The One Big Beautiful Bill Act rewrote federal student lending, and most of the changes took effect for loans first disbursed on or after July 1, 2026. Grad PLUS loans, which let graduate students borrow up to the full cost of attendance, are closed to new borrowers. Graduate students can now borrow $20,500 a year and $100,000 in total, and professional students such as medical and law students $50,000 a year and $200,000 in total. Parent PLUS loans are capped at $20,000 a year and $65,000 per student. A new Repayment Assistance Plan replaces SAVE and other income-driven plans for new loans. For families, the practical result is a funding gap, especially for graduate and professional school, that savings, family help, or private loans must now fill.
What changed on July 1, 2026?
The changes fall into three groups: how much students and parents can borrow, how loans are repaid, and the protections available when a borrower struggles. Undergraduate borrowing limits for students themselves did not change.
| Loan | Before July 1, 2026 | For loans first disbursed on or after July 1, 2026 |
|---|---|---|
| Graduate student loans | $20,500 a year plus Grad PLUS up to cost of attendance | $20,500 a year; $100,000 total; Grad PLUS closed to new borrowers |
| Professional student loans | $20,500 a year (up to $40,500 for medicine and certain other health programs) plus Grad PLUS | $50,000 a year; $200,000 total |
| Parent PLUS (parents of dependent undergraduates) | Up to cost of attendance | $20,000 a year; $65,000 total per student, combined for all parents |
| Lifetime cap, all federal student loans | None | $257,500, excluding Parent PLUS |
| Repayment plans for new loans | Standard, graduated, extended, several income-driven plans | Tiered standard plan or the new Repayment Assistance Plan |
Several details matter. Amounts repaid or forgiven still count toward the $257,500 lifetime maximum and the $65,000 Parent PLUS limit, so those limits never reset. Annual limits are reduced proportionally for part-time students. Schools may set lower limits for particular programs. And a transition rule lets students who were already enrolled and borrowing for a program before July 1, 2026 keep the old limits, including Grad PLUS, for the lesser of three academic years or the expected time to finish that program, provided they stay continuously enrolled in it.
Who counts as a "professional" student?
The higher $50,000 and $200,000 limits apply only to professional students, and the definition is in dispute. The statute describes degrees that prepare students to begin practice in a profession and generally require licensure. The Department of Education's May 2026 final rule narrowed that to roughly doctoral-level degrees in 11 fields, such as medicine, law, dentistry, and pharmacy. Federal courts in Washington, D.C. (June) and Oregon (October) required changes, and the Department's interim list, last updated October 30, 2026, now also includes certain nursing, physician assistant, physical and occupational therapy, clinical psychology, audiology, speech-language pathology, chiropractic, divinity, and naturopathy programs. The Department describes these designations as temporary. Families planning for a program near the line should confirm with the school's financial aid office which limit applies.
How does the new Repayment Assistance Plan work?
Anyone who takes out a new federal loan on or after July 1, 2026 can repay all of their loans only under the tiered standard plan or the Repayment Assistance Plan, known as RAP.
The tiered standard plan sets a fixed term by balance: 10 years under $25,000, 15 years from $25,000 to $49,999, 20 years from $50,000 to $99,999, and 25 years at $100,000 or more.
RAP sets payments at 1% to 10% of adjusted gross income, rising one percentage point per $10,000 of AGI and reaching 10% above $100,000, with a $10 monthly minimum and a $50 monthly reduction per dependent. Interest not covered by an on-time payment is waived, and if a payment reduces principal by less than $50, the government adds a match of up to $50. Any remaining balance is forgiven after 360 qualifying payments, or 30 years. On-time RAP payments count toward Public Service Loan Forgiveness.
Existing borrowers can keep their current plans for now. SAVE has effectively ended following litigation, and the PAYE and income-contingent plans close on July 1, 2028, when remaining borrowers in them must move to another plan. Income-based repayment remains available to existing borrowers. Implementation has been uneven: servicing and income-driven application errors have been reported, so borrowers should check their payment figures carefully.
What about parents who borrow?
New Parent PLUS loans can be repaid only under the tiered standard plan; they are not eligible for RAP. There is also a trap for parents with older Parent PLUS debt. A parent who takes out a new Parent PLUS loan on or after July 1, 2026 must repay all of their Parent PLUS loans, including older consolidated ones, under the tiered standard plan, which ends access to income-driven repayment and, in most cases, a practical path to Public Service Loan Forgiveness on those older loans. The deadline to consolidate older Parent PLUS loans to preserve income-driven options passed on June 30, 2026. A parent with existing Parent PLUS loans on an income-driven plan should weigh that consequence before borrowing again for a younger child.
What other changes should borrowers know about?
For loans made on or after July 1, 2027, the economic hardship and unemployment deferments are eliminated and discretionary forbearance is limited to nine months in any 24-month period. On the tax side, the temporary federal exclusion for loans forgiven under income-driven plans expired at the end of 2025, so forgiveness under those plans, including RAP's 30-year forgiveness, is generally taxable federal income again unless another exclusion such as insolvency applies. Forgiveness under Public Service Loan Forgiveness remains tax free, and the exclusion for discharges on death or disability is now permanent. Employers can still contribute up to $5,250 a year toward an employee's student loans tax free under a qualified educational assistance program (a single limit shared with any tuition assistance), a provision the law made permanent and indexed for inflation after 2026.
How can families fill the gap?
Families who would have relied on Grad PLUS or uncapped Parent PLUS loans have several alternatives, each with trade-offs.
529 plans.A 529 plan can pay graduate and professional school costs as readily as undergraduate costs, and up to $10,000 per beneficiary, over a lifetime, can be used to repay qualified student loans. For families with time before school begins, front-loading a 529 with five years of annual exclusion gifts builds tax-free growth.
Direct tuition payments.Tuition paid directly to the school is excluded from gift tax without limit and does not use the annual exclusion or lifetime exemption. It covers tuition only, not room, board, or books, which grandparents in particular can use alongside annual exclusion gifts.
Intra-family loans.A parent or grandparent can lend at the IRS applicable federal rate, which for a loan of more than three and up to nine years made in November 2026 is 5.08%, with terms the family sets. Loans must be documented and administered like real debt to avoid being treated as gifts; the mechanics are covered in intra-family loans and the AFR.
Private student loans.Private lenders will fill much of the gap, but private loans lack RAP, Public Service Loan Forgiveness, and federal deferment protections, and rates depend on credit and often on a cosigner. A parent who cosigns is fully liable for the debt.
A worked example: medical school after Grad PLUS
The following is a hypothetical illustration. A student begins medical school in the fall of 2026 with no prior federal graduate borrowing, and the school's cost of attendance is $95,000 a year for four years, or $380,000.
Under the old rules, the student could have borrowed the entire amount in federal loans, up to $40,500 a year in unsubsidized loans and the remainder through Grad PLUS. Under the new rules, assuming the program qualifies as professional, federal borrowing is limited to $50,000 a year and $200,000 in total, leaving a $45,000 annual gap, or $180,000 over four years.
The family decides to cover the gap in layers. The student's grandparents pay $25,000 of tuition directly to the school each year, which uses none of their annual exclusions or lifetime exemption. The parents fund the remaining $20,000 a year, $80,000 in all, from an existing 529 plan. The student borrows the full federal amount and can choose RAP or the tiered standard plan after graduation. Because federal loans carry protections that private loans and family loans do not, the family uses its own resources for the gap rather than for the federal portion. The figures are hypothetical and simplified.
Key numbers at a glance
| Item | Rule for new loans |
|---|---|
| Graduate student limits | $20,500 a year; $100,000 total |
| Professional student limits | $50,000 a year; $200,000 total |
| Parent PLUS limits | $20,000 a year; $65,000 per student |
| Lifetime cap, all federal student loans | $257,500, excluding Parent PLUS |
| RAP payment | 1% to 10% of AGI; $10 minimum; $50 less per dependent |
| RAP forgiveness | After 360 qualifying payments; generally taxable federally |
| PAYE and income-contingent plans close | July 1, 2028 |
| Employer student loan assistance | $5,250 a year, tax free |
| 529 funds toward student loans | $10,000 lifetime per beneficiary |
Frequently asked questions
Is Grad PLUS gone?For new borrowers, yes. Students enrolled and borrowing for a program before July 1, 2026 can continue to use Grad PLUS for that program for up to three academic years or until they finish, whichever comes first, if they stay continuously enrolled.
How much can a graduate student borrow now?$20,500 a year and $100,000 in total. Professional students, such as medical and law students, can borrow $50,000 a year and $200,000 in total. All federal student borrowing is subject to a $257,500 lifetime cap, excluding Parent PLUS.
How much can parents borrow through Parent PLUS?$20,000 a year and $65,000 in total per dependent student, combined for all parents. New Parent PLUS loans are repaid only under the tiered standard plan.
What is the Repayment Assistance Plan?An income-driven plan for federal loans, with payments of 1% to 10% of AGI, a $10 monthly minimum, a $50 monthly reduction per dependent, waiver of unpaid interest, and forgiveness after 30 years of qualifying payments. Parent PLUS loans are not eligible.
Is student loan forgiveness taxable in 2026?Forgiveness under income-driven plans, including RAP, is generally taxable federal income again starting in 2026. Public Service Loan Forgiveness and discharges for death or disability remain tax free.
Can a 529 plan pay off student loans?Up to $10,000 per beneficiary over a lifetime. The account can also pay up to $10,000 of each sibling's loans, which counts toward that sibling's own limit. Amounts above that are nonqualified withdrawals.
Sources
- Federal student aid changes under the One Big Beautiful Bill Act, National Association of Student Financial Aid Administrators
- Student loan provisions in P.L. 119-21, Congressional Research Service
- Update to the list of professional degree programs due to court order, Federal Student Aid, U.S. Department of Education
- Fact sheet: simplifying student loan repayment, U.S. Department of Education
- Reimagining and Improving Student Education final regulations, Federal Register, May 1, 2026
- Frequently asked questions about Section 127 educational assistance programs, Internal Revenue Service
- Rev. Rul. 2026-21: Applicable federal rates for November 2026, Internal Revenue Service
How Atlatl Advisers can help
Atlatl Advisers is a boutique multi-family office in Madison, Wisconsin, serving accomplished families as an independent, fee-only, SEC-registered fiduciary. We act as your personal CFO: one coordinated team for investments, financial planning, tax strategy, and estate coordination, organized around our Liquidity, Lifetime, and Legacy framework.
This article is provided by Atlatl Advisers LLC for informational and educational purposes only. It is not investment, legal, tax, or insurance advice, and it does not consider the particular circumstances of any reader. Consult your own advisers before acting. Atlatl Advisers is an SEC-registered investment adviser; registration does not imply a certain level of skill or training. Information is believed accurate as of November 2026 and may change.
