If you’re a prospective graduate student or parent of a future college student, you may soon find yourself in need of an additional — and perhaps unexpected — source of financing: a private student loan.
Major changes to the federal student loan program go into effect on July 1, 2026, and they include limits on the amount of money parents and some students can borrow from the government. The tighter borrowing caps, which were signed into law in July as part of the One Big Beautiful Bill Act, could result in some college borrowers turning to other sources of financing to fill the gap.
Two key groups will be affected: parents and graduate students.
Parents looking to take out federal Parent PLUS loans to fund their child’s college education will now be limited to caps of $20,000 per year and a total of $65,000 per student. Before the caps, parents could borrow any amount up to the total cost of college attendance.
Parents attempting to finance the majority of their student’s costs could end up hitting the annual cap consistently or reaching the total cap before senior year. This year’s average annual cost of tuition and fees at an in-state public university is $11,371, according to U.S. News data. Private colleges cost $44,961 on average, while out-of-state students at public colleges pay $25,415. Those figures don’t include expenses such as housing and course materials.
The changes are also jarring for graduate students. The federal government is phasing out its Grad PLUS loan program, which had allowed students to borrow up to the total cost of attendance.
Graduate students will still be able to take out federal loans, but they will also have new caps. Most graduate students will be capped at $20,500 per year and $100,000 in total, while students in professional programs such as law or medical school face limits of $50,000 per year and $200,000 lifetime. Total graduate school costs can reach into the hundreds of thousands.
(Most existing borrowers who hold federal loans through either the Parent PLUS or Grad PLUS programs can continue to receive the previous terms until they complete their programs.)
“The new limits on federal student loans for graduate and parent borrowers means that they will turn to private student loans unless the cost of attendance goes down quickly or families pay more out of pocket,” says Brian Walsh, head of financial advice and planning at SoFi. “We could see several billion dollars a year shift from federal student loans to private student loans assuming borrowers do not change their behavior.”
That aligns with what students are saying. A U.S. News survey conducted in August 2025 found that 38% of college students say they’re now considering taking out a private student loan to help pay for college as a result of the more restrictive federal loan caps.
[Read: Best Private Student Loans.]
Parents, Students and Lenders Scramble to Get Ready
Experts say the timing of the changes presents a particular challenge for those planning to enroll next year.
Many prospective students have already researched schools, started applying or whittled down their lists of colleges with the old federal loan regulations in mind. Now, they may need to re-evaluate their plans. And if they need private student loans, they have little time to adjust their finances or boost their credit score to improve their chances of qualifying.
Others may not even be aware of the changes yet.
“There’s really not a lot of ramp period,” says Jack Wang, a college financial aid advisor at Innovative Advisory Group and the host of the “Smart College Buyer” podcast. “I think come spring or early summer is when a lot of families are going to be in for a rude awakening.”
Private lenders aren’t wasting any time ramping up in preparation for the changes.
Banks, credit unions and online lenders are rolling out new products and features targeted for the anticipated wave of college borrowers turning to private loans.
Abe, a private student loan lender, recently added multiple stand-alone loan offerings for various types of schooling, including options for law, medical and dental programs.
“We have tried to prepare for this by rolling out graduate-specific products in anticipation of increased demand,” says Steve Winnie, chief operating officer at Monogram, the private student loans management company that operates Abe.
SoFi is also in the process of launching new features for college borrowers, and a bank spokesperson says web traffic to its student loan pages has doubled year over year.
[Read: Best Parent Student Loans: Parent PLUS and Private.]
Factors to Consider When Comparing Private Student Loans
Private student loans differ in several ways from the federal programs that are being curtailed. Federal student loans generally don’t require a good credit score to qualify, and they’ve typically offered more forgiving repayment plans. Both Parent PLUS and Grad PLUS loans have the same fixed rate for all borrowers. It is currently 8.94%.
Private loans can vary considerably in rates, repayment terms, grace periods, fees and more. You may get a better rate and more favorable terms than you would with a federal loan. Alternatively, you may struggle to qualify for a private loan if your credit score or financial profile doesn’t meet requirements.
“The challenge with private student loans is that they’re fully credit underwritten,” says Wang. “You have to have a credit score. You have to have income. Yes, more people will apply for private student loans, but does that mean that those people would be approved? Not necessarily.”
Here are some factors to look at when comparing private loans.
Rates
Most borrowers will focus first on the interest rate, and that makes sense, says Walsh.
“Taking the time to compare your options can make a big difference,” he says. “Even a small difference in interest rates really adds up when you are talking about borrowing tens of thousands of dollars.”
Private lenders typically offer both fixed and variable interest rates, and the range of rates you’ll see advertised could be wide. For example, you may see the same lender offer rates below 3% to above 15%, depending on various factors.
Most lenders will let you apply for prequalification to get an estimate of how much you can borrow and what interest rate you may receive. This usually only requires a soft credit check, not a hard pull that could negatively impact your credit score.
Repayment Terms
Lenders may offer a wide range of repayment terms to consider. These could include various term lengths, as well as options to defer payments until after college or forbearance provisions that allow you to pause payments for a period of time.
Longer-term loans will require lower monthly payments, but you’ll end up paying more in interest over the life of the loan.
Discounts and Fees
Some private student loan providers reward you for achievements, such as getting good grades or graduating on time. You may also receive discounts if you hold other accounts with the institution or you regularly make on-time payments.
You may also have to pay extra costs on top of the principal and interest of the loan. Some lenders charge origination fees, or they may assess a penalty for late payments.
Life After College
For some college students, contemplating life after college might be depressing even without the financial burden part. But experts say it’s important to envision what your income situation may be based on your field.
“The type of job that either the parent or student has, or will have, is going to make a huge difference,” says Wang.
For example, if you’re working in a volatile industry where layoffs are common or where your income fluctuates considerably from year to year, you may have trouble keeping up with regular payments, especially if the lender doesn’t offer much flexibility.
“When you get to the point that you need a private loan, don’t just have tunnel vision about the rate,” says Winnie. “Think about all of the terms and try to imagine life and repayment after graduation.”
[Read: Best Student Loans Without a Co-Signer.]
What to Do Now to Prepare for Private Student Loans
In addition to comparing lenders and researching rates, there are steps you can take now to put yourself in the best possible financial position when it’s time to apply for private loans.
Calculate Potential College Costs
Now is the time to crunch the numbers and try to forecast how much you’ll likely need for college. U.S. News offers robust financial information for each school in the U.S. News Best Colleges data center.
Talk to your prospective college’s financial aid office and find out what scholarships are available and how much assistance they provide. Try to assess whether you might be a strong candidate for one. Also look at potential grants or outside scholarships. Then factor in the amount of federal loans you can still get.
Estimate the annual cost of tuition and fees plus housing and other expenses, and then subtract the amount of aid and federal loans you expect to get from those costs. Any leftover expenses may need to be covered with a private loan.
“We still see the private loan as a gap product,” says Winnie. “The gap to be filled may be wider now, but we’re not repositioning the product in that hierarchy.”
Focus on Your Credit Score
You don’t need a good credit score to qualify for or get a better rate on a federal student loan. But it’s a key factor that private lenders will consider. An excellent credit score could save you thousand of dollars over the lifetime of your loan. Now is the time to improve your score and avoid damaging it.
Sign up for a credit-monitoring service, and set up alerts that notify you of changes in your score.
Graduate students in particular need to be wary of any financial decisions that could impact their credit score because they often have limited credit history. One missed credit card payment could weigh heavily on your overall score.
“Get familiar with what your score is,” says Winnie. “Because younger borrowers often have what we call no scores or true zeroes, both negative factors and positive factors impact that score more dramatically than they would someone with a very mature credit file. If you’re looking a year or two out, know what your scores are and start to build credit.”
Lower Your Debt-to-Income Ratio
While credit score plays a major role in loan approvals and interest rates, don’t ignore your debt-to-income ratio, says Wang. This is your total monthly debt payments divided by your gross monthly income.
“I know from some private student loan lenders that they will accept a lower credit score if you have a really good debt-to-income ratio,” he says. “On the flip side, you can have an 850 credit score and still get turned down if you don’t have a sufficient debt-to-income ratio.”
Parents in particular can be caught off-guard by this factor. For example, if they have a mortgage, a couple of car loans and they carry a balance on their credit card, a lender may question whether they can afford to shoulder further debt payments.
As you might have figured, you can improve your debt-to-income ratio by either paying off one of your loans or by earning more money. Wang points out that simply paying down a loan won’t help if you still owe the same monthly payments on it.
Consider Your Cosigners
Graduate students can greatly improve their chances of getting approved for a loan by cosigning with a relative or friend who has a better financial profile.
“For years in the private student loans space — and this isn’t changing — cosigners materially improve your chances of approval and of getting a better rate,” says Winnie. “Start to think through whether that’s a family member or someone else and shop with that in mind.”
Finally, it can pay to take another look at your overall educational and career plan, and ask yourself if it pencils out financially.
“Before focusing on their rate, borrowers should do everything possible to ensure they are getting a positive return on their investment in their education,” says Walsh. “Make sure you consider future earnings based on your major and institution compared to the net cost after financial aid and average time to graduate.”
More from U.S. News
Private vs. Federal Student Loans: What’s the Difference?
Are Private Student Loans Worth It? How to Decide
What Is the Average Student Loan Payment?
A New Federal Law Means You Might Need Private Student Loans Next Year. Get Prepared Now. originally appeared on usnews.com
