Private Lenders Gear Up for Windfall as Federal Student Loan Overhaul Shifts Borrowers Their Way

WASHINGTON — A seismic shift in the federal student loan landscape is poised to deliver a surge of new business to private lenders, according to a congressional analysis obtained exclusively by Business Insider. The report, spearheaded by Sen. Elizabeth Warren (D-Mass.), details how six major lending institutions are preparing to capitalize on recent policy changes signed by President Donald Trump.

The changes, embedded in a recent spending bill, eliminate the Grad PLUS program for graduate students and impose new borrowing caps. This effectively funnels borrowers who exceed federal limits toward the private market. The lenders' responses to the Senate inquiry reveal a sector in expansion mode, anticipating significant growth in 2024 and beyond.

"This isn't just market adjustment; it's a planned diversion of student borrowers into a less-regulated space," said Sen. Warren. "Our findings underscore an urgent need for oversight as these companies prepare to cash in on the administration's agenda."

Data from lenders including Sallie Mae, SoFi, and College Ave shows portfolios swelling over recent years. College Ave reported a 71% increase since 2022, while SoFi's portfolio grew to $3.8 billion from $2.2 billion over the same period. Lenders explicitly tied their optimism to the federal changes, with Citizens Bank stating it would work to "improve access" for those who would have previously used Grad PLUS loans.

The report flags two major concerns: diminished competition and the rise of private equity. With federal loans no longer an option for many graduate students, lenders face less pressure to offer competitive rates or borrower protections like income-driven repayment or disability discharge. Furthermore, the practice of selling loan portfolios to private equity firms—cited in the cases of Navient and Sallie Mae—raises red flags about aggressive debt collection practices.

The Trump administration defends the overhaul. "We're reining in an out-of-control borrowing bonanza that encouraged inflated tuition and led students to take on debt beyond their means to repay," said Ellen Keast, Press Secretary for Higher Education.

However, the report notes that the administration's simultaneous weakening of the Consumer Financial Protection Bureau complicates oversight, potentially leaving borrowers with fewer avenues to address grievances.

Voices from the Debate

Marcus Chen, Policy Analyst at the Center for Educational Equity: "This is a predictable outcome of policy fragmentation. While controlling federal debt is a valid goal, doing so without strengthening the private market's consumer safeguards simply transfers risk to the most vulnerable borrowers—graduate students who often have no alternative but to borrow."

David Riggs, Financial Aid Director at a Midwestern University: "We're already counseling students who are hitting these new caps. The anxiety is palpable. The private market can fill gaps, but the terms are starkly different. Students aren't just comparing interest rates; they're losing a safety net."

Janice Lorimer, Small Business Owner & Parent of a Graduate Student: "It's a disgrace. They're pulling the ladder up right as my daughter starts medical school. This isn't 'reform'; it's a handout to loan companies who will now charge whatever they want. Families are being set up to fail."

Robert Flynn, Former Bank Regulator: "The private equity angle is the sleeper issue here. When loans are sold off to firms whose sole fiduciary duty is to investors, borrower welfare becomes an afterthought. The report's call for transaction oversight is not just prudent—it's critical to prevent predation."