Student Loan Caps Push Borrowers Toward Private Lenders - Crypto Solutions Await

Federal loan limits squeeze students into private debt markets

The Education Dilemma

The Private Loan Surge

Financial Innovation Gap

The system keeps creating problems that decentralized solutions could solve - if only regulators would stop protecting the very institutions that fail students.

KEY TAKEAWAYS

• The "One Big, Beautiful Bill" will restrict the amount of federal student loans available to college students next year. Students may have to take out riskier private loans to cover the rest of their schooling.
• The average medical graduate student will not be able to take out enough federal loans for the cost of their school and will likely have to take out tens of thousands of dollars in private loans.
• Some families who take out Parent PLUS loans will have to use private loans, which typically have higher interest rates and will cost them almost $5,000 more in interest during repayment.

Borrowers will be restricted in the amount of federal student loans they can take out, which could lead to more students—especially those pursuing a medical degree—taking out private loans.

The "One Big, Beautiful Bill" generally lowers the amount of federal money that college students can borrow starting in the 2026-27 academic year. Students may need to bridge the gap between the amount of money they can borrow and the cost of school.

Some advocates and experts say borrowers will be forced to take out private loans to cover the costs.

Why This Matters to You

Private student loans can be harder to pay off as they do not qualify for federal forgiveness programs, and the companies that offer them have proportionally more complaints than federal loan servicers. Many private loans also have higher interest rates than their federal counterparts, making repayment more expensive.

“Proponents of these lending caps argue that by limiting federal aid, schools will be forced to lower decades-worth of price hikes. However, data has shown that this is simply not the case," Aissa Canchola Bañez, policy director at Protect Borrowers, a loan borrower advocacy group, said in a Senate hearing last week. "Instead, students and families will be simply pushed into more expensive, riskier, predatory, private student loan debt."

Medical Students Will Be Hit The Hardest

Congress's "One Big, Beautiful Bill" lowers the existing $138,500 aggregate loan limit for non-professional graduate students to $100,000. According to the most recent National Center for Education Statistics report, the average non-professional borrower with a master's degree holds $80,550 in student debt after adjusting for inflation.

The bill did increase the cap for graduate students pursuing a "professional" degree, such as medical and law students. Professional graduate students will be able to take up to $200,000 in student loans over their educational career.

However, the increased cap for professional students still won't be enough to cover the average cost of medical school. The average student who completed medical school holds $232,100 in student debt, according to the NCES.

Previously, graduate students could take out Grad PLUS loans to cover the remainder of their cost of attendance, but since the bill eliminated this loan program after July 1, 2026, advocates say more medical students will have to use private loans.

Private loans will end up costing students far more in interest. For example, Federal Student Aid set the interest rate for a Grad PLUS loan during the 2025-26 academic year at 8.94%. Comparatively, the interest rate for private student loans varies, ranging as high as 17.88%, according to loan marketplace Credible.

Limited Parent PLUS Loans May Push More Families To Private Loans For Undergraduate Degrees

The bill also introduces an annual limit on Parent PLUS loans, which parents use to help their undergraduate students afford college. Previously, the limit was set at the cost of attendance at the student's school, but starting next year, parents can only take out $20,000 a year.

Parent PLUS loans will also have an aggregate cap of $65,000, which most parents will not reach. However, 17.1% of Parent PLUS borrowers in 2020 borrowed more $65,000, according to the NCES.

Related Education

The bill also allows higher education institutions to restrict the amount of federal loans their students can take if they deem their degree program more likely to default once they graduate. Some students in fields like education or public service may be limited in the amount of loans they can take out, but experts say it is unlikely to affect a large number of students.