If your child is starting college this fall — or still working through a degree — federal student loan interest rates just went up. New rates take effect July 1, 2026, and apply to every new loan issued thereafter. On top of that, Congress passed new borrowing limits that cap how much students and parents can borrow. Some of those caps are significantly lower than what families had access to before.

These changes affect real money. Knowing them now gives your family time to plan before those loans are issued.

The New Student Loan Rates for 2026–2027

Every May, the federal government resets student loan interest rates for the upcoming school year. They use the 10-year U.S. Treasury note yield and add a fixed amount set by Congress—the rate locks in for the life of each loan.

Here is what changes on July 1, 2026:

• Undergraduate Direct Loans (Subsidized and Unsubsidized): 6.52% — up from 6.39%
• Graduate Direct Loans (Unsubsidized only): 8.07% — up from 7.94%
• PLUS Loans for Parents: 9.07% — up from 8.94%

These are not dramatic jumps. But when you multiply a rate increase across four years of loans, the difference adds up. A student who borrows $20,000 over their undergraduate years will pay more in total interest than they would have under last year's rates. Small percentages add up to real dollars over a 10- to 25-year repayment term.

Subsidized vs. Unsubsidized: This Difference Costs Money

Most families treat these two loan types as the same thing. They are not.

With a subsidized loan, the federal government pays the interest while your student is in school, during the six-month grace period after graduation, and during any approved deferment period. The balance does not grow during that time. Subsidized loans require financial need, as determined by the FAFSA.

With an unsubsidized loan, interest starts building the day the loan is issued. If your student does not pay the interest while in school, it is added to the loan balance after graduation. That process is called capitalization — and it means they end up paying interest on top of interest before they earn their first paycheck.

If your student qualifies for subsidized loans, take them first—every time.

New Borrowing Caps Change How Much Families Can Take Out

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, created new borrowing limits that take effect July 1, 2026. These caps apply to loans issued on or after that date.

Undergraduate students (dependent):

• 1st year: $5,500 (max $3,500 subsidized)
• 2nd year: $6,500 (max $4,500 subsidized)
• 3rd, 4th, 5th year: $7,500 (max $5,500 subsidized)
• Lifetime maximum: $31,000 (max $23,000 subsidized)

Graduate students:

• $20,500 per year
• $100,000 lifetime maximum (the previous limit was $138,500 — that is a significant cut)

Professional graduate students (law, medicine, and similar programs):

• $50,000 per year
• $200,000 lifetime maximum
• Combined undergraduate and graduate lifetime limit: $257,000

If the cost of attendance at your student's school exceeds what federal loans now cover, that gap has to come from somewhere — private loans, savings, scholarships, or work. Planning for that gap starts now, not after the loan offer arrives.

Parents: Your PLUS Loan Was Just Capped

Before OBBBA, Parent PLUS Loans had no annual borrowing limit. Parents could borrow up to the full cost of attendance minus other financial aid. That is no longer the case.

Starting July 1, 2026:

• Annual limit: $20,000 per dependent student
• Lifetime limit: $65,000 per dependent student

If your child's school costs $35,000 a year and federal student loans cover $7,500, that leaves a $27,500 gap. The Parent PLUS Loan now covers $20,000 of that annually — not the full amount. The rest has to come from other sources.

One more change worth knowing: graduate students can no longer use the Grad PLUS Loan program. That program was eliminated as of July 1, 2026. Graduate students are limited to the Direct Loan amounts listed above.

Two New Repayment Plans Replace the Old Ones

OBBBA created two new federal repayment options that took effect July 1, 2026.

Tiered Standard Repayment Plan: Borrowers pay a fixed monthly amount over a set period based on their total loan balance:

• Less than $25,000: 10 years
• $25,000 to $49,999: 15 years
• $50,000 to $99,999: 20 years
• $100,000 and over: 25 years

Repayment Assistance Plan (income-based) Monthly payments are calculated as a percentage of adjusted gross income (AGI):

• $10,000 or less: $10 flat per month
• $10,001–$20,000: 1% of AGI
• $20,001–$30,000: 2% of AGI
• Scales up to 10% for income above $100,000

Both plans are available to undergraduate and graduate borrowers.

Three Repayment Plans Are Going Away

If you or your student is currently enrolled in one of these plans, this is urgent:

• SAVE (Saving on a Valuable Education)
• PAYE (Pay As You Earn)
• ICR (Income Contingent Repayment)

All three are being eliminated by July 1, 2028. Borrowers on these plans must transition to a new repayment option before that deadline. Your loan servicer should reach out with more information — but do not wait for that letter. Log in to StudentAid.gov and check your repayment plan status now.

What Your Family Should Do Before July 1

You still have a few days before these changes take effect. Here is where to focus:

1. Confirm your FAFSA and aid package. If your student has a FAFSA on file for the 2026–2027 school year, review the aid package and confirm whether subsidized loans are included. These are still the most affordable federal options.

2. Review your borrowing plan with the new caps in mind. If the new limits leave a gap between what federal loans cover and what the school actually costs, start mapping out where the rest of the money comes from before the bill arrives.

3. Check your current repayment plan. If you or your student already has federal loans, log into StudentAid.gov and verify your plan. If you are on SAVE, PAYE, or ICR, you have until July 1, 2028, to make a change — but the earlier you act, the better.

4. Run the repayment numbers before accepting any loan. StudentAid.gov has a loan simulator tool. Before your student accepts a loan offer, use it. See what monthly payments look like on a realistic salary in their field. Borrowing $50,000 for a degree that pays $35,000 a year is a plan worth reconsidering before the money is gone.

See What Your Loan Really Costs Before You Take It Out

Knowing the new rate is one thing. Seeing what it means in real dollars is another.

We built a free Student Loan Calculator at empoweringyourfinance.com/student-loan-calculator so you can plug in the loan amount, the new 2026 interest rate, and your repayment term — and see the total cost before anyone signs anything.

Borrowing $20,000 at 6.52% over 10 years looks very different from borrowing it at 9.07% over 25 years. Run both. The numbers will tell you what the loan offer will not.

Know Before You Borrow

Student loan rates going up by 0.13% might not sound like much on its own. Add new borrowing caps on top of that — for both students and parents — and families who were counting on prior access to federal loans will feel the difference.

The best protection is understanding your numbers before the first loan is issued. Federal student loans remain among the most affordable borrowing options for higher education. But they are not free money. Every dollar borrowed has to come back — with interest.

Good stewardship of what we are given includes planning before the bill arrives, not after.

If you want to build a college funding plan that keeps borrowing to a minimum, visit StudentAid.gov to start, and then join The Financial Empowerment Lab at empoweringyourfinance.com — that is the kind of planning we work through together.

Let's grow financially together.

Darnell Frazier, RFC®, CPRS™, CCFC, CFEI® Founder, Empowering Your Finance LLC, empoweringyourfinance.com  Podcast: The Road to Financial Empowerment: Skool Community: The Financial Empowerment Lab on Skool Community

Disclaimer: This article is for general educational purposes only and does not constitute financial, investment, legal, or tax advice. Every financial situation is different. Consult a qualified financial professional before making decisions about student loans, repayment plans, or college funding. Information is current as of June 2026 and subject to change. For the most current federal student loan data, visit StudentAid.gov.

Source data: Broadridge Advisor Solutions © 2026 Broadridge Financial Services, Inc. This material is provided for general and educational purposes only and does not constitute legal, tax, or investment advice. Contact a qualified professional regarding your specific situation.