Federal student loan caps push borrowers toward private lenders

New federal student loan limits took effect this fall, creating uncertainty for borrowers such as Chloe Frabotta, 25, who began studying in New York City to become a physician assistant. Weeks before her program started, it remained unclear whether it would qualify as a professional program with higher borrowing limits.

Frabotta borrowed about $6,000 in federal loans for her first trimester and took out private loans for the remainder, with her mother serving as cosigner. She said many people in her circle felt they had little choice but to follow the same path.

“At least in my circles a lot of people were like, I guess that’s what I’m going to have to do, and I’m going to try to make it work.”

Students are increasingly using private lenders to cover the gap between program costs and federal borrowing limits. Federal loans generally offer more flexible repayment terms, possible forgiveness after ten years in public service, and often lower interest rates.

The shift is visible in bank results. SoFi reported that student loan originations reached $2.9 billion in the third quarter, nearly doubling from a year earlier. Sallie Mae, which controls more than half of the private student loan market, said graduate loans rose 119 percent year-over-year.

President Donald Trump’s “Big Beautiful Bill” established the new caps. Professional degree programs face a federal limit of $200,000, while other graduate programs are capped at $100,000. Previously, graduate students could borrow up to the full cost of their degree.

New borrowers now face an overall lifetime borrowing cap of $257,500, along with limits on parent borrowing for their children’s schooling. Once fully phased in, more than half a million borrowers will need an additional $20,000 per year from sources outside the federal loan program.