As of the 2026-27 academic year, many parents of college-going students are grappling with a significant shift in federal student loans, known as “One Big, Beautiful Bill.” The bill imposes an annual limit of $20,000 on Parent PLUS loans. This is a considerable reduction compared to the previous framework, where the limit extended to the cost of attendance at the student's school.
Consequently, around 30% of current Parent PLUS borrowers are likely to encounter challenges with the new limit. Furthermore, circa 22% will feel the pinch of the aggregate cap, which the bill sets at $65,000 per child. While the limit on federal student loans accessible by undergraduate students remains unchanged, the restrictions on Parent PLUS loans will inevitably curtail federal financing options for some families.
This change in student borrowing landscape disproportionately impacts middle-to-higher income families who do not qualify for Pell Grants. Roughly half of the families earning over $130,000 annually borrowed more than the annual limit, suggests the Brookings Institution. Consequently, these families are now tasked with finding alternative ways to finance their children's ever-increasing college costs.
Jack Wang, a college financial advisor at Innovative Advisory Group, and host of the Smart College Buyer podcast, reminds parents that planning becomes essential. Families must calculate the anticipated cost of a four-year undergraduate degree to ensure affordability in light of the new loan limit. They must be prepared with a different strategy for the fourth year if they intend to borrow the maximum amount each year, he advises.
Once families exhaust federal loan options and lack the needed funds, they typically look into private student loans. These loans have unique drawbacks – they are typically more expensive due to higher interest rates and lack forgiveness programs that federal loan borrowers enjoy. It's crucial for families to understand these differences while considering private loans, says Wang.
Additionally, personal loans, such as home equity loans, bank loans, or 401(k) loans, are sometimes tapped to cover educational expenses. Families must tread cautiously, warns Wang, as these should typically not be used to finance education. Misused, these can put the borrower's home at risk or draw from crucial retirement savings.
In light of the changes, families must reassess their financial strategies, advocate for federal aid and scholarships, and compare all available options to secure their children's academic future.