SoFi and Sallie Mae report surge as federal caps push borrowers to private loans

Private student lenders are seeing a sharp rise in new accounts as federal borrowing limits force graduate students to seek alternative funding. This shift is straining budgets for families and altering the financial landscape of higher education.

The federal government imposed new caps on student loans this fall. These restrictions limit the amount graduate students can borrow from the government. They also restrict the amount parents can borrow on behalf of their children. The changes stem from the legislative package known as the Big Beautiful Bill. Under the new rules, programs designated as professional degrees face a federal loan cap of $200,000. Other graduate programs are capped at $100,000. Previously, graduate students could borrow federal loans up to the full cost of their degree.

Lenders are reporting a spike in originations. SoFi stated that student loan originations reached $2.9 billion in the third quarter. This figure is nearly double the amount reported a year earlier. Sallie Mae, which holds more than half of the private student loan market, said graduate loans rose 119% year-over-year. At South Carolina Student Loan, graduate student borrowing increased 400% this year. The institution rolled out more options to assist students during this period.

Experts estimate that more than 500,000 borrowers will need to secure an additional $20,000 annually from non-federal sources once the changes are fully phased in. Jordan Matsudaira, director of the Postsecondary Education and Economics Research Center at American University, provided this estimate. The analysis indicates that students in expensive fields such as medicine, law, and dentistry are the most affected. The same is true for students in states with a high cost of living.

Schools are stepping in to bridge the financial gap. The law school at the University of Kansas has approved eight private loans so far, with more in process. Steven Freedman, associate dean of admissions at the school, noted that private banks are now determining who can attend. At Lewis and Clark College in Portland, Oregon, the student aid office is seeing a higher volume of private loans. The school also introduced a new scholarship this fall for graduate students in financial need. Anastacia Dillon, associate vice president for financial aid at the college, described the changes as really disruptive.

The administration argues that the new limits will curb excessive borrowing and force schools to evaluate their costs. Since the caps took effect, at least 40 schools have reduced the cost of some programs, according to the American Enterprise Institute. Critics contend that most colleges cannot lower tuition. They argue the changes will create new hurdles for students from poor families.

Chloe Frabotta, a 25-year-old physician assistant student in New York City, borrowed about $6,000 in federal loans for her first trimester. She took out private loans for the remainder, with her mother as a cosigner. Frabotta said she felt anxiety due to uncertainty about whether her program would be classified as professional. Her program was later deemed eligible for up to $50,000 annually in federal loans, but she chose to borrow less from the federal program. She feared further changes might occur.

A legal dispute over which programs qualify for higher limits caused delays. A federal judge blocked part of a rule that held nursing and physical therapy programs to lower limits. This slowed software updates needed to process loans. Kristina Ortiz Donohue, vice president for strategic enrollment and retention at the University of Mount Saint Vincent, said the delays affected financial aid delivery. Jon Witter, CEO of Sallie Mae, stated that the peak lending season extended into October because of the last-minute changes.

Dr. Robert Harrington, dean of Weill Cornell Medicine, said the school received dozens of calls from confused students and families. Harrington, a first-generation college graduate, expressed concern that programs might become accessible only to those whose families can afford the costs. Madison Jessen, a first-year student at Weill Cornell, used most of her savings to pay for her first semester. She noted that several younger friends pivoted their plans when the caps took effect.

Marc Schoonover, general manager of the lender ELFI, said the number of students who cannot find any option is smaller than initially feared. He made this comment during a media call organized by the National Council of Higher Education Resources. The private loan market had boomed in the 1990s and early 2000s during an era of loan limits. It collapsed when the Graduate PLUS program extended federal borrowing access. Critics argue that program contributed to high default rates because students borrowed more than they could repay.