Navigating Major Changes to Federal Student Loans

The federal playbook for student loans is shifting as the federal government steps back from some lending, leaving private lenders step in. If college is on the horizon for you or your child, expect a bit more planning up front, a little more rate shopping, and closer attention to timing. In this article, we’ll walk through the new borrowing limits, repayment choices for current versus future borrowers, and what’s changed for parents, grads, and public-service professionals—plus the key dates that matter most.

Borrowing Limits in 2026: What Changes for Undergrads, Grads, and Parents

Terminology check:

· Stafford Loan: a federal student loan to help undergraduate, graduate, and professional students pay for education expenses.  PLUS loans allow for borrowing in excess of Stafford Loan limits, which rarely cover the cost of tuition.

· Parent PLUS: a federal loan taken out by parents of dependent undergraduate students to help cover education costs not met by other aid. The loan belongs to the parent, not the student.

·Grad PLUS: a federal loan taken out by graduate or professional students for their own education expenses. The loan belongs to the student.

Starting July 1, 2026:

· Parent PLUS loans for undergrads will be limited to $20,000 per student per year, up to $65,000 total per student. Currently, parents can borrow up to the full cost of attendance.  Losing access to Parent PLUS loans means families with higher tuition costs will have to use private student loans to supplement their Stafford loans or other aid. Private loans often have higher rates and more stringent lending requirements.

· Graduate students will face new borrowing limits.  They can borrow up to $20,500 per year through the Graduate Stafford Loan, but no more than $100,000 total during their entire graduate program.  This lifetime limit increases to $200,000 for graduates in professional degree programs (law, medical, dental).

· Grad PLUS loans will go away.  Students use Grad PLUS loans to borrow additional government funds, since the Graduate Stafford loan only covers $20,500 per year. Without access to Grad PLUS loans, students will have to find other resources to cover graduate tuition that exceeds $20,500 annually. 

Plan Ahead:

·Expect a funding gap for many programs once government borrowing limits are maxed. Private loans have more factors to consider, including fixed vs. variable interest rates, prepayment flexibility, the need for a co-signer, and the time before a co-signer can be released from the loan.  Private loans don’t qualify for forgiveness – even at death in some cases – while federal loans qualify for various types of forgiveness and are discharged at death.

Repayment Going Forward: Standard vs. RAP

Starting July 1, 2026:

· Most new federal borrowers will pick between the standard repayment plan, which requires fixed payments over 10 years, and the new Repayment Assistance Plan (RAP). Legacy income-driven repayment plans like SAVE, PAYE, and ICR will be closed to new loans, so you don’t need to master them if you’re borrowing after that date.

·RAP will be the primary repayment method for anyone who can’t meet the higher loan payments required under the standard 10-year repayment plan.  Payments will be set at 1%–10% of income with a $10 monthly minimum. Some borrowers get interest help plus up to $50 a month toward principal. After 30 years of payments, the remaining loan balance can be forgiven, though, any forgiven amount will be taxable income starting in 2026. Note: this type of loan forgiveness is different than Public Service Loan Forgiveness (PSLF), though RAP payments can count toward PSLF.

Public Service Loan Forgiveness (PSLF): A New Focus on Employer Eligibility

Terminology check:

·Public Service Loan Forgiveness (PSLF) is a federal program that forgives the remaining balance on federal student loans after a borrower makes 120 qualifying monthly payments (about 10 years) under an income-driven repayment plan while working full-time for a qualifying employer. Eligible employers include government organizations and most nonprofits. Once approved, the forgiven amount is not considered taxable income, making PSLF one of the most valuable loan forgiveness options for public servants.

For current borrowers:

· PSLF remains. You’ll want to keep Employment Certification Forms up to date, watch your qualifying payment count toward the necessary 120 payments, and hang on to pay stubs and W-2s.

·Currently, denials and delays are pervasive with PSLF applications. The culprits are backlogs at the Department of Education and loan servicers, missing or mismatched employment records, ineligible loan types, and months in forbearance that don’t count toward PSLF. In March 2025, the Department of Education went through a large reduction in force, cutting headcount by nearly half, making matters even worse. The agency is now short-staffed across key offices, including financial aid, so processing and response times may be slower than usual.

· To protect yourself, submit an Employment Certification Form every year (and after job changes), and download your PSLF payment count each quarter so you can spot and dispute errors quickly.

· Current borrowers also need to keep tabs on whether their employer is and remains an eligible employer for PSLF.  An executive order signed in March of 2025 proposed regulations allowing the Department of Education to exclude employers from PSLF eligibility if they’re found to have a “substantial illegal purpose.” If finalized, parts of the rule could take effect as soon as July 1, 2026. Practically, that means your employer could become disqualified for PSLF while you are working there to earn your 10 years of service.  All service up to the point of the employer’s disqualification would still count, but employees would have to move to another qualifying employer to complete their PSLF.   To monitor this check your employer’s status once a year.

Conclusion

In conclusion, students and parents can now borrow less from the federal government for undergraduate and graduate degrees than before. Several repayment plans have been eliminated and replaced with the RAP, which takes 5 to 10 years longer to qualify for forgiveness. PSLF survived, though borrowers will need to be more patient in applying for forgiveness and vigilant in ensuring their employment qualifies for the PSLF requirement.

Ultimately, families do themselves the biggest service by minimizing student loans altogether.  Plan for college expenses, begin managing income during your student’s sophomore year of high school to maximize financial aid, and choose affordable schools that don’t require outsized debt.  Families in the process of selecting a school should consider using a Net Price Calculator, like this one from the NAPFA Foundation to help better understand your actual out-of-pocket costs at various schools.  As Ben Franklin said, “An ounce of prevention is worth a pound of cure.”