How do the new federal student loan caps affect how we pay for college?

The New Loan Rules Are Now in Effect

The federal student loan changes passed in 2025 took effect on July 1, 2026, and they apply to this year's applicants. Parent PLUS loans are now capped at $20,000 per year and $65,000 lifetime per dependent student, down from the previous unlimited borrowing up to the full cost of attendance. Grad PLUS loans are eliminated for new borrowers, replaced by higher unsubsidized limits for graduate students ($20,500 per year and $100,000 aggregate for most programs, $50,000 and $200,000 for professional degrees like medicine and law). A new lifetime cap of $257,500 applies across a student's own federal loans, though Parent PLUS borrowing is excluded from that total. These changes represent the most significant restructuring of federal student lending in decades.

What Did Not Change for Undergraduates

Despite early proposals, subsidized Direct Loans for undergraduates were not eliminated. Undergraduate students remain eligible for both subsidized and unsubsidized Direct Loans at the same annual limits as before (up to $31,000 aggregate for dependent students, of which $23,000 can be subsidized), and the government still pays interest on subsidized loans while the student is enrolled at least half-time. The one new wrinkle: loan amounts are now prorated for students enrolled less than full-time.

Rules for Families Already Borrowing

Parents who received a PLUS disbursement for a student before July 1, 2026 can keep borrowing under the old rules for up to three years or the student's remaining program time, whichever is less. The same three-year legacy window applies to graduate students who already had Grad PLUS loans in their current program. This means families with students already in college have some breathing room, but younger siblings and new enrollees face the new caps in full.

Repayment Also Changed: RAP Replaced SAVE

The Repayment Assistance Plan (RAP) opened on July 1, 2026 and is the only income-driven option for loans first borrowed on or after that date. Payments run 1-10% of income with a $10 monthly minimum, unpaid interest is waived for on-time payers, and forgiveness comes after 30 years. The SAVE plan is gone: former SAVE borrowers are being moved off it, and the older PAYE and ICR plans sunset on July 1, 2028, when remaining borrowers who have not chosen a plan will be moved into RAP automatically.

Why This Matters

The Parent PLUS cap of $20,000 per year often will not cover the gap between financial aid and total cost at higher-priced institutions, where that gap can exceed $40,000 a year. Savings, outside scholarships, institutional merit aid, and net-price comparisons between schools now matter more than ever, and families need to model the full four-year cost before committing, not just year one.

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