The high school senior class of 2026 will be the first college class facing the new federal loan limits for both students and parents.  It is a significant change from the current Cost of Attendance limit rules.  Starting July 1, 2026, all new undergraduate students will be subject to new federal loan limits.  The new federal loan limit is $92,000 over the first four years.

The $92,000 federal loan cap is the combination of a student cap of $27,000 and a parent cap of $65,000 for the traditional dependent student and their parent.  There are also annual limits for students and parents, as displayed in the example below.

These changes are all part of the One Big Beautiful Bill Act (OBBBA) signed in July 2025.  These federal loan limits changes have been discussed for years.  Due to the increasing cost of college and the growing delinquency rate of loan repayments, the government has taken this action.

This article will explain the changes and how families need to navigate the new world of college financing.

Current Cost of Attendance (COA) Rules Vs New Limit Rules

The current rules for PLUS loans apply to parents of undergraduate and graduate students.  They are called Parent PLUS loans and Graduate Plus loans.  They are used to fill the funding shortfall that exceeds the COA, less any financial aid the student receives.

For our example we are using a first year undergraduate student.  The program costs $75,000 and the student receives $30,000 in financial aid.  This financial aid includes the Direct Federal student loan.  Under the  old rules the parent would have been eligible for a PLUS loan of up to $45,000 for that specific year.  Depending on the COA, the PLUS loan borrower under the federal program may be eligible for financing.  Eligibility requires a credit score above 630 and no current adverse credit defaults that are more than 90 days old.  There is no formal loan underwriting process in place.

The federal approval process remains unchanged, but the difference lies in the amount the federal government will allow each year per child and per family.  In the future, the federal government will limit its exposure to a certain amount per student.  The annual Parent PLUS loan has an annual limit of $20,000 per year.  For the entering undergraduate first-year student (Fall 2026) in our example, a private loan or alternative financing option would be needed for $25,000.

The rules for graduate school are slightly different, which will be covered in a separate article.

Families Need to Have A Plan to Graduation

With these new loan limits, parents will need to do more financial planning to ensure they can afford the costs associated with their children’s education.  If the proper debt planning is not done correctly, the student runs the risk of not being able to graduate from their dream school.  The parent may not be able to obtain the necessary funding above the federal limits due to the formal loan underwriting process required for private loans.  This underwriting process is similar to a car loan or mortgage.

In the chart below, we can see the need for additional financing, as indicated by both the students’ and parents’ new loan limits.  Under the new process, a new loan will need to be applied for and undergo a formal underwriting review each year.

Impact of Accumulating Debt and Other Siblings

In the chart above, we can see the accumulation of the debt for this specific child.  I am assuming that the family uses a Private Student loan.  Private Student loans are loans in the student’s name with the parent as a cosigner.

What most parents don’t understand is that the private loan is not legally their responsibility, but by cosigning, it will appear on their credit report.  Cosigners can be removed once the student borrower demonstrates the ability to make payments independently.  To be released as a cosigner, the borrower must demonstrate a good payment history for 36 to 48 months, and an additional review will be conducted for removal.

In any formal loan review, the borrower and cosigner will need a good credit history.  As part of the underwriting approval process, a debt-to-income analysis will be done.  This analysis will determine the interest rate the borrower will receive and the approval.

As you can see in the above example, the students’ and parents’ debt-to-income ratio is getting worse each year.  The higher debt-to-ratio factor will likely increase the interest rate of each year’s private loan.  The parents’ debt is rising due to both the Parent PLUS loans and private loans as cosigners.

For some parents, the consequences could be worse.  Suppose you have already cosigned or have Parent Plus loans for other children.  In that case, the future sibling will be affected by your overall debt-to-income ratio in any new loan underwriting process.

Currently, 92% of student loans are funded using federal loans due to their easy access and favorable repayment terms.  In the past, most families did not need to worry about these limits in the college decision.  These new federal loan limits alter the process and necessitate more thorough planning.

Building Your College List with the New Loan Limits

As you can see, the financial aspect of college funding has undergone significant changes.  Families should still build a list that includes the desired colleges.  Under these new loan limits, you need to include a few colleges where the use of private loans will be minimal.

As the chart above indicates, a four-year plan should be developed for each college on your list.  Under the previous PLUS loan rules, this was not required.  In the future, since there will be a formal underwriting review for loans exceeding the annual federal limits, families will need to understand the future risks and costs associated with funding.

The career path decision may also be a factor, as the loan limits have changed for all postgraduate programs.  So, if the desired career requires a postgraduate degree, the loan limits for graduate school are also lower, depending on the type of degree.  In the past, parents were not involved in financing postgraduate degrees.  That has also changed.

Conclusion of the New $92,000 Federal Loan Limit

As some of your elite colleges are over $92,000 per year, affordability becomes a bigger factor in the future.  Now, families can only borrow up to $92,000 for the first four years without undergoing a formal loan underwriting process.  Having a plan to fund until graduation will become the new norm.  PayForEd and its listed advisors, who hold the CFSLA designation, have the expertise to help you navigate these new changes.

Private loans are not inherently evil.  In many cases, private loans may be required and can be cost-effective for funding a child’s education and desired career.  The proper use of cash flow, savings, assets, and borrowing is the new reality that families will face in the current college funding landscape.