US Federal Student-Loan Overhaul Set to Hit Banks and Expand Private Lending Market

Federal student loans administered by the US Department of Education have long supported higher-education financing through lower interest rates and borrower protections. A new law signed on July 4, 2025, caps borrowing by graduate students and parents, potentially pushing more borrowers into the private market. The shift is also prompting major banks that exited the business years ago to reconsider student lending.

The new rules take effect on July 1, 2026. Graduate students will be allowed to borrow up to $20,500 a year and $100,000 in total, while professional-degree students will face limits of $50,000 a year and $200,000 in total. The overhaul is expected to expand the private student-loan market, currently worth about $10.8 billion, as traditional banks assess whether to return and increase their lending volumes.