The private student loan industry is projected to expand, after President Donald Trump’s One Large Beautiful Bill Act established latest borrowing limits on federal education loans for graduate students.

The Education Department finalized details of those caps on Thursday.

Private lenders will likely reject many student applicants because of their credit scores or income, and those who are approved could face more expensive borrowing terms, consumer advocates say.

“We cannot assume the private economy will step in to fill federal loan gaps,” noted Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in Updated York.

More graduate students are likely to take out private education loans after updated federal loan caps were established in President Donald Trump’s One Significant Beautiful Bill Act.

That prospect is worrying, consumer advocates and other financial experts say — private lenders are likely to reject many student applicants because of their credit scores or income, and those who are approved could face more expensive borrowing terms.

“We cannot assume the private economy will step in to fill federal loan gaps,” remarked Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in Latest York. “That reality will directly impact who can afford to enter critical professions.”

The legislation passed in July eliminates the Grad PLUS federal loan program, which allowed graduate students to borrow up to the entire cost of their degree. Starting July 1, for most degrees, graduate students will be able to borrow only $20,500 per year, and up to $50,000 per year for professional degrees, such as dentistry and law, according to rules finalized by the Education Department on Thursday.

The Trump administration stated in January that the unrestricted borrowing led to “steep increases in graduate school tuition.”

“I estimate that private student loan volume may double due to the loan limit changes,” remarked higher education expert Mark Kantrowitz. Currently, students borrow roughly $10 billion a year in private student loans, Kantrowitz noted.

Several lenders, including Navient and SoFi, have already disclosed in letters to Congress that they are preparing for a greater demand for private student loans.

“We’re concerned that the loans will be expensive and higher risk for borrowers,” noted Anna Anderson, a staff attorney at the National Consumer Law Center.

Many may not be approved for private loans

More than 40% of Americans would likely be denied most private student loans from “traditional, prime lenders,” due to credit and income underwriting requirements, a consumer advocacy group, and The Century Foundation. It analyzed the borrowing criteria of 38 private student lenders.

Many lenders required a minimum credit score of 670 and an income of , according to an analysis published in March by Protect Borrowers$35,000, the organization found. That may be a difficult threshold for many young citizens who have just finished their undergraduate degree to meet. The average credit score for those in their 20s is 662, according to one analysis by Chase.

“Private student loans are credit-underwritten,” Kantrowitz commented. “This is in contrast with federal loans, where the focus is more on college access than profitability.”

If grad students can’t borrow to meet the cost of attendance, some will enroll in lower-cost colleges while others will discontinue their education altogether, he commented.

“The private loan sector focuses on careful underwriting, and also will be innovating and working with regulators to find ways to address funding needs for more students who are going to programs that actually position them for long-term financial success,” commented Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal and private student loan servicers.

Interest rates as high as 23%

Borrowers who move to the private student loan industry are likely to face high interest rates, which can create repayment more difficult. Interest rates on federal student loans currently range from 6.39% to 8.94%. For comparison, private student loans can come with interest rates as high as 23%, according to NerdWallet.

“Any time you see an interest rate that high, it’s going to be much harder to pay off that debt,” Anderson commented.

Kantrowitz provided an example: A $10,000 private loan at 16% interest would result in a $147 monthly payment over 15 years. The federal student loan equivalent would lead to a $96 monthly payment. While the borrower with private loans would pay a total of $26,437, the federal loan holder would pay $17,201.

While the interest rates on federal student loans are fixed, many private student loans have variable rates that fluctuate over time, noted Nancy Nierman, assistant director at EDCAP. This can produce repayment unpredictable, Nierman remarked. Furthermore, experts in wall street note the continued relevance.

“This is what we saw with interest rates bottoming out at the beginning of Covid, then rising sharply in 2022 and 2023 as inflationary pressures took hold,” she mentioned. “Borrowers who started with rates on private loans at 3%, two years later, were struggling to construct payments as rates increased into double-digit territory.”

Fewer consumer protections

The U.S. Department of Education offers income-based repayment plans and forgives the federal student debt of borrowers who become permanently disabled or can prove they were defrauded by their schools. Federal student loans also die with the borrower.

In contrast, student loan forgiveness by private lenders is extremely rare. Only about half of private lenders discharge a borrower’s debt when they become disabled or die, according to Kantrowitz.

Otherwise, that debt can be passed to a cosigner, and if they have one, to their estate, noted certified financial planner Douglas Boneparth, president and founder of Bone Fide Wealth, a wealth management firm in Updated York City.

“Co-signed debt doesn’t disappear at death in most cases,” Boneparth noted. “It becomes a claim against the estate, which can shrink what passes to heirs.”

But many private student loans are subject to a statute of limitations, or a maximum amount of time during which your lender can sue you for defaulting, stated Kate Wood, a lending expert at NerdWallet. In contrast, collection on federal student loans has no time limit.

“On the short side, you’ve got states with a three-year limit, like Maryland and North Carolina,” Wood stated. “The high end is Kentucky — 15 years, though there are some states with 10-year limits.”

Private student loans provide funding unavailable through federal programs, commented Catherine Fitzgerald, senior director of communications, marketing and community outreach at Navient. She remarked the lender publishes “clear eligibility criteria” and offers multiple repayment options.

“This year, we introduced automatic co-signer release and eliminated minimum income requirements — steps intentionally aimed at helping qualified students address unmet funding needs while maintaining prudent credit standards,” Fitzgerald commented in an email. This also touches on aspects of earnings report.

The Consumer Financial Protection Bureau reached a $120 million settlement with Navient in 2024, after accusing the lender of steering student loan borrowers away from affordable repayment plans and into expensive forbearances. Navient disputes the CFPB’s allegations but, as part of the settlement, was permanently banned from handling federal student loans.

More parent and grandparent co-signers

Unlike with federal student loans, most lenders of private student loans require a co-signer, or a person who is equally financially and legally responsible for the debt as the primary borrower. That’s because student borrowers often have short or nonexistent credit histories.

“I would see a co-signer requirement for almost every single borrower,” Anderson remarked, from when she worked with private student loan borrowers between 2015 and 2022.

That means the rise in private student loan borrowing could leave a surge of parents and grandparents indebted, as well, if the student borrower can’t keep up with payments, financial advisors say. These agreements have historically been next to impossible to get out of: The CFPB found in 2015 that private student lenders rejected 90% of co-signer release applications.

“A grandparent co-signing in their 70s is taking on a 10- to 15-year obligation that may outlive their working income entirely,” remarked Boneparth, a member of CNBC’s Financial Advisor Council.

“If the loan defaults, the lender can come after the parent or grandparent’s wages, tax refunds and in some states, even Social Security garnishment risk exists,” he stated. “That’s retirement income in the crosshairs.”