If you’re filling out the Fafsa this fall, the loan rules changed under you. The federal loan overhaul changed how much a family can borrow and how it pays the money back. Cheryl Winokur Munk lays out the changes in Thursday’s Personal Journal. The biggest one hits parents. They can’t borrow up to the full cost of school anymore.
Start with the student. Annual limits didn’t move. A first-year student can borrow up to $5,500, a second-year up to $6,500, and third-year and beyond up to $7,500. The rate on undergraduate loans disbursed from July 1, 2026, through June 30, 2027, is 6.52%, plus a 1.057% fee. What’s new is a lifetime cap of $257,500, and that includes any graduate-school loans later. Part-time students taking six to 11 credits now get a proportional amount. And a school can set a lower limit for a whole program, like education majors, as long as it applies to everyone in that program.
The parent cap
Now the parents. Parent Plus loans used to cover the full cost of attendance minus aid. Now they’re capped at $20,000 a year and $65,000 total per child. The rate is 9.07%, with a 4.228% fee. Kim Cook of the National College Attainment Network tells families to plan for four to six years, not one. At the $20,000 yearly max, the $65,000 total runs out partway through the fourth year. The government runs a credit check, but there’s no test of whether you can afford the payment. “It’s still very possible for parents to get into unaffordable Parent Plus debt,” says Betsy Mayotte of the Institute of Student Loan Advisors.
Repayment changed too. New student loans go into either the Repayment Assistance Plan, called RAP, or a Tiered Standard Plan. RAP replaces the discontinued SAVE plan. It generally means higher monthly payments and forgiveness after 30 years, versus 10 to 20 before. Parents who borrow after July 1 get only the Tiered Standard Plan. Advisers expect more families to turn to private loans to fill the gap. Fixed rates there run from about 2% to roughly 18%, depending on credit.
Our read
This is Cash Flow, M5, and it’s a story about a gap. The school’s price didn’t fall. The federal money that used to cover whatever was left did. The gap lands on savings, on private loans, or on a cheaper school. For our educator readers there’s a twist worth knowing. Schools can now set lower loan limits for education majors specifically, so ask the aid office what your child’s program allows before you count on the federal max.
Your check this week is one sheet of paper per child. Write the cost of attendance, subtract the aid letter and the student’s own federal loan, and see what’s left. Then compare that number, times four years, with the $65,000 parent cap and the 529 college account or other college fund you’ve actually got. If the gap shows up in year four, you want to know that this fall, while there’s still time to change the school list or the savings rate. Bring that sheet to a review and we’ll check the math with you. Nobody wants to find the ceiling partway through senior year.