Federal Student Aid & Department of Education Updates

Significant changes are coming to federal student aid and the Department of Education’s role, with new legislation and executive actions reshaping how students and families pay for college.

Here’s what you need to know about the latest proposals and what they could mean for you:

There are two key points to remember. First, these changes are currently just proposals and would need government approval. Second, even if they are enacted, the changes would not affect the upcoming school year; they would take effect in 2026 at the earliest.

Proposed Updates for Federal Student Loans (Effective July 1, 2026)

  1. New Lifetime Federal Loan Caps
  • Undergraduate Students: $50,000 total federal loan limit
  • Graduate Students: $100,000 total federal loan limit (in addition to any undergraduate borrowing)
  • Professional Programs: $150,000 total federal loan limit (including any undergraduate and graduate borrowing)
  1. Elimination and Restriction of Loan Types
  • Grad PLUS Loans: No new Grad PLUS loans will be issued after July 1, 2026. Graduate and professional students will only be able to borrow up to the new aggregate limits through unsubsidized loans.
  • Parent PLUS Loans: Parents can only borrow if their student has maxed out their annual unsubsidized loan eligibility and still has unmet costs. The Parent PLUS loan limit will be capped at $50,000 per parent borrower, regardless of the number of children. These loans will count toward a new $200,000 lifetime federal loan limit per borrower.
  • Subsidized Loans: Subsidized loans for new undergraduate borrowers will end after July 1, 2026. All new undergraduate loans will accrue interest while the student is in school.
  1. Repayment Plan Changes
  • Borrowers will have just two repayment options: a standard fixed plan (with repayment terms of 10–25 years based on total debt) or a single income-driven plan with a 30-year forgiveness period.
  • Interest subsidies and “monthly loan forgiveness” features will be introduced for borrowers whose payments do not cover accruing interest.
  1. Pell Grant and Other Aid Changes
  • Pell Grant eligibility rules may be tightened, requiring students to complete more credit hours per year to qualify for the full grant.
  • Pell Grants may be expanded to cover short-term workforce training programs, not just traditional degrees.
  1. High Interest Rates Remain
  • For the 2025–2026 academic year, federal student loan interest rates are projected to remain high:
    • Undergraduate loans:39%
    • Graduate loans:94%
    • PLUS loans:94%

Additional Department of Education & Financial Aid Developments

  • Agency Changes: Oversight of student loans may move from the Department of Education to the Treasury or Small Business Administration, but the timeline is uncertain and requires Congressional approval.
  • Loan Servicing: If the agency shift happens, expect possible changes in customer service, repayment processing, and how you interact with your loan servicer.
  • Public Service Loan Forgiveness (PSLF): The Department has launched a new rulemaking committee to refine PSLF eligibility and improve federal student aid programs. More changes to PSLF and income-driven repayment are possible later this yea
  • Collections Resume: The Department will resume collections on defaulted loans as of May 2025, with new outreach to help borrowers return to repayment or enter income-driven plan
  • Tax Breaks May End: Tax-free loan forgiveness and the student loan interest deduction could be eliminated, affecting the cost of repayment for many borrowers.

What You Should Do

  • Stay Informed: Monitor updates from the Department of Education, your loan servicer, and trusted news sources as rules and agency oversight may change.
  • Plan Your Borrowing: Calculate how the new loan caps and loss of subsidized loans could affect your ability to pay for school.
  • Review Repayment Options: Understand the new repayment landscape and how it may affect your monthly payments and eligibility for forgiveness.
  • Consider Refinancing: If you have federal loans, refinancing with a private lender means losing federal protections and benefits so make this decision with caution, especially as federal policies change.
  • Ask for Help: If you’re confused or concerned, reach out to your school’s financial aid office or a financial advisor.

Bottom Line:
For now, not much has changed that will impact the upcoming school year. However, major changes could be coming to federal student aid, including new borrowing caps, the end of subsidized and Grad PLUS loans, tighter Parent PLUS rules, and fewer repayment options. These changes will take effect for new borrowers beginning July 1, 2026. Stay informed and plan ahead to make the best decisions for your education and financial future.

Disclaimer: This information is for informational purposes only and does not constitute financial advice. Please consult with a qualified financial advisor for personalized advice.