Paying for College in a Changing Student Loan Landscape

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This year’s classes may already be in full swing, but it’s never too early to think about future students. And while families may budget carefully for their back-to-school shopping lists, planning for higher education expenses calls for a bigger strategy.

College costs rarely come from a single source. Most families rely on some combination of scholarships, savings, current income and student loans. Starting the conversation early gives you more time to build those resources, consider your options, and adjust as costs and circumstances change. That preparation is especially important now, as recent changes to federal student loans may affect how much some families can borrow.

What Changed with Federal Student Loans?

New federal student loan limits took effect July 1, 2026, for borrowers subject to the updated rules.[i] While traditional undergraduate Direct Loan limits generally remain unchanged, the larger changes affect parents and students pursuing graduate or professional degrees.

Parent PLUS borrowing is now limited to $20,000 per year and $65,000 in total per dependent student. Previously, eligible parents could generally borrow up to the school’s cost of attendance minus other financial aid.

For example, imagine a family has a $35,000 funding gap after scholarships, grants, savings and the student’s federal loans. If the parents are subject to the new rules, Parent PLUS loans may cover only $20,000 of that amount for the year. The family would need another way to fund the remaining $15,000.

The changes are also significant for graduate and professional students. New Grad PLUS loans are no longer available to borrowers subject to the updated rules. Graduate Direct Unsubsidized Loans are generally limited to $20,500 annually and $100,000 in total for graduate study. Qualifying professional students may borrow up to $50,000 annually, with a $200,000 aggregate limit. Check out this article from our partners at Student Loan Professor.

A new $257,500 lifetime limit also applies across most federal student borrowing, excluding Parent PLUS loans taken out on behalf of a dependent student. Importantly, amounts that have already been repaid, forgiven or discharged may still count toward that lifetime limit.

Certain continuing students may qualify for a temporary exception based on their enrollment and borrowing history before July 1, 2026. Because the details can vary by program and borrower, students should confirm their status and remaining eligibility directly with their school’s financial aid office.[ii]

Building a College Funding Strategy

No single funding method is right for every family. A strong strategy often combines several resources.

• Start with scholarships and grants. Unlike loans, these funds generally do not need to be repaid. Students should complete the FAFSA each year and review institutional aid opportunities. Many schools, employers, professional associations and community organizations offer scholarships. Small awards may not feel transformative individually, but several can add up.

• Consider a 529 plan. A 529 education savings plan offers tax-deferred growth, and withdrawals are generally free from federal income tax when used for qualified expenses. Depending on the state, additional state tax benefits may be available.
  
  These accounts have also become more flexible over time. Qualified uses can include eligible college expenses, certain apprenticeship and credentialing costs, limited student loan repayments and some K–12 expenses. Under specific requirements, unused funds may also be eligible for a rollover to the beneficiary’s Roth IRA, subject to annual and lifetime limits.[iii]
  
• Explore other savings options. A Coverdell Education Savings Account can provide tax-advantaged education savings. However, annual contributions are limited to $2,000 per beneficiary and contributor income restrictions apply. Custodial accounts, traditional brokerage accounts and savings accounts may offer more flexibility, but they have different tax, ownership and financial aid implications.
  
  Some families also consider using Roth IRA contributions because those contributions can generally be withdrawn without tax or penalty. However, retirement assets serve an important purpose of their own. Taking money from retirement savings to pay for college can create a different financial shortfall later.

• Use current income where practical. Monthly cash flow, bonuses, employer education benefits, part-time work and school payment plans can help reduce the amount that must come from savings or debt. The goal is not necessarily to pay the entire bill out of pocket. It is to find a contribution level that supports education goals without destabilizing the rest of the family’s financial plan.

• Approach borrowing carefully. Federal loans generally offer protections and repayment options that private loans may not provide. If private borrowing is necessary, compare fixed and variable interest rates, fees, repayment terms, cosigner requirements and available hardship provisions. A loan that solves today’s tuition gap should still make sense once repayment begins.

Why Starting Early Matters

Time allows investment growth to do more of the work. For illustration, saving $250 per month for 18 years and earning an average annual return of 6% would produce approximately $97,000. Waiting until the child is nine years old to begin would result in roughly $35,000 by age 18 under the same assumptions. While this hypothetical example does not reflect taxes, fees or guaranteed investment performance, it does demonstrate the value of starting sooner.

Early planning also creates room to adjust. Families can revisit projected costs, savings rates, school choices and borrowing assumptions as circumstances change. Even those who are getting a later start can benefit from a clear strategy.

College planning should also remain connected to the rest of your financial life. Funding an education is an important goal, but it should be considered alongside retirement, emergency savings, insurance needs and other priorities.

If you have questions about education funding or want to understand how recent student loan changes may affect your family, talk with your financial advisor. Together, we can build a plan designed to support the student’s future without losing sight of your own.

[i] https://studentaid.gov/announcements-events/big-updates

[ii] https://fsapartners.ed.gov/sites/default/files/2026-05/FrequentlyAskedQuestionsLoanLimits.pdf

[iii] https://www.irs.gov/taxtopics/tc313