Imagine this scenario. Set on becoming a medical doctor, you spend months preparing for the standardised MCAT test. You write multiple essays. You request multiple recommendations and an interview with a few schools. A couple of thousand dollars later, you finally receive an acceptance, but the letter reveals that you will need $45,000 to cover the remaining costs after all the offered financial aid and government loans are accounted for.

So you decide to apply for a private loan. Three banks reject your application because you do not have a . Another accepts you, but you will owe thousands more because of  higher interest rates. For someone who has already defied economic odds just to make it this far, it feels like being punished backwards for trying to move forward. Still, you accept the offer and hope for the best.

For many graduate students from low-income backgrounds, such scenarios are already familiar. Only 31 per cent of loans disbursed by the private lender in 2023 and 2024 went to students , for instance. But when the One Big Beautiful Bill Act’s take effect in July, it will become even more common and more devastating. According to the and the Federal Reserve Bank of Philadelphia, of recent graduate students borrowed beyond the new federal limits, and about 40 per cent of those have low or insufficient credit for a private loan.

For professional programmes such as medicine, students will only be able to borrow a year from federal loan schemes, with a $200,000 lifetime limit. For other graduate programmes, the cap will be $20,500 per year, and $100,000 over a lifetime. But these figures are far below the cost of many graduate degrees, forcing students into the private loan market and the scenario above.

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But the options are increasingly limited. Rising defaults on student loan repayment have prompted many major banks to exit student lending altogether because of . This is particularly alarming when coupled with reports that federal officials are portions of the federal student loan portfolio to private firms. If that happens, millions of borrowers could find themselves thrust into a system with fewer protections, higher costs and less oversight. Private lenders have a of , such as misleading borrowers.

One avenue of accountability should be the (CFPB), the agency created in 2011 to oversee the financial services industry, including . However, the current federal government has of its enforcement actions. Meanwhile, staff cuts have severely the Federal Student Aid Ombudsman’s capacity to act as a neutral intermediary between borrowers and lenders in dispute, even as complaints  following the end of the pandemic-era repayment pause.

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Of course, the ultimate fix isn’t better loans: it’s lower costs. Indeed, in an ideal world, the need for borrowing would be the exception, not the rule. But getting there will be very difficult. Higher education, particularly at the graduate level, has grown ; the average debt for medical students $200,000. Tuition hikes often , and graduate student stipends often fail to cover even basic living expenses.

At least one school (Santa Clara University School of Law) is curbing its price in response to the new loan caps, but unless many others do likewise, better debt management and ethical lending must serve as the interim path forward.

Universities’ financial aid offices should immediately move to provide more transparent information about the risks of private loans and alternatives. Students deserve to know which lenders are reputable, which offer better repayment options and interest rates, and where to turn if disputes arise.

States will also need to help fill the gap. But, so far, only , plus the District of Columbia, have established their own ombudsman’s office – and in at , offices exist but lack enforcement authority.

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The National Council of State Legislatures has issued a useful  states that have implemented borrower regulations in the past few years. Additionally, it has released a of legislation regarding student loans and lenders. Unfortunately, many such bills regarding student loan oversight have been pending or have failed.

But there have been some successes. , for example, now requires all private lenders offering student loans in the state to obtain a licence and inform borrowers of their right to file complaints. Similar measures, requiring private lenders to adhere to , from transparent interest disclosures to caps on fees and penalties, have emerged in states like Illinois, Colorado and California, and exists to help those interested in following suit. But a student’s level of protection should not depend on their ZIP code. Without federal coordination or consistent standards, disparities will continue to grow.

We also need innovation from lenders. Some, such as and , are experimenting with risk-sharing models that involve schools directly. , a merit-based lender currently serving undergraduates without cosigners, is also exploring expansion into the law school markets. The effectiveness of these models is not yet entirely understood, but they show promise. Properly regulated to prevent abuse and exploitation, income-share agreements and risk-sharing models can play a role in preventing another generation of students from drowning in debt while we wait for reform that may take years to arrive.

Moreover, if a university believes you’re capable of becoming a doctor, shouldn’t the financial system recognise your future potential, too? How is it fair that your worth as a borrower is determined not by your dedication but by your credit score and your parents’ financial socioeconomic status?

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The irony is staggering: society celebrates upward mobility through education, but its financial systems block precisely those who are trying hardest to achieve it. No borrower should face rejection or financial ruin simply for trying to get an education.

Josh Farris is a policy and research specialist at , a non-profit that supports college students who have limited access to master’s and doctoral degrees.

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