Education Department overhauls student loans, sets new borrowing caps

The Education Department has capped new Parent PLUS loans at $20,000 a year and $65,000 per student, while ending Grad PLUS borrowing and rolling out two new repayment plans that take effect July 1.

For dependent undergraduates, the change lands on parents. Loans originated after July 1, 2026, are no longer open-ended: Parent PLUS borrowing is limited to $20,000 per year and $65,000 over a lifetime for each student. Until now, the program had allowed parents to borrow up to the full cost of attendance. That cap will force some families to rethink college choice, cover gaps with savings or current income, or look to private credit if the federal loan no longer reaches the tuition bill.

Graduate and professional students face a sharper cutoff. Grad PLUS loans are being eliminated beginning July 1, ending a program that since 2006 had let borrowers cover the full cost of attendance without an aggregate cap. Graduate students made up 16.8% of borrowers in 2024-25 but received 46.6% of total loan disbursements, and Department data show that concentration helped drive a federal student loan portfolio that has tripled to nearly $1.7 trillion. Nearly 25% of borrowers are in default. Twenty-five states and Washington, D.C., sued the department in May over the new graduate limits, saying the rule narrows which degree programs qualify for the higher professional borrowing cap and could squeeze access to health-care careers.

The department is replacing income-contingent plans with a new Repayment Assistance Plan and a Tiered Standard plan. Under the new income-driven option, monthly bills will range from 1% to 10% of income, depending on earnings, and will fall by $50 for each dependent. Borrowers who pay on time will not be charged remaining unpaid monthly interest, and they can receive a matching principal payment of up to $50 a month if their payment does not reduce principal by at least that much. Department data show 3 out of 4 borrowers in income-driven repayment still owe more than they borrowed six years after entering repayment.

The department delayed involuntary collections, including wage garnishment and Treasury offsets, in January to give borrowers time to adjust, and it will now let defaulted borrowers rehabilitate a loan twice instead of once. Borrowers enrolled in auto pay will get a 1 percentage point interest-rate reduction starting July 1 if they enroll by September 30.