As many students and families receive their 2025-26 college tuition bills, their payment strategies may need additional planning this year.  The One Big Beautiful Bill Act (OBBBA) introduced significant changes, including new loan limits for all degree programs and parents.  If the right decisions are not made this year, students and parents could be forfeiting hundreds of thousands of dollars.

These loan limit changes have received minimal press to date.  The new laws will change the way families borrow and fund their children’s education.  Currently, 92% of student loans are originated and owned by the federal government.  This federal loan policy changed in 2010.

Due to the increasing cost of college, the growing demand for postgraduate degrees, and the rising use of PLUS loans, federal student debt has skyrocketed for both students and parents.  Under the current borrowing, repayment, and forgiveness rules, the CBO has reported that the US government is losing approximately $0.20 per dollar lent.  As a country, we can no longer afford the current trends.

New Rules Require a Funding Plan to Graduation

Under the current process, colleges only provide one year of financial information to students and parents.  That lack of transparency will need to change going forward.  This system is especially true for the next three years.  Under the OBBBA, currently enrolled students have a three-year runway to operate under the old PLUS loan limits, which allow for PLUS loans up to the Cost of Attendance (COA).

To qualify, students and parents must have taken out a PLUS loan for each child’s education and be currently enrolled in a degree program.  There is some confusion about this rule; however, the parent must have taken out a PLUS loan for each enrolled student.  Just having the student enrolled and taking a federal loan does not count.

The reason why planning until graduation is so critical is to minimize the risk of not having enough funding to graduate.  Under the traditional borrower rules, deferring the debt is usually the decision.  Due to this year’s rule change, if the proper steps are not taken, borrowers may be subject to the new, more limited rules.

For proper planning, it is also essential to consider the needs of other siblings.  Each situation is unique.  With these new limits, families will need to think creatively for the optimal outcome.  Here is a chart explaining the new federal student loan limits for students and parents.

Maximizing the Three-Year Runway of Higher Loan Limits

The OBBBA three-year runway is crucial for families to understand and utilize effectively.  Parents will need to analyze the future financial needs not only of the current enrolled student but also of future siblings.

Starting with the high school graduating class of 2026, these new loan limits go into effect.  It will impact college lists and decisions of the rising high school seniors and their parents.  Under the new federal limits, traditional dependent students and their parents will be able to borrow approximately $92,000 over the first four years from the federal system.  At today’s current cost, this is just one year of the total cost of attendance.

The chart below illustrates the difference between the current funding options for enrolled college students and those starting on July 1, 2026.  It assumes that the family has a funding shortfall of $40,000 after the financial award is issued.

The most significant difference is the need to rely on private student loans sooner rather than later.  This change may not be a bad thing, but the biggest difference is that the private loans have a formal underwriting process, and depending on your financial strength, your interest rate will be based on that analysis.  Under the federal loan process, the underwriting process is minimal at best, making access to the loans easier.

The federal loan interest rate is a universal rate applied to all borrowers, determined annually in May.  They change each July 1 and are valid through June 30 of each year, based on the student’s enrollment timing.  Therefore, families will not be able to access the 2025-26 rules, as the loans are officially for the 2026-27 school year.  That is why the funding planning is so critical this year.

My recent article explains the difference between Federal and Private loans.

New Loan Limits Will Impact Younger Siblings

Starting July 1, 2026, the new loan limits go into effect for all new borrowers.  Another result of the OBBBA is the significant shift in funding sources that is likely to occur.  Currently, about 92% of student loans are funded by the Federal Government.  As you can see from the example above, that will change.  More borrowers will need to depend on the private sector for student loans or make different college decisions.

This increased dependence on private loans will silently impact the options of younger siblings and their parents’ ability to borrow.  In the example above, let’s say there is another sibling who is four years younger.  Keeping the math simple and avoiding increased costs or interest charges, the parents will incur an additional $123,000 in debt, which will be included in the second child’s private loan underwriting (Private loans: $14,500 x 4 plus $65,000 in federal Parent PLUS loans).

As a result, underwriting private loans for younger siblings will become more difficult and expensive.  This future change to private loans and formal underwriting has been understated to date.  Families should consider this change when making future college decisions.

End Federal Borrowing by June 30, 2026, to Improve Repayment Options.

I have not discussed the changes to student loan repayment, but those are also significant.  Most families do not engage in this planning, but it will be critical for families this year.  The students’ and parents’ debt structure determines their repayment and forgiveness options.  Federal loans offer the best options and are one of the primary reasons families use them as their primary borrowing solution.

Starting July 1, 2026, the rules in this area will also change.  The OBBBA’s focus is to simplify the repayment process and limit future debt exposure.  The loan repayment process is transitioning from nine repayment methods to two to three options.

For student borrowers, their federal loan repayment options will be limited to two options if they take out a federal loan after June 30, 2026.  You will still qualify for loan forgiveness and an Income-Driven Repayment (IDR) method.  If you can start repayment before July 1, 2026, then these student borrowers will have access to some of the legacy IDR methods and the IBR methods in the future.

For Parent PLUS borrowers, the rules are not that kind.  If you take a PLUS loan after July 1, 2026, borrowers with Parent PLUS loans will only have access to a new fixed repayment method and will lose access to all IDR methods.  Additionally, due to the lack of an IDR method, they cannot qualify for Public Service Loan Forgiveness (PSLF) in the future.

This change is another primary reason why effective debt planning is crucial for the 2025-26 school year.  If the proper strategies are in place, this could save families thousands of dollars.

Role of Private Loans in the Future, Especially Post-Grad Students

It may appear that I am not a fan of private student loans, and that is not true.  Each situation is different depending on the family’s options.  Private loans offer lower to no fees and better interest rates for borrowers with above-average credit.  The federal loan limits, both annual and lifetime, will force families to have a mixture of federal and private loans due to the rising cost of college.  Having a debt funding plan will be a necessity under the new rules.

New graduate students who plan to start after July 1, 2026, will be the first to see the impact of the change.  In the past, they had access to Grad PLUS loans, which were eliminated under the OBBBA.

For our example, we have a student who plans to attend graduate school starting on September 1, 2026, and the total annual cost at the school is $80,000.  Under the current rules, students can borrow up to 100% of that amount through a combination of federal loans.  Starting July 1, 2026, that will not be possible.

Future graduate students will qualify for a Direct Stafford Loan of $20,500 annually, leaving a balance of $59,500. Assuming no other funding is available and borrowing is the only option, this student will need to finance approximately 73% of the program through a private loan.  Previously, this was not the case.

It will have a formal underwriting process and, in many cases, require a co-signer for approval.  This formal underwriting will include the student’s undergraduate debt, both federal and, if they took private student loans, as the primary borrower on those loans with a parent co-signer, which will significantly increase their debt-to-income ratio.

The rules for professional schools, such as medical, dentistry, law, and others, have different limits (See New Limit chart above), but the process will be the same.

Paying Your College Bill Is Different for 2025-26 Summary

Over the years, the emotional decision to pursue a college education has often put access in front of affordability.  Due to the OBBBA rule changes, families will be required to invert that order, as additional funding will necessitate a formal loan underwriting process.  This year’s bill-paying process will be critical, as it will dictate your loan and repayment options over the next three-year transition period.

Due to the increasing complexity, people will need to start seeking professional advice.  Families often underestimate future costs because they are not transparent.  Colleges, state agencies, and high schools have promoted the FAFSA as the Free Application for Federal Student Aid, emphasizing the FREE part.  They make statements saying that you do not need outside financial advice.  As you can see, the cost of college continues to rise and things need to change.

PayForEd, along with its list of advisors who hold the College Funding and Student Loans Advisor (CFSLA) designation, possesses the training and knowledge to help families navigate this complex system.  They can add the transparency that is missing from the process.  The new college funding world will require knowledge in financial aid, college savings plans, educational tax planning, student loan structure, and repayment options.

For most parents, it is the largest financial decision they will make before retirement.  PayForED is here to help families make informed decisions.