By More graduate students are likely to take out private education loans after new federal loan caps were established in President Donald Trump’s One Big Beautiful Bill Act.
That prospect is worrying, consumer advocates and other financial experts say — private lenders are likely to reject many student applicants because of their credit scores or income, and those who are approved could face more expensive borrowing terms.
“We cannot assume the private market will step in to fill federal loan gaps,” said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York. “That reality will directly impact who can afford to enter critical professions.”
The legislation passed in July eliminates the Grad PLUS federal loan program, which allowed graduate students to borrow up to the entire cost of their degree. Starting July 1, for most degrees, graduate students will be able to borrow only $20,500 per year, and up to $50,000 per year for professional degrees, such as dentistry and law, according to rules finalized by the Education Department on Thursday.
The Trump administration said in January that the unrestricted borrowing led to “steep increases in graduate school tuition.”
“I estimate that private student loan volume may double due to the loan limit changes,” said higher education expert Mark Kantrowitz. Currently, students borrow roughly $10 billion a year in private student loans, Kantrowitz said.
Several lenders, including Navient and SoFi, have already disclosed in letters to Congress that they are preparing for a greater demand for private student loans.
“We’re concerned that the loans will be expensive and higher risk for borrowers,” said Anna Anderson, a staff attorney at the National Consumer Law Center.
Many may not be approved for private loans
More than 40% of Americans would likely be denied most private student loans from “traditional, prime lenders,” due to credit and income underwriting requirements, according to an analysis published in March by Protect Borrowers, a consumer advocacy group, and The Century Foundation. It analyzed the borrowing criteria of 38 private student lenders.
Many lenders required a minimum credit score of 670 and an income of $35,000, the organization found. That may be a difficult threshold for many young people who have just finished their undergraduate degree to meet. The average credit score for those in their 20s is 662, according to one analysis by Chase.
“Private student loans are credit-underwritten,” Kantrowitz said. “This is in contrast with federal loans, where the focus is more on college access than profitability.”
If grad students can’t borrow to meet the cost of attendance, some will enroll in lower-cost colleges while others will discontinue their education altogether, he said.
“The private loan market focuses on careful underwriting, and also will be innovating and working with regulators to find ways to address funding needs for more students who are going to programs that actually position them for long-term financial success,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal and private student loan servicers.
Interest rates as high as 23%
Borrowers who move to the private student loan market are likely to face high interest rates, which can make repayment more difficult. Interest rates on federal student loans currently range from 6.39% to 8.94%. For comparison, private student loans can come with interest rates as high as 23%, according to NerdWallet.
“Any time you see an interest rate that high, it’s going to be much harder to pay off that debt,” Anderson said.
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