Student Loans for Graduate School: Who Will Be Affected by the New Federal Lending Limits?
This report was published through the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute.
A key provision in the One Big Beautiful Bill Act of 2025, signed into law in July 2025, will dramatically alter whether and how millions of students are able to afford a graduate degree. For the past two decades, the federal government has allowed graduate students to borrow up to the full amount charged by institutions for tuition, fees, and room and board to attend graduate school through the Graduate PLUS loan program. Beginning in July 2026, however, students will face both annual and cumulative limits to the amount they can borrow from the federal government. Most graduate students will face annual borrowing limits of $20,500 and cumulative limits of $100,000; students in professional degree programs (e.g., law, medicine, dentistry, etc.) will face limits of $50,000 annually and $200,000 total.
All else equal, the effects of these new caps depend importantly on the extent to which the private sector is willing and able to fill in the gap left by the withdrawal of the U.S. Department of Education as the main financier of graduate education. Private lenders currently play a limited role in the market for in-school graduate student loans, and it is unclear the extent to which they will be willing to extend credit to graduate students affected by the loan caps. Some observers worry that many borrowers, especially those from more disadvantaged backgrounds, those with a poor or thin prior credit history, and those with no available cosigner, may not be able to get a private loan and will therefore be unable to pursue graduate study.
This report represents a first step toward estimating the extent to which graduate borrowers might experience difficulties obtaining credit from private lenders as the new loan limits take effect. We use a unique new anonymized data set combining representative individual level records of recent graduate school enrollment with representative data on the borrowing and credit history of those students from a large credit bureau. We use these data to identify borrowers who take out loans in excess of the new federal limits and use data on their creditworthiness to estimate the share of borrowers who might struggle to obtain private loans to pay for graduate school. Our analysis is based on cohorts of students who first started graduate school during 2015–2024, providing a picture of the distribution of borrowing before the OBBBA was enacted. The market for graduate lending is likely to evolve after the new provisions take place, and our estimates describe the initial conditions before that evolution.
Across all borrowers, our data show about 28 percent borrowed above the new federal limits in recent years and on average would need supplemental funds of about $21,700 to make up for the reduced federal loan limits. Of those borrowers, nearly four in 10 (38 percent) have either subprime Risk Scores (below 670) or have no Risk Score and thus may be unlikely to be able to secure private loans without a cosigner.
At for-profit institutions, for most degree types there are fewer borrowers over the new federal limits, but the Risk Scores of those borrowers who will need new financing tend to be much worse: About 60 percent have either a subprime or no Risk Score. For doctoral and professional programs in not-for-profit institutions, borrowing beyond new limits is most prevalent, but the credit histories of high balance borrowers are significantly better than is true for students in master’s programs. In these programs, the share of high-balance borrowers with subprime or no Risk Scores ranges from 23 percent to 29 percent, whereas in master’s programs, the share is 42 percent for borrowers in public institutions and 38 percent at private nonprofit institutions.
This analysis provides an initial look at a potential driver of the impacts of the new borrowing caps for graduate studies: the historical creditworthiness of individuals pursuing graduate studies. Future research should focus on assessing the effects of this policy change, considering changes in the behavior of potential students, lenders, and university decision makers.
