Key Points on New Student Loan Caps
- A proposed new student loan cap would tie borrowing limits to a national median attendance cost per programme. New Student Loan Caps
- That formula automatically underfunds at least half of the students who attend above-median-cost programmes.
- Families in high-cost areas or at private institutions could see the largest funding gaps.
A new formula for student loan caps that is making its way through Congress aims to solve rising college debt by tying borrowing limits to the “median cost of attendance” for a student’s chosen programme. But since “median” is the middle number, this formula would automatically prohibit 50% of students from borrowing money for their programmes. New Student Loan Caps
Under the Big Beautiful Bill by the House, federal student loan caps would no longer be set as fixed amounts for undergraduates and graduates. Instead, borrowing would be limited to the national median cost of a student’s program of study, minus any Pell Grants the student receives.
That shift could create new affordability problems, especially for students in high-cost regions or attending private institutions, where tuition and housing costs regularly exceed the national median.
Even if colleges reduce costs, since the formula is tied to the median cost, funding will always be insufficient for 50% of students.
A Median That Leaves Many Short on New Student Loan Caps
Tying borrowing to the national median cost sounds logical on paper. However, by definition, half of all schools in the country charge higher fees than the national average, and approximately half of students enrol in them.
Furthermore, finding the median cost of attendance by programme nationwide is currently difficult due to limited data. The Department of Education’s cuts may hinder the timely compilation of this data.
In 2024, the average cost of attendance at a public four-year college was $29,910. But that’s average. And overall.
Private colleges can cost two to three times more. Two-year colleges cost significantly less.
Defining the median cost of a programme and then navigating other expenses, such as housing, can be a daunting task. New Student Loan Caps
It also means that two students at the same school could have different borrowing limits…
Families who choose above-median programs will either need to come up with the shortfall on their own or forgo those options altogether. And while the new loan formula still allows Pell Grants to be subtracted from that cap, the proposal also places new restrictions on Pell eligibility tied to the Student Aid Index (SAI), which may exclude some low- and middle-income families from receiving help.
Borrowers In High Cost Regions Could Face Bigger Gaps
College costs vary widely by geography. A student attending school in California, New York, or Washington, D.C., will almost always face higher tuition and housing costs than a peer in Mississippi or Montana.
If both students pursue the same degree, say, in a business or engineering programme—but the federal loan cap is based on the national median cost—then the student in the higher-cost region is automatically at a disadvantage.
Even if the programme costs the same, housing expenses could put that student at a disadvantage.
The problem gets worse for students who don’t receive full Pell Grant coverage or who have no access to family savings. While the legislation does allow schools to set lower borrowing caps, there is no provision to allow educational institutions or states to raise them above the federal median. New Student Loan Caps
Public colleges in expensive regions may find themselves unable to attract students who need loans to cover the full cost of attendance. Private colleges may be hit even harder, especially smaller institutions that are already struggling. New Student Loan Caps
Design Matters on New Student Loan Caps
The national median cost of attendance formula introduces a new kind of cap into federal loan policy.
Policymakers have argued for years that the current loan caps are too high, allowing students to overborrow low-value programmes. But a median-based cap flips the problem: it guarantees that 50% of students won’t have enough loan eligibility to cover the full cost of their education.
In effect, this proposal presumes that access to college will adjust to the median, rather than the other way around. Families are expected to fill the gap with private loans, savings, or less costly programmes.
But that presumes those choices exist. Low-income students, rural families, and first-generation college-goers often pick schools based on where they were accepted or what housing support is available. Cutting off access to federal loans based on a national median could result in students turning down their preferred programme or dropping out altogether.
Furthermore, even if colleges adapt and lower prices… it still doesn’t change the formula excluding 50% of borrowers.
The formula builds a fixed outcome into federal policy: if borrowing is tied to the median, there will always be half of students who are above the funding line. Students in lower-median-cost programmes will be able to borrow up to the full cost of attendance. Those above the line will have to scramble to find other funding or take on more expensive private debt. New Student Loan Caps
That division hits graduate students especially hard. Under the same proposal, Grad PLUS loans would end starting in 2026. That leaves only unsubsidised loans, subject to the same median cost formula, for students pursuing advanced degrees.
With no credit-based Graduate PLUS loans to make up for the difference, students attending pricier professional programmes in law, medicine, or business could see borrowing gaps of $30,000 or more per year.
What Families Can Do Now on New Student Loan Caps
While this proposal is still working its way through Congress, families with younger children may want to pay attention to how loan limits could shift. New Student Loan Caps
If enacted, the new borrowing caps and median cost formula could change how students choose schools, how colleges price their programmes, and who ends up finishing a degree.
For more context on how these changes affect families, borrowers, and colleges, see our full breakdown of the winners and losers under the Big Beautiful Bill. New Student Loan Caps
Common Questions
What are the proposed new federal student loan caps?
The proposed annual borrowing cap for federal student loans would set the loan amount at the programme’s median attendance cost.
How does the “median cost of attendance” formula work?
It’s unclear what the final formula would be, as it doesn’t exist.
What happens to Grad PLUS loans under the proposal?
Grad PLUS loans disappear under the proposal.
How will professional programmes be affected?
Professional programmes would be subject to the same rules.
What alternatives exist if federal loans are not enough?
The concern is that the only major alternative is private student loans. This new proposal could push more students to borrow more private loans.
What is the current status of these proposed changes?
The bill has passed the House of Representatives and is in the Senate. It must pass the Senate and be signed by the President before it takes effect.