Federal loans first: what changed on July 1, 2026
The 2025 federal budget law reshaped federal student lending. The changes that matter most when you're deciding whether you need a private loan:
| Federal loan | Rule for new borrowers from July 1, 2026 |
|---|---|
| Grad PLUS | Ended for new borrowers |
| Graduate unsubsidized | $20,500 a year; $100,000 total |
| Professional (e.g., law, medicine) unsubsidized | $50,000 a year; $200,000 total |
| Parent PLUS | $20,000 a year per student; $65,000 total |
| Lifetime federal limit | $257,500 across the student’s federal loans (Parent PLUS has its own separate cap) |
| Part-time students | Limits prorated by enrollment level |
Source: Washington State University Office of Financial Aid summary of the One Big Beautiful Bill Act (Nov. 2025). Students who already had loans before July 1, 2026 may keep borrowing under the old limits for up to three academic years or until they finish their program, whichever comes first.
For 2026–27, federal Direct Loans first disbursed between July 1, 2026 and June 30, 2027 carry fixed rates of 6.52% for undergraduates, 8.07% for graduate and professional unsubsidized loans and 9.07% for PLUS loans. Rates are set each year from the last 10-year Treasury auction before June 1 plus a fixed add-on, and stay fixed for the life of each loan.
The new Repayment Assistance Plan (RAP)
Borrowers with new federal loans get a new income-driven option, the Repayment Assistance Plan. Payments are a percentage of adjusted gross income, up to 10%, minus $50 a month for each dependent, with a $10 minimum. If your payment doesn't cover the interest, the unpaid interest is waived rather than added to your balance. Any remaining balance is forgiven after 30 years of qualifying payments, or after 10 years for Public Service Loan Forgiveness. Private loans have nothing like this. That is the main reason to use every federal dollar available before borrowing privately.
What the new caps mean in practice
Take a student in a two-year master's program (not a professional degree) whose cost of attendance, after grants, is $40,000 a year. Before July 2026, Grad PLUS could have covered the full amount. Now the federal maximum is $20,500 a year, which leaves a $19,500 gap each year. That gap has to come from savings, an employer, school aid or a private loan. Parents face a similar limit: Parent PLUS now tops out at $20,000 a year per student.
Before borrowing privately, ask the school's financial aid office about assistantships, tuition waivers and payment plans. Check whether your employer offers tuition assistance, and use the budgeting steps in our guide on how to make a budget to trim the cost of attendance.
Private student lenders: published rate ranges
These lenders publish their rate ranges. Ranges include autopay discounts where offered. Only borrowers or cosigners with strong credit get the low end. The list is alphabetical, not a ranking.
| Lender | Fixed APR | Variable APR | Cosigner release |
|---|---|---|---|
| Ascent | 6.75%–15.81% | Not listed | After 12 payments |
| Citizens | 3.24%–14.99% | Not listed | After 36 payments |
| College Ave | 2.19%–17.99% | 3.89%–17.99% | After half the repayment term |
| Earnest | 1.99%–16.24% | 4.74%–16.60% | In as little as 12 months |
| Sallie Mae (Smart Option) | 2.08%–17.49% | 3.75%–16.95% | After graduation and 12 on-time payments |
| SoFi | 2.99%–15.99% | 4.64%–15.99% | After 12 consecutive payments |
Source: CNBC Select private student loan comparison (College Ave rates as of Sept. 8, 2026; SoFi Sept. 3, 2026; Ascent July 15, 2026), seen Oct. 7, 2026; Sallie Mae Smart Option terms page, seen Oct. 7, 2026. Cosigner release always requires a credit review.
Details that separate the lenders
- Sallie Mae lets you borrow up to 100% of the school-certified cost of attendance. It charges no origination fee or prepayment penalty, gives a 0.25-point autopay discount, and forgives the loan on the borrower's death or disability. While you're in school, you can pay the interest, pay $25 a month, or defer payments.
- College Ave offers 5-, 8-, 10- and 15-year terms for undergraduates. It charges no application or origination fee, but there's a late fee of 5% or $25, whichever is less, once a payment is 15 days overdue. Its cosigner release is slow: you must get through half the repayment term first.
- Citizens lends up to $400,000 in total and offers a discount of up to 0.50 points that includes a relationship discount for Citizens customers. Cosigner release takes 36 payments.
- Ascent advertises an autopay discount of up to 1 point. It lends up to $200,000 to undergraduates and $400,000 to graduate students.
- SoFi and Earnest both offer 0.25-point autopay discounts and fast cosigner release on paper.
Parents: Parent PLUS or a private loan?
Parent PLUS loans for 2026–27 carry a 9.07% fixed rate. New borrowing is now capped at $20,000 a year and $65,000 total per student. Parents with excellent credit may see private offers below that rate. The trade-offs are narrower than for student borrowers. The federal servicer Edfinancial describes RAP as excluding Parent PLUS loans and consolidation loans that include them, so parents don't get that safety net either way. Compare the actual quoted rate, fees and hardship terms side by side before choosing.
Cosigners: the release is harder than it looks
Most undergraduates don't have the credit history to qualify alone, so a parent or relative cosigns. The cosigner is fully responsible for the debt. A late payment shows up on both credit reports.
Lenders advertise cosigner release after 12 to 36 payments, but release is not automatic. The borrower has to apply and pass a credit and income review alone. A CFPB study found that 90% of borrowers who applied for cosigner release were rejected. That study is from 2015, but it shows why a cosigner should plan to stay on the loan for its full term. When comparing lenders, look at the release requirements, not just the number of payments. Ask whether the payments have to be consecutive and on time, and whether the borrower must have graduated.
Fixed or variable rate?
A variable rate usually starts lower, but it can rise over a 10- to 15-year term. The Federal Reserve raised its benchmark rate in September 2026, a reminder that rates can rise as well as fall. A fixed rate stays the same, which makes budgeting easier. A variable rate fits best if you expect to repay quickly, within a few years. For most people borrowing for a full degree, a fixed rate removes a risk you can't control.
Rate differences add up. On $20,000 repaid over 10 years:
| Rate | Monthly payment | Total interest |
|---|---|---|
| 6.52% (2026–27 federal undergraduate) | $227 | $7,276 |
| 8.07% (2026–27 federal graduate) | $243 | $9,207 |
| 10% (private) | $264 | $11,716 |
| 14% (private, weaker credit) | $311 | $17,264 |
Source: MoneyVerge calculations; federal rates from Federal Student Aid (June 2026). Excludes fees and in-school interest.
How to compare private student loan offers
- Know your gap. Subtract grants, scholarships and federal loans from the school's cost of attendance, and borrow only that amount.
- Get offers from three or more lenders. Ask whether a lender can show an estimated rate before a hard credit check. Formal applications within a short window count as one inquiry: 14 days under older FICO versions, 45 under newer ones. See how credit scores work.
- Compare the APR, not the advertised minimum. Check whether the quoted rate assumes autopay, and whether fees apply.
- Choose an in-school payment option. Paying even $25 a month or the interest while in school keeps unpaid interest from building up. Some lenders price these options differently, so compare quotes for each.
- Read the hardship terms. Check forbearance length, death and disability discharge, and whether a cosigner is released if the borrower dies.
- Check the cosigner release rules in the loan agreement itself.
Mistakes to avoid
- Borrowing privately before using federal loans. You lose access to RAP, Public Service Loan Forgiveness and federal deferment options.
- Borrowing the full cost of attendance when grants or part-time work could cover part of it.
- Treating cosigner release as certain.
- Refinancing federal loans into a private loan without weighing what you give up. Our debt payoff strategies guide covers how to prioritize repayment once you graduate.
Frequently asked questions
Should I take federal or private student loans first?
Federal loans first, in most cases. For 2026–27, federal undergraduate loans carry a 6.52% fixed rate with no credit check. They also come with the Repayment Assistance Plan, Public Service Loan Forgiveness and federal deferment options, which private loans don't offer.
Is Grad PLUS still available?
Not for new borrowers. Grad PLUS ended for new loans on July 1, 2026. Graduate students can now borrow up to $20,500 a year in federal unsubsidized loans ($100,000 total), and professional students up to $50,000 a year ($200,000 total). Students who already had federal loans may keep borrowing under the old rules for up to three academic years.
What credit score do I need for a private student loan?
Lenders set their own standards, and most undergraduates need a cosigner. The lowest advertised rates, around 2% to 3%, go to borrowers or cosigners with excellent credit. Rate-shopping within a short window counts as a single credit inquiry for scoring.
How hard is it to release a cosigner?
Harder than the advertising suggests. Lenders allow release after 12 to 36 qualifying payments, plus a credit review of the borrower alone. A CFPB study found 90% of release applications were rejected.
Fixed or variable rate for a student loan?
A fixed rate never changes, which protects you over a 10- to 15-year term. A variable rate may start lower but can rise. It suits borrowers who expect to repay within a few years.
What is the Repayment Assistance Plan?
It's the new federal income-driven plan. Payments are up to 10% of adjusted gross income, minus $50 a month per dependent, with a $10 minimum. Unpaid interest is waived, and any remaining balance is forgiven after 30 years. It applies only to federal Direct Loans.
Sources
- Federal Student Aid – Interest rates for Direct Loans first disbursed 2026–27
- NerdWallet – Federal student loan interest rates 2026–27
- Washington State University – One Big Beautiful Bill Act: 2026–27 changes to federal financial aid
- Edfinancial (Federal Student Aid servicer) – Repayment Assistance Plan
- Student Loan Planner – Student loan changes in the 2025 budget law
- CFPB – 90 percent of private student loan borrowers who applied for co-signer release were rejected
- CNBC Select – Best private student loans
- CNBC Select – College Ave student loans review
- Sallie Mae – Smart Option Student Loan terms
- myFICO – Rate shopping and credit inquiries
- University of Minnesota OneStop – H.R. 1 (One Big Beautiful Bill Act) loan changes
Rates, fees and terms change often. Figures were checked in October 2026; confirm current details with the provider before you apply.