By Ray Birch
WASHINGTON— For the first time in a generation, the federal government is stepping back from its outsized role in student lending—and that shift opens the door wide for the nations’ credit unions to serve expanding member financial needs, according to CU Student Choice.
The One Big Beautiful Bill passed into law this month, enacts sweeping reforms to the Higher Education Act that will fundamentally change how students and families finance college. Starting in July 2026, major reductions and eliminations to the federal PLUS loan programs—especially those relied on by parents and graduate students—will leave millions searching for alternative ways to cover the rising costs of higher education.
That’s where credit unions come in, CU Student Choice said,
“This is a pretty big opportunity for credit unions to support member students and their families,” said Scott Patterson, CEO of CU Student Choice, a credit union service organization specializing in education lending. “This new law is a major change that's going to have a significant impact on how families pay for higher education. We expect a real shift in consumer behavior and member need as a result.”
Patterson emphasized the federal government has played an outsized role in student lending for decades. But with the changes brought about by the new law, its footprint will shrink significantly.
“These changes will reshape how families finance education,” he said. “While there are a few provisions that expand certain benefits to borrowers, most of the changes actually reduce access or cut benefits for many students and families.”
The federal government currently originates about 87% of student loans annually. But with the new law capping or eliminating several major lending programs, that ratio is poised to change—potentially dramatically. According to Patterson, some estimates suggest that two-thirds of the Grad PLUS market alone—currently around $14 billion annually—could move into the private lending space.
What’s Changing
Among the most significant provisions of the OBBB:
- Elimination of the Grad PLUS loan program, which allowed graduate students to borrow uncapped amounts up to the full cost of attendance
- Borrowing caps for graduate students: $20,500 per year ($100,000 lifetime) for most master’s degrees; $50,000 per year ($200,000 lifetime) for professional programs such as law and medicine
- Parent PLUS loans will be capped at $20,000 per year and $65,000 lifetime total per child, compared to the current policy of allowing borrowing up to full cost of attendance
- Repayment reform, replacing multiple income-driven plans with a simplified structure and extended forgiveness timelines
These changes are expected to spark a surge in private loan demand—particularly from new borrower segments that credit unions have traditionally not focused on: older parents, mid-career professionals pursuing graduate degrees, and borrowers entering specialized programs, Patterson explained.
What Credit Unions Should Be Doing Now
To meet the coming demand, Patterson urged credit unions to begin preparing now.
“Credit unions need to have strong solutions in place to meet this new need—ideally solutions that are provided directly by the credit union, with the interests of effectively serving the membership front and center,” he said.
Here’s what that looks like, according to Patterson:
- Expand product offerings: Traditional private student loan products focused on 18- to 23-year-olds won’t be enough. Credit unions will need flexible, purpose-built options for parents and graduate students—some of whom may be in their 40s, 50s or older
- Get underwriting right: With growing consumer demand comes rising risk. Credit unions must balance member access with responsible underwriting. Partnering with experts or CUSOs can help credit unions scale lending while maintaining sound credit practices
- Rethink the rate conversation: Federal loans aren’t always the lowest-cost option. Today’s federal PLUS loans carry rates near 9% and charge a 4%+ origination fee. In many cases, members with good credit could find better rates—and zero fees—through their credit union
- Focus on compliance and sustainability: As the private market grows, regulatory expectations will follow. Institutions must ensure their programs are transparent, fair, and aligned with long-term member success
A Once-In-A-Generation Opportunity
For credit unions already offering private student loan solutions, this shift presents a chance to deepen member relationships and diversify lending portfolios. For those not yet in the space, the 2026 start date provides a critical window to evaluate partnerships, develop new products, and enter the market thoughtfully, Patterson noted.
“Whether you like what’s in this bill or not, the need will be there,” Patterson added. “Credit unions have always stepped up to support their members—and this will be no different.”
So, what more do credit unions need to know?
“One of the biggest impacts will be to the PLUS loan programs,” Patterson explained. “That means parents and graduate/professional students—segments many credit unions haven’t focused on before—will now need better solutions. Even credit unions that already offer private student loans will need to expand their offerings to meet the needs of these new borrowers.”
These borrowers will no longer just be traditional 18- to 23-year-old undergraduates. The market will now include:
- Future professionals in their mid-to-late 20s for example—doctors, lawyers, MBAs, and PhD students
- Parents in their 40s, 50s, and beyond who are financing their children’s education
“Most current credit union student loan programs aren’t designed to serve these demographics, so we’re going to need new products,” he said.
Another key area is underwriting.
“With rising demand, it’s critical that credit unions manage risk carefully,” Patterson noted. “Credit unions need prudent, proven underwriting practices that still deliver fair value to borrowers. Partnering with a CUSO or other experts in the higher education financing space can be important.”
He also pointed out a widespread misconception about interest rates.
“People often assume federal student loan rates are low,” he said. “But take the current PLUS loan rates—8.9% with an origination fee over 4%. That can be expensive. Many credit unions are already offering better rates with no origination fees.”
While Patterson emphasized that federal loans—especially subsidized Stafford loans—still offer strong value and should always be evaluated first, he said there are many situations where a private loan from a credit union may be the better option.
“This is a clear opportunity for credit unions to create value for members in ways the federal government isn’t right now,” he said.
Patterson concluded by stressing that this is a moment of both need and opportunity for credit unions.
“At CU Student Choice, we’re passionate about helping consumers make more informed financial decisions, and we hope they discover community-focused credit unions as part of the solution,” he said. “Credit unions are already doing great work providing value to their members, and this is going to be an area with even greater need than before.”