Student loans are the only debt most people take on before they have any income to repay it with. The rules changed substantially for the 2026-27 academic year, including new borrowing caps, the end of Grad PLUS for new borrowers and a new repayment system. Here is what actually matters before you sign.
Updated August 2026. Figures reflect the 2026-27 award year, for loans first disbursed between 1 July 2026 and 30 June 2027.
Exhaust free money first, then federal loans, then private loans, in that order. Grants and scholarships never have to be repaid. Federal loans carry fixed rates, income based repayment and forgiveness options. Private loans carry none of that. Every dollar you move up that list is a dollar that costs you less.
Federal versus private, in one table
This is the decision that shapes everything else. Federal and private student loans are not two versions of the same product; they are different instruments with different risk.
| Federal student loans | Private student loans | |
|---|---|---|
| Interest rate | Fixed by law, same rate for every borrower in a given year | Fixed or variable, priced on your credit and your cosigner's |
| Credit check | None for Direct Subsidized and Unsubsidized loans | Always, and most undergraduates need a cosigner |
| How to apply | Submit the FAFSA | Apply directly to each lender |
| Payments tied to income | Yes, through income driven repayment | No |
| Forgiveness | PSLF and forgiveness at the end of an income driven term | None |
| If you lose your job | Deferment and forbearance available on defined terms | At the lender's discretion, if offered at all |
| If the borrower dies | Discharged | Depends on the lender and the cosigner agreement |
| Borrowing limit | Capped annually and in total | Often up to the full cost of attendance |
That last row is the trap. Private lenders will frequently lend you more than federal rules allow, and students read the higher limit as a sign they can afford it. The federal caps exist precisely because borrowing beyond them is usually a bad idea.
What federal loans cost in 2026-27
Federal rates are set once a year and are fixed for the life of the loan. They do not vary by credit score. Every undergraduate borrowing this year pays the same rate.
| Loan type | Who it is for | Fixed rate | Interest while in school |
|---|---|---|---|
| Direct SubsidizedNeed based | Undergraduates with demonstrated financial need | 6.52% | Paid by the government while you are enrolled at least half time, during the grace period and during deferment |
| Direct UnsubsidizedNot need based | Undergraduates | 6.52% | Accrues from the day the loan is disbursed and is yours to pay |
| Direct Unsubsidized | Graduate and professional students | 8.07% | Accrues immediately |
| Direct PLUS | Parents of dependent undergraduates, and graduate students who remain eligible | 9.07% | Accrues immediately |
Source: U.S. Department of Education, Federal Student Aid, interest rates for Direct Loans first disbursed between 1 July 2026 and 30 June 2027.
Take the subsidised loans first every time. The subsidy is worth real money. On a $20,000 subsidised balance at 6.52%, the government covering interest through four years of study and a six month grace period is worth roughly $5,800 that never joins your principal. An unsubsidised loan of the same size, at the same rate, quietly grows while you study.
Unpaid interest that accrues while you study can be added to your principal when repayment begins. From that point you pay interest on the interest. If you can afford to pay even the monthly interest on unsubsidised loans while enrolled, you stop this happening, and it is usually a small amount relative to what it saves.
How much you are allowed to borrow
Federal borrowing is capped two ways: a limit per academic year, and a limit on the total you may ever hold. Undergraduate limits also depend on whether you are classed as dependent or independent on the FAFSA.
| Year of study | Dependent undergraduate | Independent undergraduate | Maximum subsidised portion |
|---|---|---|---|
| First year | $5,500 | $9,500 | $3,500 |
| Second year | $6,500 | $10,500 | $4,500 |
| Third year and beyond | $7,500 | $12,500 | $5,500 |
| Total, whole degreeAggregate limit | $31,000 | $57,500 | $23,000 |
Graduate and professional limits were rewritten for loans first disbursed on or after 1 July 2026, and there is now an overall ceiling across your whole borrowing history.
| Borrower | Per year | Aggregate |
|---|---|---|
| Graduate studentDirect Unsubsidized | $20,500 | $100,000 |
| Professional studentDirect Unsubsidized | $50,000 | $200,000 |
| Parent, Direct PLUSPer dependent student | $20,000 | $65,000 |
| Lifetime cap, all federal student loansParent PLUS not included | Not applicable | $257,500 |
Authority: 20 U.S.C. 1087e(a)(4), (a)(5) and (a)(6), as amended effective 1 July 2026. A “professional” programme is one awarding a professional degree as defined in the federal regulations. The Parent PLUS caps apply per dependent student across all parents combined.
The $257,500 lifetime limit is calculated without regard to amounts you have repaid, forgiven, cancelled or discharged. Paying loans off does not restore headroom. If you expect to return to study later, that matters.
What changed for 2026-27
If you last looked at federal student loans a year or two ago, three things are genuinely different.
Grad PLUS loans have ended for new borrowers. For any period of instruction beginning on or after 1 July 2026, graduate and professional students can no longer take a Direct PLUS Loan. Combined with the new aggregate caps, this means graduate students who previously borrowed up to the full cost of attendance now hit a hard ceiling and must cover the gap from savings, employer support, or private loans.
There is a transition rule. If, as of 30 June 2026, you were already enrolled in a programme and had already received a Direct Loan for that same programme, the Grad PLUS termination, the new graduate limits, the Parent PLUS caps and the lifetime cap do not apply to you. The exception lasts for the lesser of three academic years or the time remaining in your programme. Withdrawing or otherwise stopping your enrolment ends it immediately, so if you are mid programme, staying continuously enrolled is now worth real money.
Repayment has been restructured. A new Repayment Assistance Plan replaced the previous income driven system for new borrowers. The detail is below.
Fees, and the autopay discount worth claiming
Federal loans deduct an origination fee at disbursement, which means you receive less than you borrow but repay the full amount. For loans disbursed before 1 October 2027 the fees are 1.057% on Direct Subsidized and Unsubsidized loans and 4.228% on Direct PLUS loans. On a $20,000 PLUS loan that is roughly $846 taken off the top, so borrow with the fee in mind rather than being surprised by the shortfall.
The interest rate reduction for borrowers who pay by automatic debit rose from 0.25% to a total of 1.00% with effect from 1 July 2026. Borrowers already enrolled in autopay receive it automatically. Everyone else must enrol by 30 September 2026. It applies to Direct Loans originated after 1 July 2012, it requires you to stay enrolled in autopay, and it is temporary: it runs through 30 June 2028. A full percentage point for setting up a direct debit is the highest return available anywhere in student lending.
How you will repay
Repayment generally begins six months after you leave school or drop below half time enrolment. What plans you can choose depends on when your first loan was disbursed, and the dividing line is 1 July 2026.
If your first federal loan is disbursed on or after 1 July 2026
You have exactly two choices. The first is a standard plan whose length is now set by how much you owe: 10 years under $25,000, 15 years from $25,000 to $50,000, 20 years from $50,000 to $100,000, and 25 years at $100,000 and above. If you do not choose, this is where you are placed.
The second is the Repayment Assistance Plan, or RAP. RAP sets your annual payment as a percentage of your adjusted gross income, divided by twelve, then reduced by $50 for each dependent.
| Adjusted gross income | Annual payment | Roughly per month, before the dependant reduction |
|---|---|---|
| $10,000 or less | $120 flat | $10 |
| $10,001 to $20,000 | 1% of AGI | $8 to $17 |
| $20,001 to $30,000 | 2% of AGI | $33 to $50 |
| $30,001 to $40,000 | 3% of AGI | $75 to $100 |
| $40,001 to $50,000 | 4% of AGI | $133 to $167 |
| $50,001 to $60,000 | 5% of AGI | $208 to $250 |
| $60,001 to $70,000 | 6% of AGI | $300 to $350 |
| $70,001 to $80,000 | 7% of AGI | $408 to $467 |
| $80,001 to $90,000 | 8% of AGI | $533 to $600 |
| $90,001 to $100,000 | 9% of AGI | $675 to $750 |
| Over $100,000 | 10% of AGI | $833 and up |
The minimum payment under RAP is $10 a month. Two features make RAP more generous than it first appears. If you make an on time payment that does not cover the interest that accrued that month, the unpaid interest is not charged to you, so your balance does not silently grow. And if an on time payment reduces your principal by less than $50, the government tops the principal reduction up to $50. Remaining balances are forgiven after 360 qualifying monthly payments over at least 30 years.
Authority: 20 U.S.C. 1087e(q) and 34 CFR 685.209, as published in the final rule at 91 FR 23768 (1 May 2026), effective 1 July 2026.
Paying ahead advances your due date, and doing so forfeits the $50 principal match for the months you skipped forward. If you intend to overpay under RAP, ask your servicer to keep your due date where it is rather than advancing it.
If your first federal loan was disbursed before 1 July 2026
You keep more options. Income Based Repayment is permanent and is now easier to access, because the requirement to demonstrate partial financial hardship was removed in July 2025; any borrower with eligible loans can enrol. PAYE and ICR remain available only through 30 June 2028. Borrowers still on those plans must choose something else before 1 July 2028 or they will be moved automatically, generally into RAP. The SAVE plan was eliminated by statute and is no longer an option.
Which plan is cheapest depends on your balance, income and career path, and the differences are large. Our guide to student loan repayment plans compares them properly.
Public Service Loan Forgiveness
PSLF forgives whatever remains on your eligible Direct Loans after 120 qualifying monthly payments made while working full time for a qualifying employer, which means government at any level or a qualifying non profit. The forgiven amount is not taxable as federal income.
Three details decide whether people actually get it. Only Direct Loans qualify, so older FFEL and Perkins loans must first be consolidated into a Direct Consolidation Loan. You must be on a qualifying repayment plan, which includes the income driven plans, the standard 10 year plan and RAP. And you must be employed by a qualifying employer both during the qualifying months and at the point forgiveness is granted.
One wrinkle specific to RAP: months spent in certain deferments and forbearances that would normally count toward PSLF do not count while you are enrolled in RAP.
Refinancing federal loans with a private lender ends PSLF eligibility permanently and voids every qualifying payment already made. If public service is even a possibility, keep your loans federal. See should I refinance my student loans for the full trade off.
When private loans make sense
Private loans are the last resort, not the first. But with Grad PLUS gone and hard caps on graduate borrowing, more students now reach the federal ceiling with a genuine funding gap left over. If that is you, a private loan is a legitimate tool. Use it deliberately.
Three rules. Borrow only the gap, not the maximum the lender approves. Take the fixed rate unless you are certain you can clear the balance quickly. And compare the APR across lenders rather than the headline rate, because the advertised low end is reserved for borrowers with excellent credit and a strong cosigner.
Built specifically for student lending, with terms from five to fifteen years and a choice of in school payment options including interest only and flat payments while you study.
No fees of any kind, plus career coaching and financial planning included at no cost. Also lends to graduate and professional students, which matters more now that Grad PLUS has ended.
For the full comparison including cosigner release policies and in school repayment options, see our roundup of the best private student loans.
Borrow like someone who has to repay it
File the FAFSA, early and every year. It is the gateway to grants, work study and every federal loan. Some aid is awarded until it runs out, so filing early is worth money. Filing late or not at all is the single most common way students end up on expensive private debt they did not need.
Take free money before borrowed money. Grants and scholarships are not repaid. Chase them relentlessly, including small local awards, which attract far fewer applicants than the national ones.
Subsidised before unsubsidised, federal before private. Work down the list in cost order every year rather than accepting the whole aid package as offered. You are allowed to decline part of a loan offer.
Anchor total borrowing to your expected starting salary. A rough and useful rule is to keep total student debt below one year of your realistic first year earnings in the field you are actually entering. At that level a standard repayment plan is comfortable. At two or three times that level it is not, whatever the plan.
Pay interest while you are enrolled if you possibly can. On unsubsidised loans this stops interest being capitalised into your principal at repayment. Even partial payments help.
Know who the servicer is and keep your contact details current. Most damage from student loans comes from missed communication rather than from the loans themselves. Once you are repaying, our guide to how to pay off student loans covers the strategies that shorten the term most.
Common questions
What is the difference between subsidised and unsubsidised loans?
Do I need a credit check or a cosigner for federal loans?
When do I have to start repaying?
Can I still get a Grad PLUS loan?
What happens if I cannot make a payment?
Are student loans worth it?
Can I get student loans forgiven?
The bottom line
Borrow the smallest amount that gets you the credential, take it in the right order, and keep it federal unless you have genuinely run out of federal room. The 2026 changes tightened the caps and simplified repayment down to two plans for new borrowers, which makes the decision cleaner but leaves less margin for over borrowing. If you are already repaying and not on automatic debit, enrolling before 30 September 2026 is the single highest value thing you can do this month.
