Private Student Loans After the 2026 Federal Caps

About 429,000 borrowers took out $12.3 billion more than the new annual federal loan limits allow during the 2023-24 academic year, according to Department of Education data reported by Inside Higher Ed. The department did not break that figure out between graduate and professional students and parents borrowing PLUS. As of July 1, 2026, that federal borrowing capacity is gone. The tuition bills did not shrink to match.

So the question stops being "what changed" and becomes "what fills the hole." This post is about the private student loan market that is supposed to absorb the difference: what it actually charges, what it does not offer, and who it turns away before the conversation starts.

The caps, in one paragraph

For loans first disbursed on or after July 1, 2026, Parent PLUS borrowing is capped at $20,000 per year and $65,000 in aggregate, both per dependent student. Read that twice: the $65,000 is per child, not per household, and it is shared across both parents rather than doubled, and it counts prior borrowing for that same child at other schools. Graduate students are capped at $20,500 per year and $100,000 aggregate; professional students at $50,000 per year and $200,000 aggregate. Every student borrower also sits under a $257,500 lifetime maximum, which counts the subsidized, unsubsidized, Grad PLUS, and Perkins loans that student borrowed but expressly excludes any Parent PLUS a parent took on their behalf. Grad PLUS is closed to new borrowers. Those figures are the Department of Education's own, from its loan limits FAQ dated May 20, 2026, which also describes an interim exception preserving the old limits for students who were enrolled in a program as of June 30, 2026 and had already received a Direct Loan for that program. That exception runs for the lesser of three years or the student's expected time to credential, so it can expire before a long degree does.

One piece of this is not settled. On June 24, 2026, the U.S. District Court for the District of Columbia preliminarily stayed part of the Department's "professional degree" definition, and on June 29 the Department published an expanded interim list of professional degree programs, noting that these "interim administrative designations are provided solely to facilitate implementation of the Court's order and may change as litigation in the case proceeds." Whether a program sits in the $20,500 / $100,000 graduate tier or the $50,000 / $200,000 professional tier decides whether a student needs private money at all, and the Department is telling schools they may want to hold newly reclassified programs to the graduate caps in the meantime. Confirm your program's classification with the aid office instead of assuming it. The same announcement confirms that the rest of the rule, including the elimination of Grad PLUS, took effect on July 1, 2026.

If you want the mechanics, we wrote them up in federal student loan changes taking effect July 2026 and the Parent PLUS cap breakdown. That is the last time we will explain them here.

What actually replaces the lost borrowing capacity

Five things, in rough order of what each one costs you.

1. Money you never borrow. An aid appeal, a cheaper program, transferable credits, an assistantship, or a fellowship beats every loan on this list. Nothing about the caps changed that, and the summer before a year locks is when those levers still move. We laid out the sequence in how to use this summer to reduce what you will owe.

2. Employer educational assistance. Under Section 127 of the tax code, an employer can provide up to $5,250 a year in educational assistance that is excluded from the employee's gross income, and the IRS confirms that the $5,250 cap applies for 2025 and 2026 and is adjusted for cost-of-living increases for taxable years after 2026. That benefit can also cover qualified education loan payments. It is underused because most people never ask HR.

3. State agency and nonprofit lenders. These sit between the federal system and the banks. MEFA, a Massachusetts state authority, announced expanded loan programs on June 25, 2026 in direct response to the federal restrictions; MEFA says its loans carry no annual and no aggregate borrowing limits, covering up to the full cost of education less aid. Several other state agencies (RISLA, VSAC, Granite Edvance, the Oklahoma Higher Education Loan Program, and others) appear as data contributors in the industry's own private loan report. Do not read "nonprofit" as "easier" or "cheaper," though. The Protect Borrowers and Century Foundation review found that 22 of the 34 lenders it studied were nonprofit or state-affiliated, that about 82 percent of nonprofit lenders impose significant state-based residency restrictions, and that given those restrictions and their underwriting criteria such lenders "are unlikely to fill the gap for borrowers who are shut out of the private market; if anything, they are even harder to access." Ask your aid office whether your state has one, then compare its published rate ceiling against a bank's.

4. Bank and online private loans. The bulk of the market. Covered in detail below.

5. Nothing. This is the part that gets left out. In March 2026, the advocacy groups Protect Borrowers and The Century Foundation reviewed the published underwriting requirements of 34 private student lenders and projected that over 40 percent of Americans would likely be denied a loan from the vast majority of traditional prime lenders. A majority of those lenders required a minimum credit score of at least 640; a majority of those disclosing an income floor set it at $30,000 or higher. On the income requirement alone, the report found nearly two in three Pell Grant recipients (61.1 percent) would be excluded. That projection screens on published credit and income floors and does not model cosigners, who can supply the credit file and the income. For the families who have no cosigner to supply, the private market is not a backstop. It is a closed door.

The private market is smaller than the hole

It helps to see the scale. Per Enterval Analytics, which aggregates data from the largest private student lenders (report published January 26, 2026), approximately 92.34% of student loans are made by the federal government, and private student loans made up the remaining 7.66% of the student loan market as of Q3 2025. Private originations totaled $4.53 billion in the first quarter of academic year 2025-26. Enterval discloses that its report reflects roughly 78% of the active in-school private student loan lender market.

A market Enterval puts at 7.66% of the student loan market is now being asked to backfill federal capacity that, for over-the-limit borrowing alone, ran to $12.3 billion in 2023-24, using credit-based underwriting, for a population that federal loans deliberately did not credit-screen. The likely result is not that everyone borrows privately. It is that the borrowers who can, do, at a price set by their credit, and the borrowers who cannot make other choices about where and whether to enroll.

Fixed versus variable, and what the rates actually look like

Federal loans have one rate, set by statute, the same for a 780 credit score and a thin file. Private loans are priced on the borrower's (or, far more often, the cosigner's) credit. That is the whole difference, and it explains why every advertised private rate arrives as a range instead of a number.

Here is what is on the disclosure pages as of July 8, 2026, next to the federal rates for the same year. These two lenders are named because their rate disclosures are public and dated, not because we recommend them. We do not recommend lenders.

Read that column carefully, because it is not one measure. Federal rates and the disbursement window come from the Department of Education's interest rate announcement, which calls them fixed interest rates, not APRs. They exclude the federal origination fee described below, so the true federal APR sits above the number shown, meaningfully so for PLUS. The Sallie Mae figures are APRs computed under Sallie Mae's stated assumptions; the MEFA figures are interest rates, with MEFA's disclosed APRs in parentheses where they differ, computed under MEFA's own assumptions. That is why MEFA's graduate APR floor of 6.60% prints below its own 7.15% interest-rate floor. No borrower pays 6.60% as a rate. Rates move, too. Pull the disclosure page on the day you apply rather than trusting this table, or any table, a month from now.

The advertised floor is a floor, not an offer. Sallie Mae's own rate disclosure states that advertised undergraduate APRs assume a $10,000 loan with a four-year in-school period, a six-month grace period, and the longest term offered, and that the lowest rates shown include a 0.25 percentage point auto debit discount and apply only to the most creditworthy applicants selecting the interest repayment option. A 2.39% headline and a 17.49% headline are the same product. Which one you get is decided by a credit file.

The same caution applies to MEFA, in fewer words: its disclosure says the lowest rates are only available to the most creditworthy applicants. And its 4.95% floor belongs to one product, the 10-year immediate-repayment option, which means paying full principal and interest while the student is still enrolled. Families who defer payments during school start at 7.05% or higher.

Variable rates are a bet on the index. Sallie Mae discloses that its variable rates move with the 30-day Average Secured Overnight Financing Rate (SOFR), rounded up to the nearest one-eighth of one percent. The Consumer Financial Protection Bureau notes that private variable rates "can reset every month or quarter, causing your monthly payments to change", while federal loans are fixed for life. A variable loan that starts below the fixed offer can end well above it, and the loan lasts ten to fifteen years.

A borrower who cannot comfortably absorb a payment at the top of the variable band is exposed to a payment they may not be able to make. A fixed rate removes that exposure at a known price.

One thing that does favor private loans: federal loans carry an origination fee deducted from every disbursement. Direct Subsidized and Unsubsidized loans charge 1.057% and Direct PLUS loans charge 4.228% for loans first disbursed before October 1, 2027, per the Department's FY27 fee announcement. Many private lenders charge no origination fee at all. On a $20,000 PLUS loan, that fee is roughly $846. It is real money, it belongs in the comparison, and it is the reason the federal APR is higher than the federal rate in the table above, though at a 9.07% rate with federal protections attached, the fee rarely decides the question by itself.

What you give up by leaving the federal system

This is the part the rate table cannot show you. Every item below is a federal protection that does not travel with the money into a private loan.

Income-driven repayment and the Repayment Assistance Plan. RAP is the federal government's main income-based plan as of July 1, 2026, with a $10 monthly floor for borrowers whose adjusted gross income is $10,000 or less. It covers eligible federal Direct Loans only, and even inside the federal system it has a gap worth knowing: per a Congressional Research Service In Focus factsheet (IF13075, July 31, 2025), read via the everycrsreport.com mirror, subsidized, unsubsidized, Grad PLUS, and consolidation loans qualify, while Parent PLUS loans and consolidation loans that include a Parent PLUS loan do not. A private loan is never eligible under any circumstance, and refinancing a federal loan into a private one permanently forfeits access. Our RAP guide walks through who should and should not use it.

Public Service Loan Forgiveness. Federal law (20 U.S.C. 1087e(m)) directs the Secretary to cancel the remaining balance on eligible Federal Direct Loans after 120 monthly payments made while working in a public service job. Private loans generate zero qualifying payments. If a nonprofit or government career is anywhere in the plan, the federal-versus-private mix of your debt directly determines whether any of those payments can ever count toward forgiveness.

Discharge on death or total and permanent disability. Federal regulation discharges a Direct Loan when the borrower dies, and discharges a parent's PLUS loan attributable to a student who dies (34 CFR 685.212). The CFPB is blunt about the other side: "Unlike federal student loans, private student lenders are not legally required to cancel private student loans for borrowers who die or become disabled." Many lenders offer it voluntarily. Voluntarily means it lives in the promissory note, and you have to read the promissory note.

Deferment and forbearance. Federal borrowers have deferment and forbearance rights defined in regulation, including administrative forbearance the Secretary grants without borrower documentation (34 CFR 685.205). Private forbearance is a contract term rather than a right: its length, the documentation that triggers it, and whether interest capitalizes at the end of it are all set by the promissory note, and they vary lender to lender. The CFPB summarizes the whole category: private student loans "generally do not feature the flexible repayment terms or borrower protections offered by federal student loans."

The bankruptcy off-ramp. More on this below, but the short version: the streamlined undue-hardship process the government built in November 2022 does not cover private loans.

There is one federal protection private borrowers do get, and most people have never heard of it. The Truth in Lending Act, as amended in 2018, requires the holder of a private education loan, once notified of the death of the student borrower, to release the cosigner from the obligation, and bars a creditor from declaring default or accelerating the debt against the student solely because a cosigner died or filed bankruptcy (15 U.S.C. 1650(g)). Those protections apply to private education loans entered into roughly on or after November 20, 2018. They fixed a real abuse. They do not forgive the loan when the cosigner is the one who is on the hook.

Cosigner mechanics, and why release almost never happens

Private student lending runs on cosigners. The Protect Borrowers and Century Foundation review found that among the 17 lenders in its sample that disclose the figure, between 61 percent and 100 percent of loans originated carried a cosigner, and that every significant lender required the borrower or the cosigner to be creditworthy. For an 18-year-old with no credit file, the cosigner is not an option. It is the product.

A cosigner is not a character reference. Per the CFPB, a cosigner has "an equal financial responsibility and legal obligation to make sure the loan is repaid," a default lands on the cosigner's credit report as well as the borrower's, and the lender can sue both.

Which brings us to cosigner release, the escape hatch every lender advertises and almost nobody uses successfully.

Release is a contract term, and the terms are demanding. Sallie Mae's cosigner release criteria require proof of graduation or certificate completion, U.S. citizenship or permanent residency, proof of income, a demonstrated ability to assume full responsibility for the loan, satisfactory credit history including no bankruptcy, foreclosure, defaulted student loan, or 90-day delinquency in the last 24 months, no 30-day-past-due status on any Sallie Mae loan in the last 12 months, no student loan in a hardship forbearance or modified repayment program in the 12 months before applying, and 12 on-time principal-and-interest payments on each loan (or prepayment of an equivalent amount).

Three details on that same page do most of the work and get read least. Interest-only or fixed payments made while the borrower was in school, in separation, or in a grace period do not count toward the 12 payments, which means the in-school interest option that buys Sallie Mae's lowest advertised rate does not start the release clock. A forbearance in the wrong 12 months disqualifies the application. And parent loans originated after May 2026 are not eligible for cosigner release at all, which matters here, because parents pushed off Parent PLUS by the new caps are exactly who is shopping.

MEFA is a different shape of the same problem. Its co-borrower release is not a feature of the loan whose 4.95% floor is quoted above; it exists only on one of five repayment options, the Student Deferred with Co-Borrower Release loan, whose fixed rate starts at 7.35%, and only after 48 consecutive on-time payments plus underwriting. MEFA's other four repayment options do not advertise release at all. Twelve payments and forty-eight payments are both "available." They are not the same product, and neither is priced the way the headline range suggests.

And then there is the hit rate. In a June 2015 review of industry practice, the CFPB's Student Loan Ombudsman asked six lenders and servicers about their practices and found that, of the borrowers in that sample who applied for cosigner release, 90 percent were rejected, on a weighted-average basis. The Bureau described release policies as "often opaque," said companies "generally do not proactively notify borrowers when they may be eligible," and noted that "the criteria for getting approved for a co-signer release were rarely communicated in a transparent fashion." The most common denial reason respondents gave was failing to meet pre-application requirements such as a specified number of on-time payments. Separately, the Bureau found that some companies rejected applicants "because they had previously accepted the servicers' offer of postponing payment through forbearance," a policy that "can permanently ban a consumer from seeking co-signer release for the life of the loan."

That figure is a decade old, rests on six responses, and is the most recent government-wide look at the practice we could source. Treat it as a description of how the mechanism behaves rather than as this year's rejection rate. But do not plan around release. Plan as though the cosigner is on the loan until it is paid off, because in most households that is what happens. A cosigner stays legally liable until the loan is repaid or formally released, which for most families means the full term.

Bankruptcy: state this carefully

Private student debt is very hard to discharge in bankruptcy. Here is the precise version, because the imprecise version gets people into trouble in both directions.

Under 11 U.S.C. 523(a)(8)(B), a bankruptcy discharge does not cover "any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual," unless excepting that debt "would impose an undue hardship on the debtor and the debtor's dependents." A qualified education loan is, broadly, debt incurred solely to pay the cost of attendance at an eligible educational institution. A school-certified loan for an amount inside the cost of attendance is exactly that, and per Enterval, in-school private student loan amounts are certified by the school.

A separate clause reaches the lenders in option 3 above. Section 523(a)(8)(A)(i) independently excepts from discharge, absent undue hardship, "an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution." State agency and nonprofit lenders sit squarely inside that clause, whatever the qualified-education-loan analysis says.

"Undue hardship" is not a hardship you would recognize from ordinary life. As the National Consumer Law Center describes, bankruptcy courts have long used a three-part test: a present inability to repay while maintaining a minimal standard of living, a likelihood that the situation will persist, and good-faith repayment efforts.

Two more things matter, and they cut in opposite directions.

First, the process that made undue-hardship discharge dramatically more achievable does not apply here. The November 2022 Justice Department and Department of Education attestation process covers Department-held federal loans; as the guidance itself puts it, "Private student loans are not subject to the process described here", and the NCLC confirms the guidance "does not apply to holders of private student loans."

Second, there is a real but narrow crack. In In re Homaidan (2d Cir., July 15, 2021), the Second Circuit held that the "educational benefit" clause of section 523(a)(8)(A)(ii) "excepts from discharge only a narrow category of conditional grant payments, not all private student loans," joining the Fifth and Tenth Circuits. The lender-appellants there were Navient Solutions and its predecessor Sallie Mae, Inc., the entity that separated from today's Sallie Mae Bank in 2014; the opinion refers to them collectively as Navient. Note the limit of the holding: the court expressly did not decide whether the loans at issue were nondischargeable under 523(a)(8)(B), because the lender had not argued it in that appeal. Commentators read the decision to leave room for private education debt that falls outside the qualified-education-loan definition. The court did not decide that question, and 523(a)(8)(A)(i) may capture the loan anyway.

Translation for a family sitting at a kitchen table: assume the private loan follows you through bankruptcy. If it ever comes to that, the exceptions are a question for a bankruptcy attorney in your circuit, not a reason to borrow more now.

A checklist for evaluating a private lender

Nothing here names a best lender. These are the questions that separate loans that look identical in an advertisement.

1. Is the rate fixed? If it is variable, what index, how often does it reset, and is there a lifetime rate cap? If the lender will not tell you the cap, there probably is not one worth having. 2. What rate do you actually get? Not the advertised floor. Prequalify or apply and read the disclosure with your real number on it. Then compare that APR against the federal statutory rate of 6.52% or 9.07% plus the federal origination fee, so you are comparing the same measure. 3. Origination or disbursement fee? Many private lenders charge none. Federal Direct Subsidized and Unsubsidized charge 1.057% and federal PLUS charges 4.228% for loans first disbursed before October 1, 2027. Put both in the total. 4. Cosigner release: written criteria. How many on-time payments? Do in-school interest-only payments count toward them? Is graduation required? Does a forbearance disqualify the application? Is the loan type eligible at all? Is release discretionary even when criteria are met? 5. Death and disability discharge language in the promissory note. Not the marketing page. The note. TILA already forces cosigner release when the student dies; that is not the same as the loan being forgiven. 6. Forbearance: how many months over the life of the loan? Does interest capitalize at the end of it? What documentation triggers it? And does taking one void your cosigner release, as the CFPB found some companies' policies do? 7. In-school repayment options. Deferred, interest-only, or a small flat payment. Each one changes total cost by thousands, and at some lenders it changes the rate itself. Ask for the total-cost figure under each, not the monthly. 8. Prepayment penalty. These are uncommon in this market. A lender that charges one is pricing differently from its competitors, and it is worth asking why before you sign. 9. Is there a state agency or nonprofit lender you qualify for? Compare its published rate ceiling against a bank's rather than assuming nonprofit means cheaper, and check the residency restrictions first: most nonprofit lenders have them. 10. Default and delinquency terms. What is the grace period, what triggers acceleration, and what happens if the cosigner's circumstances change? 11. Run the total, not the payment. A longer term always makes the monthly number look reasonable. Use our loan payback calculator and our ROI calculator with the real total, including interest, before you decide the degree is worth the loan.

Before you sign anything, call the financial aid office

In-school private student loans are generally school-certified, meaning your school confirms the amount before it disburses. The aid office is going to be in this transaction regardless. Bring it in first, and ask four questions:

- Is there an institutional payment plan that spreads the term bill without interest? - Does the school have an institutional loan fund, and what does it charge? - Is there a state agency or nonprofit lender that students here commonly use? - Given a documented gap this size, is there anything in the aid package that can be revisited?

The Consumer Financial Protection Bureau's baseline guidance predates the caps and has not been withdrawn: "it is best to max out your federal student loan options before you borrow any private student loans." That page has not caught up in one respect, and it is worth knowing before you lean on it: it still describes Grad PLUS as an option a graduate or professional student might weigh a private loan against, and Grad PLUS closed to new borrowers on July 1, 2026. The caps make the underlying advice harder to follow. They do not make it wrong.

The bottom line

The 2026 caps did not create a private student loan boom so much as hand the private market a bill it was never sized to pay. Private loans are 7.66% of the student loan market. An advocacy analysis of 34 lenders' published credit and income floors projects that over 40 percent of Americans would likely be denied the prime private loans that exist. The families who can qualify will pay a credit-priced rate, usually with a parent's signature attached, and will trade away income-driven repayment, forgiveness, discharge on death or disability, real forbearance rights, and the streamlined bankruptcy path, all at once and permanently.

That trade is sometimes correct. A borrower with strong credit, a program with a clear earnings floor, and no public-service plans may do fine on a fixed private loan at 6%. But it is a trade, it is one-way, and it deserves more than an afternoon. Price the school before you price the loan. Some families find, once the loan is priced, that the school does not work.

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Related guides: - Federal Student Loan Changes Taking Effect July 2026 - How the Parent PLUS Loan Cap Changes Affordability - The RAP Plan Starts July 1: What Borrowers Need to Do - The New Grad School Loan Caps: A Step-by-Step Budget Plan for Fall 2026 - Should You Refinance Student Loans in 2026? - Graduate School ROI in 2026: Is It Still Worth It Without PLUS Loans? - How Much Student Debt Is Too Much?

This is general information, not individual financial advice, and nothing here is legal advice. Every family's aid, credit, and tax situation is different, and lender terms, rates, and litigation all change. Talk to your school's financial aid office before you borrow privately, and read the promissory note before you sign it.

Sources: U.S. Department of Education / Federal Student Aid, Frequently Asked Questions - Loan Limits (May 20, 2026); Federal Student Aid, Interest Rates for Federal Direct Loans First Disbursed Between July 1, 2026 and June 30, 2027; Federal Student Aid, FY 27 Sequester-Required Changes to the Title IV Student Aid Programs (May 13, 2026); Federal Student Aid, Update to List of Professional Degree Programs Due to Court Order (June 29, 2026); Inside Higher Ed, Loan Limits Finalized, but Litigation Looms (April 30, 2026); Protect Borrowers and The Century Foundation, Access Denied (March 2026); Enterval Analytics Private Student Loan Report (January 26, 2026); Sallie Mae undergraduate (Smart Option) rate disclosure and cosigner release criteria; MEFA Undergraduate Loan and MEFA Graduate Loans; Consumer Financial Protection Bureau on federal versus private loans, private student loans, death and disability, cosigners, its June 2015 cosigner release findings, and the underlying Mid-Year Update on Student Loan Complaints (June 2015); 11 U.S.C. 523; 26 U.S.C. 221; 15 U.S.C. 1650; 20 U.S.C. 1087e; 34 CFR 685.212 and 34 CFR 685.205; In re Homaidan, No. 20-1981 (2d Cir. July 15, 2021), slip opinion; U.S. Bankruptcy Court, W.D. Wash., on the DOJ student loan discharge process; National Consumer Law Center (December 12, 2022); IRS, Section 127 educational assistance programs; MEFA announcement, June 25, 2026; Congressional Research Service, The Repayment Assistance Plan (RAP), In Focus IF13075 (July 31, 2025), via the everycrsreport.com mirror. Advertised private loan rates are as shown on lender disclosure pages on July 8, 2026 and change frequently; verify before applying. All figures as of July 2026 except where a source is dated otherwise.