The Impact Of The One Big Beautiful Bill Act's Federal Student Loan Limits On Law Schools • TaxProf Blog

Following up on my previous post, Law Schools Are Unprepared For A Likely Coming Cap On Federal Student Loans: Steven Chung (Tax Attorney, Los Angeles), The Big Beautiful Bill Will Limit Federal Student Loans, Hoping To Fix A Big Ugly $1.7T Mess:

[The One Big Beautiful Bill Act caps] annual federal loan borrowing to $20,500 per year. For professional schools (including law schools), the annual amount is increased to $50,000. Also, the total amount of loans will be capped at $100,000 for master’s degrees and $200,000 for professional degrees. Under the current plan, borrowers can pay the full cost of attendance through GRAD PLUS loans.

Law schools will need to limit their total cost of attendance to $66,666 per year so their students will be able to fully finance their education through federal loans. Many law schools will not meet this requirement due to local housing costs. At some law schools tuition alone exceeds this amount.

Students will be responsible for covering any shortfalls. Some may have savings or family assistance. But some won’t have these resources and may have to consider not attending.

That brings us to the main argument against capping loans. Qualified people with low-income backgrounds and no financial resources will not be able to afford an education with which to obtain social mobility. They will have to resort to obtaining private loans.

Private lenders do not accept all loan applications as they do a routine credit check. Assuming an applicant gets a private loan, they may not get much sympathy from their servicer if there is a financial emergency such as a layoff. Most private loan companies do not have IDR plans so borrowers must stay with their agreed payment plan unless they qualify for a forbearance. Also, private loan companies have strengthened creditor protections in case a borrower decides to file bankruptcy. Bankruptcy petitioners must show that they will suffer “undue hardship” if they are forced to pay the loan in full.

Indeed it is unfortunate if some people will not be able to attend law school due to loan maximums. But many law schools were established with the working class in mind. If a large percentage of the student body find themselves unable to pay tuition, room, and board, schools may have to lower tuition or risk losing so many students that they will not have enough money to operate.

Also, at the undergraduate level, many top schools are offering full scholarships based on financial need. So long as a family earns below a certain amount, and has assets below a certain value, students will qualify. No law school has followed this model but will most likely be used by top schools that generally have large endowments. …

It will take a few years to see how schools will react to federal loan caps and whether it will start reducing the total student loan debt. Will schools keep their tuition steady and hope their students find creative ways to obtain the necessary funding? Or will they be forced to cut tuition and operating costs in response?

One odd thing about law school prices is that schools often pair a high sticker tuition price with large tuition discounts to most of the class. I wonder if the new caps on borrowing might add pressure to change that.

Not totally sure how it would play out. Maybe there would…

— Orin Kerr (@OrinKerr) July 5, 2025