Federal student loan policy is undergoing a shift and it leaves both students and institutions in a difficult position. With the elimination of Grad PLUS loans and new caps on Parent PLUS borrowing, institutions are facing what experts estimate to be a $14 billion annual financing gap for students. That gap is not theoretical. It is reshaping enrollment patterns, cash flow forecasts and institutional risk models across the sector.

In a recent webinar sponsored by NACUBO, higher education finance experts Lori Hartung and Christopher Stompanato outline what this moment means for campuses, and why institutional loans are reemerging as a potential solution. Lori remarks, “This is becoming impossible for campuses to ignore…and institutions have to decide whether they’re going to proactively shape how that gap gets filled, or react after the fact.”

A structural shift, not a temporary disruption

Read these as a structural shift, not modest tweaks to borrowing limits. The elimination of Grad PLUS loans and capped Parent PLUS introduces new barriers to pursuing an advanced degree. Enrollment stability, student retention and institutional cash flow are all at stake.

Lori explains, “For graduate and professional programs in particular, this is… a structural shift. There’s less flexibility, fewer fallback options, and a very real reputational risk if students can’t bridge these financing gaps.”

According to data shared during the session, nearly 20% of master’s students and 8% of doctoral students currently borrow above the new federal loan limits. In professional degree programs, the impact is even more pronounced, roughly 40% of medical students borrow above the new caps today.

“Half of all federal loan dollars currently go to graduate programs,” Lori notes. “That demand doesn’t disappear just because policy changes.

Why private loans don’t offer the protection many expect

Private education loans might appear to be the natural replacement for lost federal borrowing capacity. However, their limitations leave many students without viable options.

“Private loans aren’t a clear solution either,” Lori says. “High FICO thresholds, co‑signer requirements, and denial rates mean many students simply don’t qualify, even if they’re academically successful.”

This is where business officers see a disconnect between funding and aiding students. Students are admitted, enrolled and performing well academically, yet are unable to secure financing midway through their programs. The result can be increased attrition, stop‑outs or delayed graduations — outcomes that carry both financial and mission-related consequences.

The case for institutional loans

Institutional loans, where the school itself acts as the lender, are regaining attention. While not a new concept (Harvard launched the first such program in 1841), they are being reconsidered through a modern lens shaped by compliance, equity and sustainability.

“Institutional loans are about maintaining access,” Christopher says. “They’re not meant to replace federal loans. They’re about protecting enrollment, improving retention, and supporting student success when federal aid falls short.”

Control eligibility, through institutional control, and target the right students — that's the program's biggest advantage. Schools can define eligibility, target loans to at‑risk populations and align borrowing with institutional priorities.

Christopher notes that, “you can target loans to the students who need them most. That was one of the strongest aspects of the Perkins Loan Program, and we expect institutions to take a similar approach here.”

At the same time, Chrisptopher is candid that control can also bring up other concerns. “Some schools welcome that level of oversight. Others don’t want to manage a loan portfolio internally. That’s a strategic decision each institution has to make.”

Finding the funds

Begin with these questions CFOs and treasurers should ask themselves, where do I find the capital? During the webinar, Christopher outlines a range of funding models institutions are already using, from endowment allocations and donor funds to affiliated foundations and state-supported pools.

“The source of funding is paramount,” he says. “Without funding, you don’t have a loan program. And it’s something institutions need to identify early in the process.”

Midwestern University is a medical school that partnered with its foundation and issued municipal bonds to capitalize an institutional loan fund — well before the current Grad PLUS changes. The approach proved so successful that the institution is now preparing a second, significantly larger issuance.

“That’s not going to work for every school,” Chrisptopher acknowledges. “But it’s an example of how creative funding strategies can align with low‑risk borrower populations.”

Designing for sustainability and compliance

Success or failure depends on the operational design of your loan offerings. Loan terms, repayment structures, forbearance limits and borrower communications all influence default risk and administrative burden.

“The most successful programs ask four questions upfront,” Lori says. “Do we have the resources? Do we understand the demand? Is the fund sustainable? And do we understand our licensing and audit obligations?”

She emphasizes the importance of aligning institutional loan terms with existing federal programs whenever possible. “Keeping terms familiar makes it easier for students to manage—and for your staff to administer.”

Compliance considerations, especially under evolving state oversight, add another layer of complexity. “States have really picked up the pace in legislating student loan activity,” Christopher warns. “You need to make sure your servicer—and your institution—is properly licensed and staying current.”

What’s next?

Skip the reinvention, both speakers stress. Learning from peers, engaging cross‑functional stakeholders and leveraging experienced partners can reduce missteps.

“One of the biggest pitfalls we see is not involving enough stakeholders early on,” Lori says. “This isn’t just a financial aid issue or a business office issue. Enrollment, legal, compliance—all of them need to be at the table.”

Institutional loans are not a silver bullet. They carry risk, require capital and demand careful governance. But in a post‑Grad PLUS landscape, they may be one of the few tools institutions control directly.

“This $14 billion gap is real—and it’s coming,” Christopher concludes. “Institutional loans are about making sure students don’t lose access to education simply because the rules changed.”

Dig into what this means in practice — from program design to case studies — in the full on-demand webinar. Watch now so you can strategize what’s next for your institution when it comes to serving your students. Download our fact sheet to learn more about ServicingSelect and other payment solutions.

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ECSI is a leading provider of technology-based services for higher education institutions. With more than 50 years in the higher education industry, ECSI offers solutions that combine service and software to provide schools with the necessary tools to engage and retain students, increase revenue, and reduce administrative workload. For more information about ECSI and its solutions, including ServicingSelect, please visit home.ecsi.net.