Student Loan Changes: Insightful Tips for Maximizing Upcoming Finance Options
The federal government has announced significant changes to student loans, marking the most substantial shift in over a decade. Known as the One Big Beautiful Bill (OBBB), these changes will reshape how families borrow and repay for higher education.
One of the key aspects of the OBBB is the expansion of eligibility and support amounts for students. This is achieved through legislative amendments such as the adjustments to the Federal Training Assistance Act (BAföG). The aim is to benefit more students by increasing funding and reducing financial burdens.
Historically, Parent PLUS loans have accounted for approximately one-third of total federal undergraduate borrowing annually. However, the OBBB introduces new limits for Parent PLUS Loans. A cap of $20,000 per year and $65,000 in total per student has been set. This means families who borrow for all four years of a bachelor's degree could hit the ceiling.
Graduate students will see the Grad PLUS Loan program phased out starting July 1, 2026. Graduate borrowing limits for federal Direct Subsidized and Direct Unsubsidized Loans will increase by roughly 14% to 23%.
For those who have taken out, or plan to take out, a Parent PLUS or Grad PLUS loan before July 1, 2026, you'll be exempt from the new rules and can continue borrowing under the current program structure for up to three academic years or until your degree is complete.
When it comes to repayment, there's no immediate action required. You can remain on your current repayment plan until at least July 1, 2028. However, when repayment does start, borrowers will have the option to choose between a standard repayment plan and a Repayment Assistance Plan (RAP). Borrowers under the RAP will have monthly payments tied to household income, starting as low as 1% and capped at 10%.
Refinancing federal loans into a private loan might make sense for some borrowers, especially if you can secure a lower rate or shorter repayment term. However, it's important to note that refinancing federal loans means giving up access to such protections as income-driven repayment and potential future loan forgiveness programs, so weigh your options carefully before making a decision.
For families just beginning the college planning process, it's crucial to understand the net price - what they'll actually pay after scholarships and grants - before committing to a school. Tools such as Citizens' College Match can help compare schools by cost, potential aid, and overall affordability.
It's also advisable for those anticipating needing to borrow beyond Federal Direct Loans to start rate-shopping for private loans early. If your credit profile needs work, this gives you time to improve it or line up a qualified co-signer who could help secure better terms.
In conclusion, the OBBB brings significant changes to federal student lending, and it's essential for families to understand these changes to make informed decisions about their higher education financing. It's critical to identify programs that are a good fit both academically and financially.
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