Q&A: Associate Professor Lesley Turner on Changes in the Federal Student Loan System

The federal student loan system is undergoing one of its most significant overhauls in decades, reshaping how much students can borrow, how they repay their loans, and which programs of study remain eligible for federal funding. For borrowers and institutions alike, the changes introduce new constraints and new uncertainties, with July 1, 2026 looming as an important milestone for some of the new policies. 

As this new era for student loans continues to come into focus, we sat down to talk with Associate Professor Lesley Turner, one of the foremost experts on federal policy related to student loans, to make sense of what to expect.

Q: What changes will there be to how much people can borrow from the federal government, and what will the effects be?

There are major changes to how much graduate students can borrow because the Grad PLUS loan program has been eliminated. Previously, graduate students could borrow federal loans up to the total cost of attendance through Grad PLUS. The elimination of this program imposes strict limits on federal lending. The new annual limits for borrowing are $20,500 for most programs, and up to $50,000 for programs classified as “professional,” a category that includes fields like medicine, veterinary medicine, dentistry, and law.

These changes are notable because a sizable share of graduate students previously borrowed above the new limits. That raises a key open question: will private lenders step in to fill the gap, and if so, for whom?

Q: Are there concerns about what this will mean?

Yes. A recent report from the Federal Reserve Bank of Philadelphia looked at the credit profiles of graduate borrowers and found that a meaningful share would likely not qualify for private student loans. That suggests some students may not be able to replace lost federal borrowing with private loans. At the same time, this landscape of nonfederal student loan options is still evolving, and there’s a lot we don’t yet know about how lenders and institutions will respond.

For undergraduates, there are now limits on how much parents can borrow through Parent PLUS loans. Previously, borrowing was effectively uncapped. This change will affect a smaller share of students, but it’s still significant—especially for families who relied on those loans to cover high-cost programs.

Q: What problem was this policy trying to address?

There are concerns (certainly well-founded) that graduate students have been taking on large amounts of debt. In fact, about half of all outstanding student loan debt is held by students who borrowed to finance graduate education.

One reason is that federal borrowing for graduate students was effectively limited only by the cost of attendance. So as prices increased, students could borrow more. The goal was to expand access to graduate education and support better long-term outcomes.

At the same time, there have been longstanding concerns about how unlimited borrowing for graduate school may have affected tuition prices. Even when financial aid is intended to make education more affordable, it can create incentives for institutions to raise tuition, knowing that the federal money is out there— in other words, there is “pass-through” of aid from students to institutions.

There’s also a concern that some programs consistently lead to poor outcomes for students, including low earnings and weak loan repayment. These programs tend to be concentrated in the for-profit sector, but they exist across all sectors of higher education. The argument is that the federal government shouldn’t be subsidizing programs that leave students worse off, or at least not better off than they would have been with less education. These accountability measures are intended to limit the flow of federal loan dollars to those programs.

Q: Have you done any research into Grad PLUS?

Two coauthors and I have studied the Grad PLUS program, which was introduced in 2006, and looked at whether it affected access to graduate education. We looked at effects on student enrollment, the characteristics of who enrolls, persistence and completion, post-graduate outcomes like earnings, and tuition.

We found no effects on enrollment or on the composition of students, both overall and for programs that tend to lead to high earnings. Across a range of specifications, we also found no meaningful effects on persistence or completion.

Where we did find large effects was on prices. Net tuition—so tuition after grants—increased by about 64 cents for every additional dollar of federal borrowing due to the introduction of Grad PLUS.

Similar studies of price responses to undergraduate loan limits have generally not found effects of this magnitude. Taken together, the evidence suggests that as graduate students took on more debt—and as a growing share of total student debt became concentrated among graduate borrowers—a substantial portion of those additional federal dollars flowed through to higher tuition.

Q: Does that mean tuition will come down now that Grad PLUS is being eliminated?

When it comes to tuition, I think the most we can reasonably expect is slower growth. I would not expect prices to decline in nominal terms.

And there are other pressures on higher education right now—changes in immigration policy (which could affect international students’ interest in studying in the U.S.), new federal data reporting requirements, and cuts to federal funding for research—that may shape how institutions respond. It’s possible that instead of slowing price increases, some institutions respond by reducing program offerings or closing programs altogether

Q: Let’s shift to repayment. What changes are coming on that side?

Historically, borrowers had two main ways to repay their loans: a fixed-payment plan, similar to a mortgage, or an income-driven repayment plan (often called IDR), where payments are tied to income and borrowers could have very low—or even zero—monthly payments, with forgiveness after a set length of repayment. But there were a variety of different options in each category, including different IDR options.

New borrowers will have access to a much narrower set of repayment plans than in the past. Going forward, there will still be two broad options, but they’re meaningfully different. The new income-driven plan eliminates the option of a zero-dollar payment, which will potentially affect the lowest-income borrowers with the least ability to repay.

Q: What’s happening to the SAVE plan and the borrowers currently enrolled in it?

Some existing borrowers will still be able to access older, legacy IDR plans. However, most generous recent income-driven plan—the SAVE plan—will no longer be available.

That leaves a large group of borrowers in transition. Many who were enrolled in SAVE during the period when it was being litigated are currently in forbearance, meaning they are not required to make payments, but interest is accruing.

The key deadline is July 1. Borrowers will need to actively choose and enroll in a new repayment plan by then. If they don’t, they are likely to be placed into a standard repayment plan, which could result in significantly higher monthly payments.

Q: What problem were policymakers trying to address with these changes?

One concern prevalent among many in the Republican Party was that income-driven repayment plans had become increasingly generous, not through legislation, but through the regulatory process, with large price tags attached. For instance, the Congressional Budget Office estimated that the SAVE plan would cost $230 billion. Part of the goal in changing repayment plan options through legislation was to limit the scope for broad-based loan forgiveness delivered through repayment policy.

There have also been longstanding concerns about the complexity of the student loan repayment system. More options were added over time, and borrowers faced a growing menu of options that were, in many cases, quite similar, which made it difficult to choose the best plan. Borrowers that did not choose a plan were automatically placed in the standard 10-year repayment plan which could result in unaffordable payments for low-income borrowers. Moving to a simpler system with just two primary options is intended to reduce complexity and potentially help borrowers actively choose the plan that was best for their circumstances.

While the system may become simpler in the long run, in the short run it may actually become more complex for current borrowers who will still have access to some of the legacy repayment plans in addition to the two new repayment plans.

Q: Are there any notable features of the new income-driven plan?

One important feature is how it handles interest and loan balances. Borrowers making the minimum payment will have any unpaid interest waived and receive a principal subsidy; combined these features result in the borrower’s outstanding balance falling over time.

This appears to be a response to a common concern with earlier income-driven plans: that borrowers could make payments for years and still see their balances grow (in cases when their payment was less than interest). Even if forgiveness is promised in the future, watching your balance increase over time can be discouraging.

The new structure is designed, at least in part, to ensure that borrowers see progress in paying down their loans.

Q: What are the biggest implications of these changes?

A key concern is that some borrowers—particularly those who are already vulnerable—may fall through the cracks during this transition.

For many borrowers, the available repayment options are becoming less generous. But even to access those options, they need to take action: choosing a plan, completing paperwork, and navigating a changing system.

What happens with borrowers currently in the SAVE plan will be especially important. If large numbers fail to transition successfully into new plans, that could lead to increases in delinquency and default.

Whether we see broader repayment problems in the coming months will depend, in large part, on how this transition is managed—and how borrowers respond to it

Q: There are also changes around accountability for institutions. What’s happening there?

Further down the line, there are new accountability policies that don’t directly change how students borrow or repay their loans but do affect which programs are eligible for federal loan aid.

The key shift is that accountability will be measured at the program level, rather than the institution level. Higher education programs will have to demonstrate that their graduates meet a minimum earnings threshold.

Under these changes, the typical graduate of a program must earn more than a typical individual in the same state with the next lower level of education. For undergraduate programs, that benchmark is high school graduates. For graduate programs, it’s individuals with a bachelor’s degree in a related field, though exactly how those comparisons will be defined for graduate programs is still to be determined.

In terms of timing, it’s unlikely programs will face consequences in the near term. The U.S. Department of Education will need time to build out the data and systems required, and programs would need to fail these thresholds for multiple years before facing consequences.

Ultimately, the stakes are quite high: programs that repeatedly fail could lose access to federal student loans entirely.

Q: Stepping back, what will you be watching over the next year to understand the effects of these changes? What should reporters be paying attention to?

On the qualitative side, a key question is whether the system is functioning as intended. Are borrowers able to apply for the new repayment plans? Are applications being processed in a timely way? Can borrowers who are already in repayment successfully transition into new plans?

On the quantitative side, I’ll be watching delinquency and default rates closely. The New York Fed publishes quarterly data on student loan delinquency, and during the pandemic those rates were essentially zero because payments were paused. Even after payments resumed, there was an “on-ramp” period where missed payments weren’t reported to credit bureaus.

Right now, delinquency rates as reported by the New York Fed look similar to pre-pandemic levels, which is the last “normal” benchmark. We haven’t yet seen a large increase in serious delinquency, which is defined as being 90 or more days behind on payments.

But we can’t forget: millions of borrowers who were enrolled in the SAVE plan are not currently making payments. Once those borrowers re-enter repayment, we may see changes in delinquency rates within a few months.

Default takes longer to show up in the data—typically 270 days or more—so that will lag. But the key indicator to watch in the near term is whether there’s an increase in the share of borrowers missing payments.

Q: What about the federal government’s capacity to implement these changes?

Major policy changes like these require administrative capacity. You need staff and systems in place to implement new repayment plans and new accountability measures.

At the same time, the Department of Education has reduced staffing levels. Even under normal circumstances, it would be challenging to roll out a new repayment system with different rules and calculations, while also implementing a new accountability framework.

Trying to do both of those things simultaneously, with fewer resources, creates a real risk of delays, errors, and bottlenecks in how the policy is carried out.