars. The question is whether they will jump in — and do so fairly, with interest rates and terms that are not outrageous.
The federal government has minimal underwriting standards for student loans, while private lenders reject lots of people. So will those private loan companies step in on the margins to help aspiring social workers who need, say, $10,000 beyond the federal limit for a master’s degree or future primary care doctors who need another $100,000?
We’re only days into writing the new playbook, but I asked private lenders, former private lenders and policy experts for their takes. Here’s what they told me:
Now that we have federal loan caps, which of these four things will happen first: Schools lowering prices, schools providing more aid, private lenders stepping in or schools engaging in some kind of risk-sharing where they have more skin in the game if people can’t repay their debt?
Ian Brady, co-founder of SoFi, a private student lender: I think tuition is more likely to go down as opposed to schools co-partnering on loans to pay higher tuition.
Scott Patterson, president and chief executive, CU Student Choice, which works with credit unions to offer student loans: Schools don’t want to do risk-sharing unless they have to.
Beth Akers, senior fellow, American Enterprise Institute, co-author of a 2024 report on the private student loan industry: Lowering prices and providing more aid are really the same thing. Which of those two they do, I couldn’t care less. It’s just a game they are playing.
What are traditional student lenders really bad at?
Preston Cooper, senior fellow, American Enterprise Institute, co-author with Dr. Akers of the private student loan report: There are some that are stuck in past methods of underwriting, with an overreliance on credit scores. Lots of them will just look for a credit-worthy co-signer, which is not the most economically optimal thing to do. We want them to look at what kind of program a student is considering and whether they will get a return on investment on that.
Mr. Patterson: Most private loans are one lump sum, each academic year. Not only do you graduate with multiple loans, but it can lead to rushed decisions, where you’re forced to guess what your needs will be. We offer a line of credit, which helps to avoid overborrowing. You apply for it once and tap it when needed, or never.
It sounds like we should probably expect more private student loan companies to target smaller and smaller groups of potential borrowers — by school or program or some other way. Is this happening, and are there legal restrictions on doing it?
Mr. Patterson: We do have nonapproved schools. Students there have had very high cohort default rates on their loans.
Joe DePaulo, co-founder and chief executive, College Ave, a private student lender: You can say no to a school or program. So we will review a school’s programs and, depending on the types of programs and number of students and the outcomes of those programs, then decide whether to lend at that school or not.
What you cannot do is make a decision about a loan application, or price an approved application higher based on the school or major of the student.
So there is concern about so-called disparate impact, where you may be discriminating against those who go to a school where people pay higher interest rates. What do we know about how lenders use data to push the envelope, whether to cherry pick the best risks or to try to find new ways of saying yes to more students?
Dr. Akers: It’s a solidly gray area. If this were not such a politically charged sector, I think we would see lending institutions messing around and taking chances. But there’s this track record of hostility that makes people wary.
President Trump has issued an executive order on disparate impact. But he didn’t mention student lending specifically, so it feels like inadequate cover.
Mr. Brady: I’m wondering whether the government even has the resources these days to go after companies that are innovating, to try to ensure fairness. Or, to flip it, will they look at the schools themselves providing opportunities to enroll, without the ability to provide the return on investment?
If schools are worried but can’t lower their costs and then their prices (or don’t want to), they could try sharing financial risk or responsibility with outside entities. Could that work?
Mr. DePaulo: It’s logical. Schools have better information than we have and could make decisions based on that better intelligence.
There are many ways to do it. Schools could agree to cover everything above X percent of losses. Or, if losses are more than X dollars, they would reimburse the lender for anything beyond that.
Mr. Patterson, pointing to past scandals involving schools steering students to certain lenders: I would think schools would have to feel like they had no other options in the marketplace that adequately address students’ needs before promoting a specific lender’s product.
It still seems like some borrowers — especially low-income ones going into lower-paying careers — might get shut out if private lenders won’t loan them money beyond what the federal government will. What about them?
Mr. Cooper: You could take some of the financial aid budget and put it into subsidized loan products.
Ms. Akers: In instances where the private sector is not willing to make a loan, that suggests that a person would be taking an inappropriate amount of risk. I’d rather see philanthropic funding for those cases if we feel like something is worthy of public investment.
Ron Lieber has been the Your Money columnist since 2008 and has written five books, most recently “The Price You Pay for College.”
The post Parents and Graduate Students Have New Loan Limits. Who Will Fill the Gap? appeared first on New York Times.
