• Key insight: Major changes in the federal student-loan program, authored by congressional Republicans and the Trump administration, offer both opportunity and peril for banks.
• Supporting data: The $10.8 billion private student-loan market is expected to grow substantially, potentially offering a new opportunity for big banks, several of which exited the market over the last 10 to 15 years.
• Expert quote: "When I'm looking at the logos at these conferences, and having conversations with some of these organizations, it's those top 10, 15 banks that I think are really thinking about reentering this at scale." —Kevin King, vice president of credit risk at LexisNexis Risk Solutions

Extensive changes to the federal student-loan program, authored last year by congressional Republicans, took effect last week.

Among the revisions: the Graduate Plus loan program, which many Americans have long tapped to pay for graduate school, is being phased out. There are new caps on the amount of borrowing allowed for graduate students, though the limits are higher for students heading into certain professional fields. There are also new caps on the allowable amount of borrowing by parents.

"A number of the key provisions related to student loans in this bill aim to make it harder for consumers to access large amounts of credit to support higher education — with the kind of understanding that that will create a short-term pinch, and that consumers' demand for higher education will wane, because they can't afford it, and that in turn schools will lower their tuitions and make it more affordable," said Kevin King, vice president of credit risk at LexisNexis Risk Solutions. "That is the concept that drives a lot of this."

Separately, the Trump administration is expected to eventually resume involuntary collection of delinquent student loans, including through wage garnishment, though those changes are on hold for now.

The Trump-era overhaul of the massive student loan market — outstanding debt totals roughly $1.8 trillion, according to Federal Reserve data — will have substantial ripple effects for private-sector consumer lenders. What follows is a look at three key questions facing the sector following the July 1 enactment of major student-loan reforms.

Will big banks reenter the private student loan market?

Since the 2008-2009 financial crisis, the private student-loan market hasn't been all that big compared with other consumer-lending segments. In the 2024-2025 academic year, private student lenders originated $10.81 billion of loans, according to Enterval Analytics.

But the market is expected to grow substantially as a result of legislative changes codified in 2025. One result is that the private student-loan market is expected to swell substantially, according to Mark Kantrowitz, a student-loan expert and author of books about planning and paying for college. A recent court-ordered increase from the Department of Education in the number of professional degrees subject to relatively high loan limits will partially lower Kantrowitz's estimate, and some of the slack will undoubtedly be picked up by existing private student lenders.

"We have been actively preparing for this opportunity," Sallie Mae CEO Jonathan Witter told analysts in April. "We have already rolled out several of these enhancements, including our new medical and dental school offering, with more to come. Our goal is to serve as many students, families and university partners as possible as the higher education sector navigates this time of change."

Whether some of the country's biggest banks will also jump into the private student loan market remains to be seen. Several large banks — including JPMorganChase, Wells Fargo, U.S. Bancorp and Discover Financial Services — have exited the market over the last 15 years.

Kantrowitz is skeptical that many large banks will want to return. 

"I think that we're not going to see very many reentrants, because making private student loans is not as simple as making credit cards or auto loans," he said. "There's a lot more disclosure that's required, and some of the lenders that dropped out were doing so because they didn't like the negative animus that was associated with being a private student loan lender."

But LexisNexis' King said numerous large banks are showing interest in reentering the market at scale, based on what he's heard at industry events. 

"When I'm looking at the logos at these conferences, and having conversations with some of these organizations, it's those top 10, 15 banks that I think are really thinking about reentering this at scale," King said, though he cautioned that he doesn't expect those banks to issue the same volume of credit that they did prior to exiting the market.

How will underwriting for private student loans evolve?

After the 2008-2009 financial crisis exposed weaknesses in the underwriting of private student loans, lenders became much more apt to require co-signers. By 2013, more than 90% of new loans were being underwritten with a parent or another co-signer backing up the student-borrower.

The question now is whether the federal reforms that took effect last week will bring new changes to how private-sector lenders approach the market. Private student lenders want better data about the future earnings potential of graduates from particular degree programs at specific schools, since such information could help make them more precise underwriting decisions.

Among the new wrinkles in the federal program are higher borrowing caps for students pursuing certain professional degrees, such as law students and medical students. If private student lenders follow the same playbook as the federal government, they could end up serving borrowers who are better bets to repay their loans, even if their decisions also lead to disparate outcomes for members of certain protected classes.

That could be a trade-off they consider worthwhile, in light of the fact that the Trump administration seems uninterested in fair-lending enforcement.

College Ave, which offers private student loans in partnership with banks, announced this spring that it will cover up to 100% of the cost of a degree for graduate students pursuing advanced degrees in science, technology, engineering or mathematics, known collectively as STEM disciplines.

But students in STEM programs are more likely to be white males, critics argue, meaning that offers such as College Ave's may have discriminatory effects. The advocacy group Protect Borrowers and the NAACP Legal Defense and Education Fund argued that point in a joint letter in May, pointing out that fair lending and civil rights laws bar private student lenders from discriminating based on race or gender.

"College Ave and other private lenders' targeting of loan options to graduate students in STEM fields raise significant concerns about these firms' compliance with federal, state and local civil rights laws," the two groups wrote in a letter to the American Fintech Council, whose members include College Ave.

Mike Pierce, Protect Borrowers' executive director, argues that certain state laws still pose risks for private student lenders, even though the Trump administration has shown no interest in fair-lending enforcement at the federal level.

"I am completely persuaded that there is a little bit too hard of a swing towards the business opportunity that the [legislation] opens up, and there will be some real compliance challenges for banks if they are thinking about how to do that lending in a state like New York that still bans disparate impact of facially neutral lending decisions and marketing and underwriting," Pierce told American Banker.

Will stepped-up collection efforts by the federal government lead to bigger losses on other consumer loans?

Until early this year, the Trump administration was laying plans to start involuntary collections on federal student loans, including through the use of wage garnishment and the interception of tax refunds. Then in January, the Department of Education announced a delay in the implementation of forced collections.

But analysts believe the Trump administration may still move forward after the midterm elections. Such a move could have big implications for credit-card lenders, mortgage lenders, auto lenders and personal lenders, since it would force many borrowers to reprioritize how they're allocating their monthly spending on debt payments.

As of the first quarter of 2026, 10.3% of student loan balances were at least 90 days delinquent, according to the Federal Reserve Bank of New York.

In addition, roughly 7 million federal student-loan borrowers who have been enrolled in the Saving on a Valuable Education, or SAVE, plan will start exiting that repayment plan this fall. Those borrowers have long been in interest-free forbearance plans.

"I think of it really as a domino effect," said LexisNexis' King, explaining that borrowers who start to face involuntary-collections activity will begin shifting their hierarchy of payments. "We already have a massive problem with consumers not repaying student-loan debt. That problem is about to get significantly worse."

Kantrowitz expressed a similar view, though he said the increased strain on student-loan borrowers will not be large enough to derail the U.S. economy.

"It's a really low percentage of GDP, so it's not enough to really have much of an impact. It certainly has an impact on the individual economy of specific borrowers, but in aggregate it's not a huge tipping point, or anything like that, that is going to cause a cascading effect," he said.