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By Suzanne Blake
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New federal student loan limits enacted under President Donald Trump are reshaping how Americans pay for graduate school, and some borrowers are increasingly turning to private lenders because federal aid no longer covers the bill.
The new loan caps, which took effect on July 1, and the elimination of new Graduate PLUS loans have put more pressure on graduate and professional students. Now, graduate students can generally borrow up to $20,500 annually and $100,000 over their lifetime, while students considered to be enrolled in professional programs can borrow up to $50,000 per year and $200,000 altogether.
The Department of Education has framed the limits as a way to discourage overborrowing and put pressure on schools to rein in tuition. However, the immediate effect for students attending programs that cost more than the new caps is a lack of funding. Private lenders are often their only other option.
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“Private lenders can pick and choose who borrows money, leaving a segment of the market without access to loans,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. “I do see this increasing as the government continues to reduce the amount people can access. If rates continue to rise, this could become a terrible situation for borrowers once they graduate.”
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Why It Matters
Private student loans are not simply a substitute for federal loans.
While federal student loans come with borrower protections and repayment options established by federal law, private student loans are merely consumer credit products, and their interest rates and approval conditions depend significantly on a borrower's or co-signer's creditworthiness.
A graduate student with strong credit, a qualified co-signer and high expected earnings might qualify for an attractive private loan, but another student facing exactly the same tuition bill could receive a higher rate or fail to qualify altogether.
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What to Know
The Department of Education said its new policy is intended to address excessive borrowing and ultimately put downward pressure on college costs.
In announcing its rulemaking, the department said the caps would "incentivize institutions to reduce tuition and fees" and prevent students from taking on unmanageable debt.
“For years, American families have rightfully been concerned about the escalating cost of higher education, the long-term—and often negative—effects of student loan debt, and how their postsecondary education translates into real-world jobs and higher wages. President Trump’s Working Families Tax Cuts Act offers a once-in-a-generation opportunity to lower tuition costs and improve the student loan system to better support borrowers," Under Secretary of Education Nicholas Kent said in a statement.
The aftermath of the new rules has been that student borrowers increasingly turning to private lenders, however.
Sallie Mae reported a record $3.4 billion in private education loan originations during the third quarter of 2026, 15 percent higher than a year earlier. Graduate loan originations reached roughly $1.4 billion, up 119 percent year over year, according to the company's earnings.
"We're encouraged by the significant growth in graduate student lending following changes to federal student loan programs," Jonathan Witter, the CEO of Sallie Mae, said in the company's third-quarter results.
What Changed With Student Loan Limits?
Previously, eligible graduate students could generally take out up to $20,500 annually through Direct Unsubsidized Loans and then use Graduate PLUS loans to cover remaining eligible costs up to the school's cost of attendance.
But for new borrowers beginning July 1, 2026, Graduate PLUS is no longer available. Instead, federal borrowing is subject to the new limits:
- Graduate students: $20,500 annually and $100,000 in aggregate federal graduate borrowing.
- Professional students: $50,000 annually and $200,000 in aggregate borrowing under the applicable limits.
The distinction between a "graduate" and "professional" program matters significantly. A student in an expensive program classified as graduate rather than professional can access considerably less federal financing.
“The new federal student loan limits are creating significant financial challenges for Americans pursuing graduate and professional degrees, with researchers estimating that more than half a million borrowers could eventually need an additional $20,000 annually from other sources, particularly students entering expensive fields like medicine, law, and dentistry,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
Private Student Lending Is Already Growing
Private lenders had been preparing for the federal changes, and Sallie Mae directly linked its recent financial performance to the changes in Washington.
SoFi also reported $2.9 billion in student loan originations during the third quarter, nearly double the roughly $1.5 billion recorded a year earlier.
“These restrictions were enacted to discourage excessive borrowing and pressure universities to control rising tuition costs, but we're already seeing an unintended consequence as students increasingly turn to private lenders and potentially face higher interest rates,” Beene said.
“While private lending can offer students additional financing options, the concern is that access to higher education could become increasingly dependent on a student's credit history or family income rather than academic ability.”
What Does This Mean for Student Loan Borrowers?
For students beginning expensive graduate programs, calculating the financing around their education has become considerably more important.
For a student in a graduate program with a $45,000 annual cost of attendance, someone eligible for only $20,500 in new federal loans could potentially face a $24,500 yearly shortfall without any other scholarships or personal and family savings.
Previously, that borrower might have been able to finance much of the remaining eligible cost through Grad PLUS.
“I understand the thinking behind the federal limits. Letting universities charge enormous tuition bills while students borrow virtually unlimited amounts wasn't exactly a great system either. But putting a cap on borrowing doesn't automatically make the education cost less,” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek.
“A student who's $25,000 short still needs that $25,000. Now they may have to borrow privately, find a cosigner, or give up on the degree.”
What Happens Next
The long-term impact of higher rates of private lending could carry significant consequences for borrowers if they find them in unforeseen circumstances, Ryan said.
“I'd worry a lot more about what happens if that graduate loses their job, becomes disabled, or earns far less than expected,” he said. “Private loans generally don't have the same income-based repayment and forgiveness protections as federal loans.”
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here.
Contact Newsweek editors on this story: Jason Lemon and Dave Siminoff.
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