The Very Important Change to Federal Loans That Parents of New College Students Must Understand

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Parents of this fall's first-year college students face a new $20,000 annual cap on federal PLUS loans, plus a $65,000 lifetime limit per child. The limits take effect July 1 under the One Big, Beautiful Bill Act (OBBBA), and they're already reshaping the aid letters landing in mailboxes this spring. A financial aid offer letter, typically sent to families before the school year begins, spells out the estimated cost of tuition and fees. It also shows the assistance the school will provide and the federal aid, like Pell Grants and federal student loans, that students can receive. College students attending school in 2026-27 are the first to face the changes from OBBBA, which also include shifts to federal grants.

For the 2026-27 academic year, college students and their families will be the first to face significant changes to student loans and the financial aid system from the One Big Beautiful Act.

The biggest change is to Parent PLUS loans, which parents or guardians can take out to cover a child's college costs.

Under previous rules, parents could borrow up to the full cost of attendance each year, with no lifetime cap per child. Starting in 2026-27, parents of new college students can borrow no more than $20,000 a year, with a $65,000 cap per child.

This change only affects parents of first-year college students. Parents of children already in school before July 1, 2026, can still borrow PLUS loans up to the pre-OBBBA limit.

The new caps affect relatively few parents. During the 2019-2020 academic year, nearly 8% of parents of undergraduates borrowed a PLUS loan, and the median loan amount was $13,732, according to the most recent comprehensive federal data. Among those borrowers, almost 30% had borrowed more than $20,000, and about 22% of parents of college students nearing graduation had cumulatively borrowed more than $65,000.

Schools have long auto-included Parent PLUS loans on aid letters, sizing the line to whatever gap was left after grants and other aid—often $30,000 or $40,000 a year with no ceiling, said Jack Wang, a college financial aid advisor at Innovative Advisory Group.

Now, schools often pre-fill the PLUS line by dividing the new $65,000 lifetime cap over four years. "The schools are including the Parent PLUS loans, and they are just showing up as about $15,000, even though the annual limit is $20,000," he said.

Unless a Parent PLUS borrower requests a deferment, they must begin repayment immediately. College student borrowers can wait until they graduate. That means parents of students already enrolled who borrow a PLUS loan during the 2026-27 academic year will be the first borrowers to face a different—and likely more expensive—repayment system.

Parents who have already taken out PLUS loans and consolidate their debt can access an income-driven repayment plan that lowers monthly payments based on their income. However, under OBBBA, parents who take out PLUS loans after July 1, 2026, must make payments under a newly created repayment plan for 10 to 25 years, depending on their loan balance.

“This simplified repayment plan structure is easier to understand, but definitely less flexible for most borrowers,” Wang said.

Once students receive their award letter, they should understand what aid they're getting and the conditions that come with it, Wang said.

Some scholarships cover all four years; others only one. Some require the student to maintain a specific grade-point average.

Colleges also have different ways of adding up the cost of attendance. Some may include indirect expenses, such as books, transportation and food. A Government Accountability Office report found that most higher education institutions underreport costs, and surveys show that parents often find college ends up costing more than they expected.

"I've had parents say, 'Well, School A is $2,000 cheaper than School B.' But then, when you look more closely, you realize that School A did not include the indirect costs," Wang said. "So once you factor that in, School A might be a little bit more expensive."

Some families may need to shift their plans if they can't afford the tuition, Wang said. Given the new limits on Parent PLUS loans, some families will need to take out private student loans or find other financing options.

"Families and students definitely have to have more realistic expectations ... because of these loan limits," Wang said. "Families should consider alternative funding sources, such as scholarships or fellowships."

Wang also said more families can expect to have tough conversations with their college-bound senior about choosing a cheaper school.

"I would think, with all the new rules, that there's going to be a huge amount of 'summer melt' this year," Wang said, referring to students who accept offers but don't end up enrolling. "As families go to borrow more money from other sources and get turned down, or they get approved at a super high interest rate... there's probably going to be a lot of families that say, 'Sorry, Kid, we just can't do it. You have to go somewhere else.'"

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