States are expanding student loan programs as new federal borrowing limits leave some students searching for additional ways to finance higher education.
According to a CNBC report published Sunday, several states, including Connecticut, Massachusetts, Minnesota, Pennsylvania and Rhode Island, have recently expanded or promoted their student loan programs following new federal borrowing caps that took effect under President Donald Trump‘s One Big Beautiful Bill Act.
Filling the Gap
The federal law, which took effect on July 1, limits how much graduate and professional students can borrow through federal student loans each year. Graduate students are now capped at $20,500 annually, while students pursuing professional degrees such as law or medicine can borrow up to $50,000 a year. Previously, graduate borrowers could generally borrow up to the full cost of attendance.
Several state-backed loan programs are positioning themselves as an alternative for students who can no longer meet their education costs through federal loans alone.
“We know the new federal borrowing caps threaten to limit how much graduate students can finance for advanced degrees,” Bethany Yenner, vice president of public relations, communications and marketing at the Pennsylvania Higher Education Assistance Authority, told CNBC. “We’re stepping in where federal aid may fall short.”
Trade-Offs
Consumer advocates caution that state-backed loans should not be viewed as a direct replacement for federal student loans.
“While state loans can be an important option for some borrowers, students should understand the trade-offs and risks before assuming they’re equivalent to federal loans,” said Tiara Moultrie, a fellow at The Century Foundation.
Unlike federal student loans, many state-backed loans do not qualify for federal protections such as Income-Driven Repayment plans or Public Service Loan Forgiveness. Interest rates can also exceed 10%, according to a July analysis by The Century Foundation, although they may still be lower than rates offered by some private lenders.
Borrowers may also face stricter eligibility requirements. Rich Williams, chief customer officer at student loan advisory firm Summer and a former deputy assistant secretary at the U.S. Department of Education, said some state programs require high credit scores, while others require co-signers or state residency.
The changes have also sparked broader concerns among borrowers. Earlier this month, public service workers and consumer advocates warned that the new law could make it harder for some borrowers to qualify for federal loan forgiveness programs, particularly Public Service Loan Forgiveness, as eligibility rules become more restrictive.
Student debt has also remained a focus in Congress. Last month, Sen. Elizabeth Warren (D-Mass.) reintroduced legislation that would hold colleges financially accountable when students leave school with unaffordable debt, underscoring the growing debate over college affordability and student borrowing.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Shutterstock/ Jack_the_sparow
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