The rule hasn’t changed even though federal student lending has: borrow federal first, and treat private loans as a gap-filler. A private loan can sometimes beat a federal loan on interest rate. It almost never beats it on what happens when something goes wrong, and with student debt that you will carry for a decade or more, something often does.
What has changed is the size of the gap federal loans leave behind. The One Big Beautiful Bill Act, signed in 2025, rewrote borrowing limits and repayment plans for loans disbursed on or after July 1, 2026. More graduate students and parents now hit a federal ceiling and face the private-loan question directly.
Key takeaways
- Federal loans come with income-based repayment, a path to forgiveness, discharge on death or total disability, and Public Service Loan Forgiveness. Private loans generally offer none of these.
- As of July 1, 2026, Grad PLUS is closed to new borrowers and new caps apply to graduate and Parent PLUS loans, so many families will need to budget for a funding gap.
- Refinancing federal loans into a private loan is permanent. You give up every federal protection in exchange for a possibly lower rate.
What a federal loan gives you that a private one doesn’t
Payments tied to income. Borrowers with new federal loans now choose between two plans: a revised Standard plan with fixed terms of 10 to 25 years depending on the amount owed, and the new Repayment Assistance Plan (RAP). RAP sets payments at 1% to 10% of adjusted gross income, with a $10 monthly minimum and a $50 reduction for each dependent. If an on-time payment doesn’t cover the interest, the unpaid interest isn’t added to your balance, and the government adds a small principal match so the balance still goes down. Any remaining balance is forgiven after 30 years of qualifying payments. A private lender sets your payment based on the loan, not your paycheck.
Forgiveness programs. Public Service Loan Forgiveness still exists for federal Direct Loan borrowers who work for government or qualifying nonprofits. Private loans aren’t eligible.
Discharge when life falls apart. Federal loans are discharged if the borrower dies or becomes totally and permanently disabled, and there are discharge programs tied to school closure and fraud. Private lenders vary widely here. Some forgive on death; others can pursue a cosigner or the estate.
No credit check for most undergraduates. Direct Subsidized and Unsubsidized loans don’t depend on your credit score or require a cosigner. Most 18-year-olds can’t get a private loan at a decent rate without a parent signing on.
A fixed, uniform rate. For loans first disbursed between July 1, 2026 and June 30, 2027, federal rates are fixed at 6.52% for undergraduates, 8.07% for graduate unsubsidized loans and 9.07% for PLUS loans, according to the Department of Education. Everyone gets the same rate regardless of credit.
What changed in 2026, and why it pushes people toward private loans
Undergraduate Direct Loan limits stayed where they were. The big changes hit graduate students and parents:
- Grad PLUS ended for new borrowers on July 1, 2026. Previously it let graduate students borrow up to the full cost of attendance. Students already enrolled with federal loans in their program may keep borrowing under the old rules for a limited time.
- New graduate caps: $20,500 a year and $100,000 in total for graduate programs, and $50,000 a year and $200,000 in total for professional programs such as law and medicine.
- Parent PLUS caps: $20,000 a year and $65,000 in total per dependent student.
- A lifetime cap of $257,500 across federal student loans, not counting Parent PLUS.
Repayment changed too. The SAVE plan is gone after a 2026 court ruling, and borrowers who were enrolled have been moved or are being moved to other plans. Borrowers with older loans can stay on existing income-driven plans for now, but ICR and PAYE are scheduled to close by July 1, 2028, and loans taken out on or after July 1, 2026 only qualify for the new Standard plan or RAP. Check StudentAid.gov’s summary of the law for the version that applies to your loans, since dates turn on when each loan was disbursed.
When a private loan can make sense
Private student loans are priced on credit. A borrower, or a cosigner, with strong credit may see a fixed rate below the federal PLUS rate of 9.07%, especially on shorter terms. That’s most relevant for graduate students and parents who would otherwise use PLUS loans, and for professional students who hit the new caps.
If you go this route, compare more than the rate. Ask whether the lender offers a forbearance period if you lose your job, whether it discharges the loan on death or disability, and whether a cosigner can be released after a set number of on-time payments. Variable-rate offers often start lower and can climb. Before anyone cosigns, they should read our guide on what cosigning really means.
The refinancing trap
Refinancing federal loans with a private lender is the “switching” that costs the most. A lower rate can save real money on paper, and for a high-income borrower with stable work and no interest in forgiveness, the math can favor it. But the move is one-way. Once federal loans are paid off by a private lender, RAP, PSLF, federal deferment and death and disability discharge are gone for that debt, and you can’t move it back.
A reasonable test: refinance only if you’d be comfortable making the full private payment through a year of reduced income, and you’re certain you won’t pursue public service work.
Frequently asked questions
Do I have to fill out the FAFSA to get federal loans?
Yes. Federal student loans, including Parent PLUS, require a current FAFSA. Some private lenders and many schools also ask for it before certifying a private loan, because the school has to confirm you’ve considered federal aid.
Can I still get a Grad PLUS loan in 2026?
Only if you qualify for the transition provision, which generally covers students who already had a federal loan disbursed for their current program before July 1, 2026. It lasts a limited time and can be lost by changing programs. Your financial aid office can confirm your status.
Are federal student loan rates going to change on my existing loans?
No. Federal rates are fixed for the life of each loan. The rate for new loans resets every July 1 based on the 10-year Treasury auction in May, so each year’s loans can carry a different rate.
Can student loans be discharged in bankruptcy?
Both federal and private student loans are hard to discharge in bankruptcy because the borrower generally has to prove “undue hardship” in a separate court proceeding. It’s possible but uncommon, and it shouldn’t be part of a borrowing plan.
Borrowing in the right order
A sequence that keeps the most protection for each dollar borrowed:
- Grants, scholarships, work-study and savings, which don’t need to be repaid.
- Federal Direct Subsidized loans, where the government pays interest while you’re in school at least half time.
- Federal Direct Unsubsidized loans, up to your annual limit.
- PLUS loans, where still available, compared side by side with private offers. This is where a strong-credit private loan can win on price, so weigh the rate against the protections you’d be giving up.
- Private loans last, for whatever gap remains, with fixed rates preferred and the shortest term you can afford.
Before borrowing at any step, it’s worth estimating your first-year salary and what payment it can carry. Under the new caps, graduate students in particular may find that cutting costs, delaying a year to save, or choosing a lower-cost program does more for them than any loan comparison.
