The recent changes to federal loan caps, as part of President Donald Trump’s One Big Beautiful Bill Act, have significant implications for graduate students. The new legislation eliminates the Grad PLUS federal loan program, which previously allowed graduate students to borrow up to the entire cost of their degree. Starting July 1, most 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.

Impact on Graduate Students

According to higher education expert Mark Kantrowitz, the private student loan volume may double due to the loan limit changes. This is concerning, as private lenders are likely to reject many student applicants due to their credit scores or income. Those who are approved may face more expensive borrowing terms, making repayment more difficult. Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, notes that “we cannot assume the private market will step in to fill federal loan gaps.” This reality will directly impact who can afford to enter critical professions.

Private Student Loan Market

The private student loan market is expected to experience significant growth, with several lenders, including Navient and SoFi, preparing for a greater demand for private student loans. However, consumer advocates and financial experts are worried about the potential consequences. Anna Anderson, a staff attorney at the National Consumer Law Center, says, “We’re concerned that the loans will be expensive and higher risk for borrowers.” Many private student loans come with interest rates as high as 23%, which can make repayment more challenging.

Eligibility Criteria and Interest Rates

More than 40% of Americans would likely be denied most private student loans from traditional, prime lenders due to credit and income underwriting requirements. Many lenders require a minimum credit score of 670 and an income of $35,000, which may be a difficult threshold for many young people to meet. Kantrowitz notes that private student loans are credit-underwritten, which is in contrast with federal loans, where the focus is more on college access than profitability. Interest rates on federal student loans currently range from 6.39% to 8.94%, while private student loans can have interest rates as high as 23%.

Consumer Protections and Co-Signer Requirements

The U.S. Department of Education offers income-based repayment plans and forgives federal student debt in certain circumstances, such as permanent disability or school fraud. In contrast, private student loan forgiveness is extremely rare, and only about half of private lenders discharge a borrower’s debt when they become disabled or die. Most private student loans require a co-signer, which means parents and grandparents may be taking on significant financial obligations if the student borrower defaults.

Smart Tip for Readers

When considering private student loans, it’s essential to carefully review the terms and conditions, including interest rates, repayment options, and co-signer requirements, to ensure you understand the potential risks and obligations. You can find more information on private student loans and their implications Here