Trump’s Changes to Higher Ed Finance Expose More Risks

By Austin Hinkle | April 23, 2026

The One Big Beautiful Bill Act (OBBBA) has unleashed a new era of private education lending driven by two reinforcing trends: colleges and universities are desperately trying to backfill the lost financing from new federal student loan caps; and lenders are racing to get a piece of this, now much bigger, private student loan market. For lenders, the upside is obvious: a bigger market means more volume and more profit. For schools, the stakes are higher. The historic cutbacks in federal financial aid leave schools desperate for any source of revenue that can delay a financial catastrophe caused by collapsing tuition payments. And no one really knows what happens next.

This cocktail of rapid market changes and high stakes consumer debt is the exact combination where regulatory oversight and supervision has been used to great effect in the past—closely scrutinizing the practices of both lenders and colleges themselves.

Regulators have already waited too long to supervise schools and private lenders on an emergency basis. Schools are building and deploying new funding mechanisms from scratch, in real time—a warning sign that is an immediate cause for action. Students and families cannot wait any longer for the government to get involved. Student debt has real consequences for the financial lives of millions of families and it’s critical that regulators hold lenders and schools accountable.

Race for Debt

For the past decade, private student loans have been a relatively stable and somewhat minor feature of the higher education financing system—and almost non-existent for graduate school students. But new caps on federal lending set the stage for major market disruption.

Now, students, families, and schools are working hard to find ways to make up for shortfalls. And many people expect these shortfalls to be big. Existing analysis suggests that a substantial percentage of graduate students will need to find financing outside of federal loans and that the students who do borrow for graduate school will need a significant amount more than what these caps provide for.

Legacy (and I mean that in the worst possible way) lenders like Sallie Mae and Navient are looking forward to a resurgent need for their products while newer lending models are publicly staking a claim to the post-OBBBA windfalls.[1] These lenders often brag to their investors that they are deploying expanded loan options to target the students with the strongest credit profiles and those attending elite institutions. For everyone else, the legacy private student lenders have no answers. 

As Johanna Alonso at Inside Higher Ed reported earlier this month, colleges and universities are responding to this gap by getting into the private lending game directly, often contrasting their lending programs with the ‘burden’ of private options.

Alonso’s reporting explains that the law schools at the University of Kansas (KU) and Washington University in St. Louis (WashU) announced new lending programs to ensure that incoming students could still ‘afford’ the education. KU’s press release suggests this could be a great deal for students. No private banks, no co-signers, and no underwriting. It is, “a long-term commitment to access and affordability at KU Law.” Similarly, WashU offered itself glowing praise explaining that the program will help “ensure that financial barriers do not limit our students’ ability to thrive during law school and beyond.”

Debt as a noble exercise.

It is honestly galling, if not predictable, when you stop to think about it. Rather than changing their financial aid policy, reducing tuition, or taking any other action, these schools are spending who knows how many hundreds of thousands of dollars on consultants and attorneys to create a way for students to borrow more money from the school. At the same time, WashU Law is increasing its tuition this year by almost $3,000.

KU and WashU are not alone. Early signs suggest other schools are scrambling to secure new avenues of debt for their students and the consequences will be significant. In response to the OBBBA, the University of Pennsylvania (Penn) is implementing Preferred Lender Arrangements with five lenders.[2]

Of the five lenders, only two offer these Penn-specific benefits which include, wait for it, the ability to use the loans to pay for prior balances at Penn. One of the advertised benefits is literally a way for Penn to get paid from students who were unable to pay in the prior year by converting it to debt with a third party—they are just giving away the game.

Graduate programs have a choice. They could, as a matter of policy, actually make their programs more affordable. For the students who cannot cover their expected cost of attendance with the $20,500 or $50,000 federal loan, these programs could simply provide more grant funding. After all, if the press releases are to be believed these schools are already so affordable and generousthese loan programs are likely to be small and result in financial losses for the school. But as a marketing tool, their rhetoric preys on the financial precarity of students. A promise that if you attend our school, we will provide financing if you need. It’s telling that the schools would spend their resources standing up an actual lending operation rather than cutting tuition.

Loans are Loans

But the thing about institutional loans is that they are still loans, and it turns out operating a loan program is costly, time consuming, and hard to get right.[3] Schools don’t have staff to run a loan program and they are not licensed in states to service student loans or collect debts. They will inevitably (if they have not already) hire an outside firm to do that work. A private loan servicer given the gloss of an academic institution. There have long been companies specializing in this space—some you may have heard about like Nelnet and others that are a little less known like University Accounting Services (UAS).

Institutional lending also has a dark history in our higher education system. During the Great Recession, when funding from traditional lenders like Sallie Mae dried up for for-profit schools, many similarly turned to institutional loans. While these loans were lucrative “loss-leaders” for the schools, they had “shockingly” high default rates and left many students with a great deal of financial distress.

As much as we can all see the magnitude of this risk, those of us who care about protecting consumers are hard pressed for ways to stop the bad parts from happening. When it comes down to it, we just can’t know exactly what’s happening while it is playing out. Not in a way that is accurate and actionable. Not in a way that can protect consumers.

And what is so hard is that regardless of whether things go amazing or terrible, the next 3-5 years are going to look roughly the same from the outside.

Students go to school, take out loans, tuition goes up, students graduate (or don’t), and it is only then that we really start to understand the problems.

From a law enforcement perspective, we cannot preemptively sue these schools for violations that have only barely begun with injuries that have not quite yet manifested. We need an objective way to evaluate these programs and understand how they are playing out for consumers. What we need is to look inside these schools and third-party companies to see exactly how they are managing this moment in time.

Lawsuits Clean up Messes; Supervision Prevents Them

During my tenure at the Consumer Financial Protection Bureau (CFPB), we faced a similarly large disruption caused by the abrupt exit of troubled federal student loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA). This 2021 event triggered the transfer of more than 9 million borrower accounts over a short period from one servicer with a history of servicing and data errors to servicers operating on different platforms and data systems entirely. Rather than waiting for the transfers to conclude and identifying violations retrospectively, the CFPB, working with Federal Student Aid and six state banking regulators, built a near real-time examination strategy that emphasized error identification and resolution to “prevent the type of long-term consumer harm seen in prior transfers.“[4]

That is, we knew transfers often caused massive problems for consumers, we were staring down the largest student loan transfer in history, and rather than waiting for the shoe to drop, we jumped in to monitor the situation in real time and in the process, identified and corrected dozens of errors impacting millions of borrowers before they got another bill. To be sure, we did not catch everything, but these findings were one of the animating forces behind the Income-Driven Repayment (IDR) Account Adjustment—a set of emergency actions by the largest creditor in the student loan market, the U.S. Department of Education, that fixed loan records for millions of borrowers and cancelled student debt in full for more than 1.4 million people. The current environment demands this kind of regulatory attention.

We already know institutional lending is a problem. Examinations of colleges and universities that provide their students with loans have been alarming. Schools too often don’t think about what it means to be a financial services provider (or they do and choose to ignore it). So, they cut corners, ignore compliance, and outsource to companies that everyone knows treat consumers terribly. We know this because the CFPB actually looked at compliance of colleges and universities. It found delinquency rates in excess of 50 percent, very few attempts to comply with consumer finance law, and aggressive attempts to collect debts using the leverage these schools gained over their students.[5] Colleges and universities often use contracts that allow the schools to deny “access to classes, computers, final exams, and other education services at the School” or simply kick them out if a student is behind on an institutional loan. We have to stop treating colleges and universities like they get a pass because they are somehow looking out for the greater good.

The OBBBA caps on graduate loans are already supercharging these terrible instincts among campus leadership. Instead of reducing tuition or giving grants, these schools are offering non-underwritten loans to students who have already, by definition, taken out $50,000 that year for education. And other schools will follow suit—even if they don’t issue press releases about it.

Now is the time for regulators to treat these institutions as the financial service providers they are and supervise their operations. We should be asking hard questions today, so we don’t create another generation of students saddled with debt they cannot pay and serviced by the same broken companies that have failed us for decades. All without the safety net of IDR or Public Service Loan Forgiveness.

[1] Perhaps the biggest tell from industry and clearest sign that regulators need to take a much closer look at the financing that is filling these gaps might be an agreement reached between Sallie Mae and Adtalem—a for-profit school conglomerate with more than 90,000 students across five institutions. Last August, the two organizations announced they had signed a letter of intent to, “explore alternative financing solutions for healthcare students as the federal Grad PLUS loan program phases out.” A letter of intent that was so important to Adtalem that in approving a $1.9 million cash bonus for the Adtalem CEO, the board specifically called out this agreement and included it alongside other major accomplishments like enrollment growth, shareholder return, and stock price.

[2] Interestingly, the program also provides loans for students who attend less than part time who would not be eligible for Federal student loans. In that circumstance, the loans are likely dischargeable in bankruptcy. Of the three lenders that say they will lend in that circumstance, one is PHEAA who is famously indifferent to bankruptcy protections. So, I’m really hoping that Penn uses its influence in these contracts to make sure PHEAA does what it has apparently refused to do in the past.

[3] Just ask Xerox/ACS whose generational failures in standing up the Direct Loan program created ripple effects the Department of Education is still cleaning up today.

[4] This is not the only example of rapid oversight in the face of marketwide changes. In the Spring and early Summer of 2020 the CFPB shifted its entire supervision strategy to focus on financial risks created by the early days of the COVID pandemic. By May of that year the CFPB had “rescheduled about half of its planned examination work and instead conducted [prioritized assessments] in response to the pandemic.”

[5] Too often schools make the choice to put their students into more debt when they don’t have to. For example, schools choose refund policies that leave tens of thousands of students with surprise bills after they leave school creating millions of dollars in debt every year. This process, called Return to Title IV (R2T4), creates debts to the institutions which then hire third party companies to manage them through payment plans (loans) and/or third-party debt collection companies. It is another choice schools are making to put their students into debt when they could simply choose not to—as many schools simply align their refund policies with the R2T4 rate.

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Austin Hinkle is a Fellow at Protect Borrowers and Managing Partner at Public Goods Practice, LLP. From 2017 to 2026, Austin served as lead attorney for student loan oversight in Supervision at the Consumer Financial Protection Bureau, where he led the first federal effort to supervise colleges with institutional private student loan programs.