Nick Hillman on Borrowing Limits for Federal Student Loans

Frederica Freyberg:
With Wisconsin trying to tackle a physician shortage, new limits around graduate student federal loans could dissuade some would be doctors from going to medical school at all. New federal provisions passed as part of the One Big Beautiful Bill Act set lower borrowing limits for medical and law students and eliminate Grad Plus loans. For what the changes mean for graduates and undergraduates, we’re joined by a specialist in this area, Nick Hillman, professor in the UW-Madison School of Education. And professor, thanks very much for being here.

Nick Hillman:
Of course. Thank you for the invitation.

Frederica Freyberg:
How big of a sea change is this when it comes to federal student loans?

Nick Hillman:
It’s significant for two main reasons. One is that these are now amendments to the Higher Education Act. So these are now laws. And a lot of student loan policy has been done through regulations. And so it’s a big sea change because it really galvanizes these changes into legal statutes. So that’s one thing, which means it’s also going to be harder to change over time. But the other thing is that it just really shifts the flavor of student loans, how students are going to be interacting with the loan system. And it brings some simplicities to the system, but it also brings some complexities.

Frederica Freyberg:
I’m going to dig into that a little bit. But have you heard of medical students, say, deciding not to attend medical school because of kind of the caps on borrowing?

Nick Hillman:
I’ve heard rumblings of this. I haven’t heard that directly from prospective students, but I have heard concerns in different forums and through different networks about what does this mean for me in terms of how to pay for college? If loans are less available to me, then I have two options. I can go and try to find a loan in the private market which might have high interest rates. Or I can decide maybe I should do something else with my career. And I think that’s the tension that either people are already feeling or they will soon be feeling.

Frederica Freyberg:
So the law also eliminates I understand the Grad Plus loan. What will that mean?

Nick Hillman:
Well, the Grad Plus loan is pretty significant. About 17% of all federal student loans are in that program. And so this is a sizable share of federal student loans. And if that’s no longer available to borrowers, then again, they’ll likely go out to the private sector, to banks or to different lenders and take out loans that could be as high as 25% interest rates. These loans currently have — the plus loans currently have like 8 or 9% interest rates.

Frederica Freyberg:
Do you know what the justification for all of this was?

Nick Hillman:
To save money for the One Big Beautiful Bill Act. I believe it’s in the hundreds of billions of dollars. 270 billion is one Congressional Budget Office estimate of how much some of these changes have saved the federal government. And ultimately, that’s the end game here, is to restrict the amount of spending that the federal government does.

Frederica Freyberg:
Back to details. There were also changes to loan repayments. Is that significant?

Nick Hillman:
That is in a couple of different ways. So this is what I said earlier about the simplicity and the complexity. There’s some things that I think are pretty popular about the new repayment options for borrowers. There is now basically just two different options that borrowers can have starting in 2026. They could do a standard repayment plan that’s pegged to how much they borrowed, and then they could do a repayment assistance plan that’s pegged to how much they earn. And so in either of those cases, the idea is to have loan repayment be more sensitive to borrowers’ economic circumstances. However, there are some details that also make it more difficult and even potentially punitive for some of the lowest income borrowers.

Frederica Freyberg:
Interestingly, also, there’s new accountability standards for undergraduates. What’s that?

Nick Hillman:
There are. And this is something that’s really under the radar but very much on my radar is essentially a bachelor’s degree recipient has to earn more than a high school graduate at some point in their future. And that by itself doesn’t seem very problematic. That’s kind of the whole point of education is to boost your economic well-being. But there are a lot of majors and academic programs where the gap between a high school graduate and a college graduate are not that large. And so these accountability measures are going to, starting in 2026, they’re going to start to identify what academic programs at colleges and universities across the country are showing that positive return above a high school graduate. And I worry that maybe it’s not this year, maybe it’s not next year but at some point down the road, a lot of programs that produce graduates who go into public sector and nonprofit work that tend to have low wages are going to be either penalized by being, you know, withheld federal funds or colleges might just say, we’re not going to do this. It’s too risky to run this program anymore.

Frederica Freyberg:
Lastly, do you think that student borrowers know about these changes?

Nick Hillman:
No, I think there’s a lot of confusion. And one of the big struggles that I see and I’m hearing about is the timeline of all of these changes are supposed to be taking place July 1st, 2026. That’s ten months away. And so prospective students, current students, and current borrowers are all wondering if there’s already been several years of a lot of miscommunication, confusion and misunderstanding about the student loan system. And I’m worried, especially as the federal government winds down the Department of Education has laid off at least 50% of staff at the Department of Education. I’m very concerned about how this will be implemented and how well it will be implemented.

Frederica Freyberg:
Well, we will be watching. Professor Nick Hillman. Thanks very much.

Nick Hillman:
Of course. Thank you.