Big Changes to Student Loans
After several years of paused payments, temporary relief, and forgiveness announcements, the federal student loan system is finally settling into a new structure. The recently passed One Big Beautiful Bill Act (OBBBA) brings sweeping and permanent changes to how families borrow and repay college loans. While some updates may benefit borrowers—like faster forgiveness timelines—others limit access to federal funds and increase costs, particularly for parents and graduate students. Here are the key changes that could affect how your family plans and pays for college.
New Loan Limits
- Undergraduate Students: Annual borrowing limit for dependent students remains unchanged at $5,500 first year, $6,500 second year, $7,500 third year and beyond, with a federal loan cap of $27,000 over four years & $31,000 for students taking longer to complete their degree.
- Parent PLUS Loans: These loans, taken out in the parents’ name, are now capped at $20,000 per child per year, with a $65,000 lifetime limit per student.
- Graduate Students: Graduate PLUS loans, which allowed students to borrow up to the total cost of attendance, minus any financial aid given, are being eliminated. They are being replaced by direct unsubsidized loans, with lower overall limits: $20,500 annual limit and a $100,000 lifetime cap ($50,000 annual limit & $200,000 lifetime limit for professional degrees).
- New Overall Cap: A maximum combined lifetime borrowing limit of $257,600 now applies across all federal loan programs (excluding Parent PLUS loans).
Repayment Options Are Being Reduced
Starting July 2026, only two repayment plans will be available for new borrowers:
- Standard Repayment Plan: Fixed monthly payments based on total loan balance.
- Repayment Assistance Plan (RAP): A new income-driven plan tied to Adjusted Gross Income. RAP subsidizes unpaid interest (so it doesn’t accumulate) and offers loan forgiveness after 30 years of payments.
Current borrowers using plans like SAVE, PAYE, REPAYE, or IBR can continue on those plans until July 1, 2028, but no new enrollments will be allowed after that date.
Important for Parents: Parent PLUS borrowers will face higher minimum payments and fewer repayment flexibility options under these changes.
Forgiveness Will Be Faster and Tax-Free (For Now)
There’s some good news for borrowers nearing the end of their repayment timeline:
- Forgiveness is now available in as little as ten years for borrowers with lower loan balances.
- Any student loan debt forgiven through 2030 will be tax-free, removing what used to be a significant tax burden for many.
Planning Ahead Is More Important Than Ever
With federal borrowing options becoming more limited, and in some cases more expensive, families may need to explore additional ways to fund higher education. If you anticipate borrowing more than the federal limits allow, private student loans may help fill the gap.
Some private lenders currently offer fixed APRs as low as 3.19% (based on credit) with no origination fees, and soft credit checks that won’t impact your credit score.
By comparison, Federal Parent PLUS Loans currently carry a fixed interest rate of 8.94% and a 4.228% origination fee.
Next Steps
To make sure you’re ready for the upcoming school year:
- Start by completing the FAFSA, which is required to access all federal student loans, including the Federal Direct Student Loan (FDSL)
- The FAFSA for the 2026–2027 school year opens October 1, 2025, so aim to submit early to maximize aid eligibility
- Complete required entrance counseling and your Master Promissory Note (MPN) as soon as your loan is approved
- Compare loan options before borrowing, especially if you’re considering PLUS loans, which may carry higher interest rates and fees than some private options
As these changes take effect, it’s important to reassess your college funding plan and consider all available options to support your family’s financial goals.
For full details, you can read the official update from the U.S. Department of Education »