Parents Of Future College Students Lose Big With Higher Ed Changes

Parents trying to help their children pay for college may soon find themselves struggling to navigate the updated Federal student loan rules. The massive overhaul of student loans in the One Big Beautiful Bill sets new caps on Parent PLUS Loans, while also cutting off access to affordable income-driven repayment plans.

These changes impacting parents, along with no changes to make college easier to afford for undergraduates, simply puts pressure on parents who are already struggling to help their children pay for college.

Under current rules, Parent PLUS borrowers can take out loans up to the full cost of attendance. However, starting July 1, 2026, parents can only borrow up to $20,000 per student per year, with a lifetime cap of $65,000.

While there is a three year grace period for parents who’ve already borrowed a Parent PLUS loan prior to 2026, that doesn’t help new parent borrowers next year.

That may seem like a sizable amount, but with the average cost of college climbing, many parents (and students) may not be able to close the gap without private student loans.

How Families Pay For College

Today, many families use a combination of both savings, current income, and student loans to pay for college. Roughly two-thirds of college graduates have student loans, and parents play a big role in this.

Parent PLUS Loans make up almost 10% of the total Federal student loan portfolio, and there are over 3.7 million parent PLUS loan borrowers today, according to the most recent data.

This issue at hand is that undergraduate students are extremely limited in what they can borrow for college. The current limits range from $5,500 to $7,500 per year for dependent students. These caps have not kept pace with inflation, and have not changed since 2008 – over 15 years ago.

Once the student borrows to their limit, parents are usually the ones making up the shortfall. And they have a choice: Parent PLUS Loans or private student loans. And both options have pros and cons – but the Big Beautiful Bill is tilting the scales significantly towards private loans.

Parent PLUS Loans Become Worse Than Private Loans For Many

There were a few major reasons why families would want to choose Parent PLUS Loans over private student loans:

• Minimal credit qualifications (you simply cannot have adverse credit)
• Access to income-driven repayment (specifically Income Contingent Repayment)
• Access to Public Service Loan Forgiveness (PSLF)

However, the Big Beautiful Bill is eliminating the last two options. Future Parent PLUS Loans will only be able to be repaid via the new Standard Repayment Plan. The will not have access to the new Repayment Assistance Plan (RAP).

The result of that change is that future Parent PLUS Loans also cannot access PSLF. PSLF requires borrowers to repay their student loans under specific eligible repayment plans. The current ICR plan is eligible, and the new RAP plan is eligible. Technically, the Standard 10 Year plan is eligible – but that’s moot, because a borrower would fully repay their student loan before receiving any loan forgiveness.

These changes take away some of the biggest benefits of Parent PLUS Loans. And when you combine the loss of benefits with the high interest rate – 8.94% for 2025-26 and the 4.228% origination fee required for these loans – private loans suddenly look a lot more appealing.

The lowest private student loan rates hover around 3.24% APR, and while they don’t offer income-driven repayment or loan forgiveness, neither do Parent PLUS Loans in the future.

Families that have decent credit could reduce their interest rate by 50% or more by looking at private loans, and be left with effectively the same repayment options.

Families Will Be Faced With Tough Choices

With federal borrowing limits tightening for parents, and not increasing for students, families will be faced with tough choices. What college do you attend? Can you afford it? Are you credit-worthy enough to get private loans, or will you be stuck with the higher interest and origination fee Parent PLUS Loans that now offer no benefits?

For parents of multiple children with limited savings, this is even a tougher conversation.

Generally, I think parents should avoid borrowing for their children’s college. But the reality is many parents will. Many families still hold the belief that colleges is worth it at any cost, but the truth is that there are limits on the value of a four year degree.

Parents should get ahead of the conversation and make sure that their student knows exactly what a parent can afford before the college admissions process starts. Students should be crafting a college list based on schools they know they can attend financially.

Final Thoughts

While Parent PLUS Loans have historically been left out of income-driven repayment for a variety of reasons, they have also been the most profitable student loans for the government. It’s odd they would make it more difficult to borrow, as the revenue from these loans offsets other losses in the student loan portfolio.

Regardless, the end result is that parents and families will likely look at private loans more in the next year, since the key benefits of Parent PLUS loans have been eliminated.