KBRA releases research that examines the One Big Beautiful Bill Act's (OBBBA) potential to increase student loan ABS issuance beginning in July 2026 by creating a structural funding gap in graduate education. By capping federal borrowing and eliminating Graduate PLUS (Grad PLUS) for new borrowers, the legislation will shift incremental loan demand toward private lenders—some of which rely on securitization as a core funding source. In this report, we examine the size of the funding gap and discuss how the legislation could drive higher student loan ABS new issue volumes.

Key Takeaways

• The OBBBA is likely to create a structural funding gap of approximately $10 billion-$12 billion per year in graduate education, as new federal loan caps and the elimination of Grad PLUS for new borrowers constrain borrowing capacity, particularly in high-cost professional programs.
• We do not expect displaced federal borrowing to convert one-for-one into private lending, reflecting the fact that private student lenders underwrite more selectively than the federal government. The Federal Reserve estimates that 60% of the funding gap will migrate to private lenders, implying approximately $6 billion-$7 billion of incremental annual private student loan originations.
• While it remains uncertain how much of the funding gap will ultimately be absorbed by private lenders—and, in turn, how much of that incremental lending will be financed through the ABS market—we anticipate the shift to a capped federal lending framework to provide a meaningful tailwind for student loan ABS issuance over time.

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1014996

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