Federal Direct Loan Updates
Recent federal legislation has led to changes in the Federal Direct Loan program.
We have outlined these changes to help you understand the loan terms and conditions as you are considering loans as part of your financial aid package.
July 1, 2026 Changes
Beginning July 1, 2026, federal law (One Big Beautiful Bill Act) introduces major changes to the Parent PLUS Loan program, including new borrowing limits and repayment restrictions. These changes will impact both new Parent PLUS borrowers and some existing borrowers who take out additional loans after this date.
Beginning July 1, 2026, Parent PLUS Loans will be subject to new statutory borrowing limits:
- Annual Limit: $20,000 per dependent student per year
- Aggregate Limit: $65,000 total per dependent student
This will primarily impact new students who matriculate in Fall of 2026 or current students who have not used federal loans previously. If a parent borrows the maximum $20,000 annually, they will reach the $65,000 aggregate limit before a typical four-year program is complete. To ensure even eligibility across four years, families should consider borrowing smaller annual amounts (approximately $16,250 per year over four years).
Some families may continue borrowing under pre-July 1, 2026 limits if specific conditions are met. Students cannot opt out of legacy provisions if they qualify.
A parent may qualify for legacy borrowing if:
- The student was enrolled in the program on or before June 30, 2026
- A Direct Unsubsidized, Subsidized, or Parent PLUS Loan was disbursed before July 1, 2026
- The student remains enrolled in the same program of study at the same institution
Legacy eligibility lasts for three years or until the end of the student's undergraduate program, whichever comes first.
Students remain eligible under legacy limits if they:
- Change majors within the same degree type (e.g., BA → BA or BA → BS)
Students lose legacy eligibility if they:
- Transfer to another institution
- Change degree type (e.g., certificate → associate or associate → bachelor's)
- Withdraw or cease enrollment in the program
Beginning July 1, 2026, Parent PLUS Loans borrowed on or after this date will only be eligible for the new Tiered Standard Repayment Plan, which is not eligible for Public Service Loan Forgiveness (PSLF) and does not provide access to income-driven repayment plans.
Parents who take out a new Parent PLUS Loan on or after July 1, 2026 will therefore lose access to income-driven repayment options and PSLF, even if they previously had Parent PLUS Loans in repayment under other plans, because all Parent PLUS Loans must then be repaid under the new Tiered Standard Plan.
Parents who do not borrow additional Parent PLUS Loans after July 1, 2026 may continue repaying their existing loans under current repayment options, including the 10-year Standard, Extended, Graduated, or Income-Contingent Repayment (ICR) plans. However, ICR for Parent PLUS consolidation loans is expected to sunset on June 30, 2028, after which affected borrowers will transition to the Income-Based Repayment (IBR) plan.
Prior Legislation
The Bipartisan Student Loan Certainty Act
This Act ties federal student loan interests rates to the 10-year treasury note. This will lower interest rates for borrowers taking out a loan on or after July 1, 2013. This Act re-establishes the interest rates for new Federal Direct Student Loans, moving them from a fixed interest rate of 6.8% for the Direct Unsubsidized Loan and 7.9% for the Direct Parent PLUS loan to a "fixed variable" interest rate that will established be each year on June 1 and effective on July 1 of that year. A "fixed variable" rate means that a new interest rate will be set each year, but the rate will be fixed for the life of the loan for any loans disbursed between July 1 of that year and June 30 of the next year. As a result this may mean that upon graduation a borrower may have a set of fixed-rate loans, each with a different interest rate. The bill also imposes a cap to ensure interest rates never exceed 8.25% for undergraduate students, 9.5% for graduate students, 10.5% for PLUS borrowers.
The Moving Ahead for Progress in the 21st Century Act
This Act added a new provision to the Direct Loan statutory requirements that limits a first-time borrower's eligibility for Direct Subsidized Loans to a period not to exceed 150% of the length of the borrower's educational program. Under certain conditions, the provision also causes first-time borrowers who have exceeded the 150% limit to lose the interest subsidy on their Direct Subsidized Loans. More information is available in the Department of Education's document Time Limitation on Direct Subsidized Loan Eligibility for First-Time Borrowers on or after July 1, 2013.
Budget Sequestration, 2013 (Budget Control Act of 2011)
On August 2, 2011, Congress passed the Budget Control Act of 2011, which put into place automatic federal budget cuts, known as a "sequester," to take effect if Congress failed to enact legislation to reduce the federal deficit by March 1, 2013. Because Congress did not act, these budget cuts are now in effect. The origination fee structure has changed for all Federal Direct Loans as of July 1, 2013. Direct Loan fees are deducted at the time of disbursement. They are as follows:
Direct Federal Subsidized and Unsubsidized Loan:
|
Impacted Stafford Loans |
Loan Fee Percent |
Fee on a Loan Amount of |
|---|---|---|
|
First Disbursed Prior to July 1, 2013 (No Sequester) |
1.00 Percent |
$55.00 on a $5,500 loan |
|
First Disbursed on or after July 1, 2013 and Before November 30, 2013 |
1.051 Percent |
$57.80 on a $5,500 loan |
|
First Disbursed on or after December 1, 2013 and Before September 30, 2014 |
1.072 Percent |
$58.96 on a $5,500 loan |
|
First Disbursed on or after October 1, 2014 and Before October 1, 2015 |
1.073 Percent |
$59.01 on a $5,500 loan |
|
First Disbursed on or after October 1, 2015 and Before October 1, 2016 |
1.068 Percent |
$58.74 on a $5,500 loan |
Direct Federal PLUS Loan
|
Impacted PLUS Loans |
Loan Fee Percent |
Fee on a Loan Amount of |
|---|---|---|
|
First Disbursed Prior to July 1, 2013 (No Sequester) |
4.00 Percent |
$400 on a $10,000 loan |
|
First Disbursed on or after July 1, 2013 and Before November 30, 2013 |
4.204 Percent |
$420.40 on a $10,000 loan |
|
First Disbursed on or after December 1, 2013 and Before September 30, 2014 |
4.288 Percent |
$428.80 on a $10,000 loan |
|
First Disbursed on or after October 1, 2014 and Before October 1, 2015 |
4.292 Percent |
$429.20 on a $10,000 loan |
|
First Disbursed on or after October 1, 2015 and Before October 1, 2016 |
4.272 Percent |
$427.20 on a $10,000 loan |
Consolidated Appropriations Act, 2012
Both Stafford Loans (subsidized and unsubsidized) have a grace period during which repayment is not required until six months after the student graduates, withdraws, or is enrolled less than half-time. Previously, subsidized Stafford Loans maintained the interest subsidy during the grace period. The interest subsidy will no longer be provided during the grace period for first disbursements made on or after July 1, 2012, and before July 1, 2014.
Public Law 112-141
A new borrower on or after July 1, 2013 will not be eligible for new Direct Subsidized Loans if the period during which the borrower has received such loans exceeds 150 percent of the published length of the borrower's educational program. The law also provides that a borrower reaching the 150 percent limit becomes ineligible for interest subsidy benefits on all Direct Subsidized loans first disbursed to that borrower on or after July 1, 2013.
Budget Control Act of 2011
In the past, borrowers received an up-front rebate on loan fees. The new law eliminates the up-front origination fee rebate on all Stafford and PLUS loans. Stafford Loans will now be assessed the full 1% fee (from 0.5%) and the Parent PLUS/Graduate PLUS Loans will be assessed at 4% (from 2.5%), which will be deducted from each loan disbursement made on or after July 1, 2012.