Former judge warns new federal student loan caps may increase bankruptcy filings

Former U.S. Bankruptcy Court Judge Sarah Sharer Curley has warned that new federal borrowing limits for graduate and professional students could lead to an increase in personal bankruptcy filings. The warning follows the passage of Public Law 119-21, which began limiting federal graduate and professional borrowing on July 1, 2026.

Under the new law, annual Direct Unsubsidized loans are capped at $20,500 for graduate students outside professional programs and $50,000 for professional students. Aggregate limits are set at $100,000 and $200,000, respectively. Additionally, the legislation ended new federal graduate and professional PLUS loans, though a transition exception exists for students already enrolled in programs as of June 30, 2026.

Curley expressed concern that these narrower federal options will force students to seek private financing at significantly higher interest rates. She cited a hypothetical scenario where a $300,000 medical school loan at a 16% interest rate would result in monthly payments exceeding $5,000.

Data from the Administrative Office of the U.S. Courts shows that nonbusiness bankruptcy filings reached 549,577 in the 12 months ending December 31, 2025, an increase of approximately 11.2% from the previous year and roughly 47% higher than the 374,240 filings recorded in 2022.