New Federal Student Loan Caps: A Game-Changer for Private Lenders

What You Need to Know About the “Big Beautiful Bill” and Emerging Opportunities in Graduate Lending

With the passage of President Trump’s sweeping tax and spending package, the “Big Beautiful Bill,” the federal student loan system has entered a new era. While much public attention has focused on increased borrowing challenges for graduate and professional students, these restrictions open the door to a fast growing opportunity for private lenders.

Federal Loan Caps: A Shrinking Safety Net for Graduate Students

The bill eliminates the federal Graduate PLUS loan program for new borrowers beginning July 1, 2026. It also imposes strict new borrowing caps. Graduate students are limited to borrowing $20,500 per year, up to a $100,000 lifetime cap. Professional students, including those pursuing law, medicine, or dentistry, face a higher annual limit of $50,000 and a lifetime limit of $200,000. Additionally, the total cap on federal student borrowing, including undergraduate loans, is now set at $257,000.

These new limits fall far short of actual educational costs. The average cost of attending law school is approximately $217,000. Private medical schools often exceed $400,000 in total cost. Dental and veterinary programs regularly surpass $300,000. As a result, students in these fields face significant financing gaps. This shift in policy affects not only future students, but also the financial strategies of families, universities, and private lenders. Students currently enrolled in programs may continue under the old rules until the 2028 academic year, depending on their enrollment status.

Why Private Student Lending is Booming

The demand for private student loans is rapidly increasing. With federal aid no longer sufficient to cover full tuition, especially in high cost graduate and professional programs, private lenders are stepping in to meet the need. Students pursuing professional degrees still require significant funding, and private options may now be their only viable path.

These borrowers are typically considered low risk. They often have high credit scores, established financial co-signers, and strong future earning potential. This combination makes them an attractive borrower segment.

At the same time, the elimination of flexible federal repayment programs, such as Graduate PLUS and the Saving on a Valuable Education (SAVE) plan, creates a vacuum that private lenders can fill with innovative, borrower friendly repayment structures. Options such as fixed rate plans, outcome based pricing, and deferment programs tailored to early career professionals are becoming increasingly attractive.

Institutional investors and financial technology platforms are also showing interest in this space. Student lending is viewed as a stable, recurring revenue asset class. The timing is favorable for new entrants to establish a foothold before the market matures under the new regulatory regime.

Building a Private Student Loan Program

Launching a private student loan program involves more than providing capital. A successful offering requires a carefully structured framework that addresses compliance, operational soundness, and borrower expectations.

Programs must be designed with clear eligibility criteria, transparent terms, and enforceable documentation such as promissory notes and co-signer agreements. Strong servicing practices, repayment structures, and communication policies are also critical for long term sustainability. In addition, lenders must account for state licensing rules, consumer protection laws, and ongoing data security obligations that apply across jurisdictions.

The ability to design flexible yet compliant programs will be essential as more borrowers turn to private financing to fill the gaps left by shrinking federal aid.

Legal and Regulatory Considerations

Private student lenders face a range of regulatory challenges that must be addressed early in program design. State by state licensing and servicing requirements can be complex, and compliance with federal statutes such as the Truth in Lending Act (TILA), Gramm Leach Bliley Act (GLBA), and Family Educational Rights and Privacy Act (FERPA) is essential.

Consumer protection is another priority. Loan agreements and borrower communications must withstand scrutiny under Unfair or Deceptive Acts or Practices (UDAP), Unfair, Deceptive, or Abusive Acts or Practices (UDAAP), and fair lending standards. Lenders also need clear, enforceable default provisions and collections workflows that reduce litigation risk.

Cybersecurity and data privacy are increasingly important as student lending platforms integrate with fintech providers. Vendors must be carefully managed, and lenders should be prepared with breach notification plans and ongoing compliance programs that protect sensitive borrower information.

Protecting Your Business

The elimination of Graduate PLUS loans and the introduction of strict federal borrowing caps create both a challenge for students and a unique market opening for lenders. Institutions, investors, and originators who act quickly can shape a new student lending ecosystem that fills critical funding gaps while remaining compliant and profitable.

Jimerson Birr works with private lenders at every stage of this process, from program design and compliance to servicing, collections, and litigation defense. If you are considering launching or expanding a student lending program, contact Jimerson Birr today to start structuring your solution.