There are significant new rules changes for federal student loans, financial aid, and Pell Grants, and they’ll all be going into effect in 2025 or 2026, depending on the rule. So, every parent of a college-bound or current college student should take note.
In the major new legislation passed by Congress and signed into law on July 4, 2025, significant new rules were added or changed in several key areas of college funding:
- Direct Loan programs for students and parents
- Federal assessment of college financial need
- Pell grant eligibility
Let’s take a look at these new rules and changes along with a few others to keep in mind.
New Direct Loan Borrowing Limits
The new legislation introduced big new changes to federal Direct Loan programs, including new loan limits that will impact many students and parents as early as July 1, 2026, when these new rules take affect for the 2026-27 academic year.
However, before you panic, be aware of one crucial fact:
A three-year grace period on the new loan limits is being offered to students and parents who have existing loans and will be enrolled in credentialed programs during the next three years.
So, if you’ve already borrowed money through federal Direct Loan programs, you can continue to borrow money under the current limits for the next three years. After that, the new loan limits will apply to you.
The new rules will apply starting on July 1, 2026 for all students and parents who borrow federal Direct Loans for the first time and during subsequent years from 2026-27 and beyond.
So, let’s take a look at the new federal Direct Loan limits and other loan rules that are changing.
Parent PLUS Loan Limits
There are now limits on how much money parents can borrow through federal parent PLUS Loans. Parents of a student are now limited to borrowing $20,000 per year per dependent student and $65,000 lifetime per dependent student. This applies to all parents combined, so if a student has multiple parents who take out parent PLUS loans, the amounts they all borrow count against the annual and lifetime limits.
All the PLUS Loan amounts you’ve ever borrowed, including any amounts repaid, forgiven, canceled, or discharged, will count against these new limits.
But, again, there is a three-year grace period for parents who borrowed a PLUS Loan before July 1, 2026 and have a dependent student enrolled in a credential program. Those borrowers can continue to borrow under current loan limits for three academic years or the remainder of their dependent student’s enrollment in a credentialed program.
Graduate PLUS Loan Elimination
The graduate PLUS Loan program for graduate students will end on July 1, 2026, and these types of loans will no longer be available, although there is a three-year grace period if you’ve already borrowed a graduate PLUS loan before that date. In that case, you can continue to borrow these types of loans for up to three more academic years, beginning with the 2026-27 school year.
Lifetime Federal Student Loan Limits
There is now a $257,000 lifetime borrowing limit on all federal student loans, excluding borrowed Parent PLUS Loan amounts. However, there are already annual borrowing limits on student Direct Loans and other federal loan programs, and those would keep a student’s lifetime borrowing below this new limit. So, nothing has really changed with this new lifetime limit.
Loan Proration
Colleges and universities will now be required to prorate the annual loan amounts they offer in direct proportion to the percent of the student’s full-time status. So, if a student is enrolled 75% time, then a school must prorate that student’s annual loan amounts by that same percentage.
Institutional Direct Loan Borrowing Limits
Under the new Direct Loan rules, colleges and universities can impose their own lower Direct Loan limits, but these lower limits must apply to its entire loan program and not on a student-by-student basis.
In theory, this means a school could impose lower Direct Loan limits than the U.S. Department of Education does. That could limit the amount of money you can borrow while you’re enrolled at that school.
However, this doesn’t necessarily mean that schools will impose their own limit. Check with your school’s financial aid office to find out if it will follow the federal borrowing limits or has its own.
Federal Assessment of College Financial Need
Starting July 1, 2026 for federal financial aid awards for the 2026-27 school year, family-owned small business assets and family farm assets will once again be excluded from assessments of federal financial aid eligibility. Exemptions for family-owned commercial fishers have also been expanded.
This means your small business and family farm assets won’t be considered as part of financial aid eligibility calculations, and family-owned commercial fishers will have expanded exemptions from the process.
Previously, the FAFSA Simplification Act removed the exemption of assets for family-owned small businesses and family farms, and that rule was in effect for the 2024-25 FAFSA. Now, those exemptions are being restored.
Pell Grant Eligibility
Student eligibility for federal Pell grants is being tightened through several new rules:
- Students are no longer eligible for a Pell grant if their Student Aid Index (SAI) exceeds twice the maximum Pell grant award amount.
- Students who receive grants or scholarships from non-federal sources that cover their entire cost of attendance are now ineligible to receive a Pell grant, even if they are otherwise eligible for the program.
- Foreign income must now be included in the adjusted gross income (AGI) that is used to calculate your Pell grant eligibility.
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