Confusion around student loans has grown as the federal government rolled out several major changes in July 2026. From altered borrowing limits for graduate students to a new two‑plan repayment menu, borrowers need clear, factual information to make wise decisions.
Federal loans don’t require a credit check
Most federal student loans are available without a credit check. As long as a student qualifies for federal aid, they can apply by completing the FAFSA (Free Application for Federal Student Aid). This means that a poor credit history does not automatically block access to federal funding.
Private loans usually need a cosigner
Private lenders do run credit checks, which is why a large majority of undergraduate borrowers (96%) and many graduate borrowers (73%) apply with a cosigner—typically a parent or trusted adult who shares responsibility for the loan. Some lenders now offer no‑cosigner options, but these often come with higher interest rates.
Grace periods and interest accrual
Both federal and most private loans allow borrowers to postpone payments while enrolled at least half‑time and for a short period after graduation—usually six months for undergraduates and up to twelve months for certain graduate students. However, unsubsidized federal loans and private loans begin accruing interest from the day they are disbursed, so balances can grow quietly if no payments are made.
Paying early can save money
There is no penalty for paying off federal or private loans ahead of schedule. Making partial or full payments while still in school reduces the amount of interest that will accrue over the life of the loan. Borrowers should instruct their servicer to apply extra payments directly to the principal.
Graduate‑student borrowing limits changed
The One Big Beautiful Bill Act (OBBBA), effective July 1, 2026, eliminated the Grad PLUS program and lowered borrowing limits for Direct unsubsidized loans. New graduate borrowers after that date have fewer options, while those who borrowed before the change are considered “legacy borrowers” and can continue under the old rules for three more years or until their program ends, whichever comes first.
Repayment plan overhaul
Borrowers who took out loans after July 1, 2026 now have only two repayment plans to choose from. Those who borrowed earlier retain access to the older plans, including the standard, extended, graduated, and three income‑driven options. The SAVE plan is no longer available, and PAYE and Income‑Contingent Repayment will be phased out by July 2028.
Parent PLUS loan caps
Effective July 1, Parent PLUS loans now have an annual limit of $20,000 per student and a lifetime limit of $65,000 per student. Parents who took out loans before that date can continue under the previous limits for three more years or until the child finishes school.
Public Service Loan Forgiveness remains intact
The Public Service Loan Forgiveness (PSLF) program was not altered by the recent changes. Borrowers who work in qualifying public‑service jobs and make 120 on‑time payments under an eligible repayment plan can still receive forgiveness after ten years. However, changes to income‑driven plans mean borrowers should verify that their payments still qualify.
Private‑loan rates vs. federal rates
Some private lenders offer rates as low as about 2% for credit‑worthy borrowers, while current federal loan rates are fixed at 6.52% or higher. Private loans often lack origination fees, whereas federal loans carry fees of 1.057% or 4.228% depending on the loan type. Despite lower rates, private loans do not provide the same borrower protections or forgiveness options as federal loans.
Cosigner release and refinancing
Many private lenders allow cosigner release after a borrower has made a set number of on‑time payments or after a specific time period. Borrowers can also refinance private loans in their own name, but refinancing federal loans into private debt eliminates access to federal benefits such as income‑driven repayment and forgiveness.
Consolidation vs. refinancing
Consolidation keeps loans within the federal system, preserving federal benefits. Refinancing replaces federal loans with a new private loan, which can lower interest rates but forfeits federal protections. There is no fee to consolidate on the Federal Student Aid website, and any fee charged for consolidation or refinancing should be scrutinized as a possible scam.
In summary, borrowers should prioritize federal loans for their built‑in protections, consider private loans only when rates are substantially lower, and stay informed about the evolving repayment landscape. Reviewing one’s repayment plan regularly ensures eligibility for forgiveness programs and helps keep interest costs under control.
Original reporting: KEYT (Ventura/Santa Barbara) — read the source article.
