Federal loan caps push Bucks County students toward private lenders

New restrictions on federal student loans are driving more graduate students to seek private funding for their education. The changes, which took effect this fall, cap the amount of money students can borrow from the government for specific programs. These limits also restrict the amount parents can borrow to help pay for their children’s schooling. As a result, many borrowers are turning to private banks to cover the difference between the cost of their programs and their federal borrowing limits.

Chloe Frabotta, 25, began a physician assistant program in New York City this fall. She borrowed approximately $6,000 in federal loans for her first trimester. For the remainder of her costs, she secured private loans with her mother as a cosigner. Frabotta said many in her peer group accepted the shift to private lending as a necessary step to continue their studies.

The new rules limit federal borrowing for professional degree programs to $200,000 and other graduate programs to $100,000. Previously, graduate students could borrow federal loans up to the full cost of their degree. New borrowers also face an overall lifetime borrowing cap of $257,500. Jordan Matsudaira, director of the Postsecondary Education & Economics Research Center at American University, estimates that more than 500,000 borrowers will need to secure an additional $20,000 annually from sources other than the federal program.

Private lenders are seeing a sharp increase in business. SoFi reported that student loan originations reached $2.9 billion in the third quarter, nearly doubling from the same period a year earlier. Sallie Mae, which controls over half of the private student loan market, stated that graduate loans rose 119% year-over-year. At South Carolina Student Loan, graduate student borrowing increased by 400% this year as the institution expanded its options for students.

Some universities have begun offering their own lending solutions to assist students. The University of Kansas School Law has approved eight private loans so far, with more in process. Steven Freedman, associate dean of admissions at the university, said these loans are essential for maintaining access for all students. He noted that private banks now have a significant role in determining who can attend law school.

The administration argued that the new limits would curb excessive borrowing and prompt 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, however, contend that many colleges cannot lower tuition and worry that the changes will create barriers for students from lower-income families.

A legal dispute over which programs qualified as professional degrees delayed the full implementation of the new rules. A federal judge recently blocked part of a rule that held certain fields to lower limits. This allowed students in nursing, physical therapy, and other fields to access higher federal loan amounts. However, the delay caused software updates to slow down, which in turn delayed the delivery of financial aid packages at several institutions.

At Weill Cornell Medicine, Dean Robert Harrington said the school received numerous calls from confused students and families. He expressed concern that the program might become accessible only to those whose families can afford to pay out of pocket. Madison Jessen, a first-year student at the same institution, used most of her savings to pay for her first semester. She said several younger friends had planned to enter physician assistant programs but changed their plans when the loan caps were announced.