New limits on federal student loans are steering many borrowers toward private lenders

New limits on federal student loans have pushed many borrowers towards private lenders, according to recent reports. Chloe Frabotta, a 25-year-old studying to become a physician assistant in New York City, noticed anxiety as she started her program, fearing it might not meet the federal loan eligibility criteria.

The new limits, implemented this fall, include caps on loans for specific programs and restrictions on the amount parents can borrow to cover their children's education. Previously, graduate students could borrow up to the full cost of their degree, but now face a lifetime borrowing cap of $257,500 and a $200,000 cap for professional degree programs.

This has led many students to turn to private lenders to fill the gap between their educational expenses and the federal loan limits. SoFi, a private lender, reported student loan originations of $2.9 billion in the third quarter, nearly doubling from the previous year. Sallie Mae, controlling over half of the private student loan market, saw a 119% increase in graduate loans year-over-year.

The changes, introduced under President Donald Trump's "Big Beautiful Bill," aim to curb "excessive borrowing" and force schools to evaluate their costs, although critics argue most colleges cannot afford to lower tuition. As a result, students from poorer families may face new hurdles. Some schools, like the University of Kansas School of Law, have started offering private loans to provide access to more students.

However, the private loan market has seen a resurgence since the 1990s, with critics expressing concerns about potential high default rates due to students borrowing more than they can repay.