7 Types Of Student Loans And Alternatives

When it comes to paying for college or graduate school, students and their families face a very different menu of borrowing options than they did a year ago. The One Big Beautiful Bill Act rewrote the federal student loan program, and the biggest changes took effect on July 1, 2026.

Grad PLUS loans are no longer available. Parent PLUS loans, which used to cover the full cost of attendance, are now capped. And there’s a new lifetime borrowing limit of $257,500 across nearly all federal student loans.

Remember, student loans should be the last option to pay for college. However, we know that roughly two-thirds of families end up borrowing. So it’s essential that you know your options — especially now that the federal ones are more limited. If you’re starting from scratch, our guide to how student loans work covers the fundamentals, and the FAFSA guide walks through the application every federal loan starts with.

Here’s a rundown of the major student loan types and some alternatives families are considering for the 2026-27 school year.

1. Federal Direct Subsidized Loans

Who can borrow: Undergraduate students with financial need.

Loan limits: $3,500 to $5,500 per year depending on year in school, with a $23,000 aggregate subsidized cap. These limits did not change under the new law.

2026-27 interest rate: 6.52%, plus a 1.057% origination fee.

Key features: The government pays the interest while the student is in school at least half-time and during certain deferment periods. That in-school interest subsidy is the single best deal in student lending, and it’s why subsidized loans should always be your first borrowing dollar. (Federal Student Aid: Subsidized and Unsubsidized Loans)

What changed for 2026: Nothing about the loan itself, but see the repayment restriction above — it applies here too.

One new wrinkle worth knowing: as of July 1, 2026, colleges have the authority to set their own lower loan limits at the program level. Your school may cap you below the federal maximum, so confirm your actual limit with the financial aid office rather than assuming you can borrow the full amount.

2. Federal Direct Unsubsidized Loans

Who can borrow: Undergraduate, graduate, and professional students, regardless of financial need.

Loan limits:

• Dependent undergrads: $5,500 (freshman), $6,500 (sophomore), $7,500 (junior and beyond), combined with any subsidized amount. Aggregate cap: $31,000. Unchanged.
• Independent undergrads: $9,500, $10,500, and $12,500 respectively. Aggregate cap: $57,500. Unchanged.
• Graduate students: $20,500 per year — also unchanged — but now subject to a new $100,000 aggregate cap on graduate-level borrowing.
• Professional students:
  $50,000 per year with a $200,000 aggregate cap, a new higher tier created by the 2026 changes.

Those aggregate caps count only graduate and professional-level subsidized and unsubsidized borrowing. Your undergraduate debt doesn’t count against them.

2026-27 interest rate: 6.52% for undergrads, 8.07% for graduate and professional students. Origination fee is 1.057%.

Key features: Interest accrues from the day the loan is disbursed. These loans still qualify for deferment, forbearance, RAP, and federal student loan forgiveness programs.

What changed for 2026: With Grad PLUS gone, this is now the primary — and often only — federal loan available to graduate and professional students. The annual limit didn’t shrink, but the new aggregate caps mean grad students can no longer borrow their way to the full cost of an expensive program with federal money alone.

A note on the “professional degree” definition: it more than doubles the annual limit, so which programs qualify matters enormously. This is genuinely in flux. The Department of Education’s rule, published in May 2026, listed roughly a dozen fields and excluded nursing. A federal judge in D.C. stayed part of that definition on June 24, 2026, and the Department is now treating 29 CIP codes as professional degree programs while the case proceeds — including master’s and doctoral nursing, physician assistant, physical therapy, occupational therapy, audiology, and speech-language pathology. Theology came off the list. The Department has said these designations are temporary. If you’re in one of the affected programs, check with your financial aid office before the school year starts, and check again if the litigation moves.

3. Parent PLUS Loans

Who can borrow: Parents of dependent undergraduate students.

Loan limits:
$20,000 per year and $65,000 aggregate — per dependent student, not per parent. Both parents share a single pool for each child, so divorced or remarried parents don’t each get their own $20,000. Paying the loan down doesn’t restore borrowing capacity either; the aggregate counts what you borrowed, regardless of what you’ve repaid or had forgiven.

For context, the old limit was the full cost of attendance minus other aid — so a parent at a $90,000-per-year school could previously borrow the entire gap. That’s over.

2026-27 interest rate: 9.07%, plus a steep 4.228% origination fee. On a $20,000 loan, that fee alone costs about $846.

Key features: Requires a credit check, though the standard is a low bar — no adverse credit history rather than a good score. Parents are solely responsible for repayment; the loan never transfers to the student.

What changed for 2026: Two things, both significant. First, the caps above. Second, Parent PLUS loans disbursed on or after July 1, 2026 are eligible only for the tiered Standard plan. RAP is closed to parent borrowers by statute, so there is no income-driven option, and the tiered Standard plan is not among the plans PSLF recognizes. Treat new Parent PLUS borrowing as ineligible for forgiveness.

There’s also a trap for existing borrowers: if you have Parent PLUS loans on ICR or another older plan and you take out a new federal loan after July 1, 2026, your Parent PLUS loans move to the tiered Standard plan. That can raise your monthly payment substantially. If you have an older Parent PLUS loan on a repayment plan you like, think hard before borrowing again.

Given the new math, it’s worth reviewing Parent PLUS alternatives and our roundup of the best parent loans for college before committing.

4. Grad PLUS Loans (Eliminated)

Who can borrow: Nobody new. The Grad PLUS program closed on July 1, 2026.

Grandfathering: This is not about whether you’ve borrowed before. Two conditions both have to be true: you were enrolled in your program as of June 30, 2026, and you received a Direct Loan for that same program before July 1, 2026. If both apply, you can keep borrowing under the old rules for the lesser of three academic years or your expected remaining time to credential — and you’re exempt from the new lifetime cap during that window. Withdrawing or stopping out ends legacy eligibility; an approved leave of absence does not.

A student with old undergraduate loans who starts a graduate program in fall 2026 does not qualify.

Why it matters: Grad PLUS was the loan that let graduate and professional students borrow up to the full cost of attendance. Its elimination is the single biggest change in this year’s update. Students in expensive programs — medical school, law school, and many master’s programs — now have to cover the difference between the Direct Unsubsidized caps and the actual cost with private loans, savings, institutional aid, or employer assistance.

Note too that Grad PLUS loans already borrowed count toward the $257,500 lifetime cap, which the Department confirmed after initially indicating otherwise.

If you’re a current grad student, confirm your legacy status with your financial aid office before assuming you’ve lost access.

5. Private Student Loans

Who can borrow: Students with strong credit or a creditworthy co-signer. Most undergraduates need a co-signer.

Loan limits: Varies by lender, often up to the full cost of attendance minus other aid.

Key features: Rates may be fixed or variable and are priced to your credit profile, so a strong borrower can sometimes beat the 9.07% Parent PLUS rate — and skip the 4.228% origination fee entirely. Terms vary widely between lenders, so compare current student loan rates and our list of the best private student loan lenders before applying.

What changed for 2026: Private loans went from a niche last resort to a mainstream option for two groups: graduate and professional students who’ve hit the new federal caps, and parents who’ve maxed the $20,000 annual Parent PLUS limit. Industry analysts expect the new federal limits could nearly double private student loan volume.

The tradeoff hasn’t changed, though. Private loans lack income-driven repayment, federal forgiveness programs, and comparable deferment and forbearance protections. Exhaust federal aid first, then compare private offers against whatever’s left.

6. Education Line Of Credit

Who can borrow: Students or families with good credit, usually with a co-signer.

Loan limits: Set by the lender based on creditworthiness, generally with the goal of covering multiple years of college under one approval.

Key features: Rather than applying for a new loan each year, you’re approved once for a revolving line and draw on it each semester. That means one credit inquiry instead of four, and no re-underwriting if your financial situation changes mid-degree. We break down the tradeoffs in education line of credit vs. private student loans.

What changed for 2026: These have gained attention as families run into the Parent PLUS ceiling, since a multi-year line can cover the gap without an annual approval process. Like private loans, they typically lack federal-style benefits.

7. Alternatives: HELOCs and Personal Loans

Who can borrow: Homeowners with equity (HELOCs) and anyone with qualifying credit (personal loans).

Loan limits: Based on available home equity or your borrower profile.

Key features for HELOCs: You borrow against your home equity, usually at a lower rate than a Parent PLUS loan and with no origination fee. The catch is real — your house is the collateral. If the loan goes bad, the consequence is foreclosure, not wage garnishment. We cover the math in when it makes sense to use a HELOC instead of student loans.

Key features for personal loans: Unsecured, fixed-term loans typically used to cover smaller gaps. Shorter repayment periods and usually higher rates than federal student loans. Often the only option for something like a coding bootcamp that doesn’t qualify for federal aid.

Pros: Families with excellent credit can sometimes beat federal PLUS pricing, especially given the 4.228% PLUS origination fee.

Cons: No deferment, no forbearance, no income-driven repayment, no forgiveness — and with a HELOC, your home is on the line.

For a wider view of non-loan options, see our guide to the best student loan alternatives to pay for college.

FAQ

What are the main differences between federal and private student loans?

Federal student loans come from the U.S. Department of Education and carry standardized rates, income-driven repayment, and forgiveness programs. Private loans come from banks, credit unions, and online lenders, are priced to your credit, and offer far fewer protections. Our definitive guide to student loan debt goes deeper on the comparison.

How do I choose between Parent PLUS loans and private loans?

As of 2026, Parent PLUS is no longer the automatic choice. New Parent PLUS loans qualify only for the tiered Standard repayment plan — no income-driven option, no PSLF — and cost 9.07% plus a 4.228% origination fee. If a private lender offers a meaningfully lower all-in cost and you don’t need federal protections, the private loan may be the better deal. Compare total cost, not just the rate. See Parent PLUS student loan alternatives for a side-by-side.

What happened to Grad PLUS loans?

The program closed on July 1, 2026. Graduate and professional students now borrow Direct Unsubsidized Loans, capped at $20,500 per year and $100,000 total for graduate students, or $50,000 per year and $200,000 total for professional degree students. Students who were enrolled as of June 30, 2026 and had already received a Direct Loan for that program can be grandfathered in for up to three academic years. More detail in our graduate student loan limits guide.

What is the lifetime federal student loan limit now?

$257,500 across all federal Direct student loans. The exclusion is narrower than it sounds: it excludes only PLUS loans you took as a parent. Your own undergraduate borrowing counts, as does any Grad PLUS you took for yourself. Grandfathered borrowers are exempt during their expected time to credential.

What repayment plans can I use for loans taken out after July 1, 2026?

Two: the Repayment Assistance Plan (RAP) and the tiered Standard plan. RAP sets payments at 1% to 10% of AGI annually with a $10 monthly minimum, subtracts $50 per dependent, waives unpaid interest when you pay in full and on time, and forgives the balance after 360 qualifying payments. It counts toward PSLF. Tiered Standard is a fixed payment over 10 to 25 years depending on your balance. New Parent PLUS borrowers get only the tiered Standard plan.

Can I use a HELOC to pay for college instead of student loans?

You can, and the rate is often lower. But you’re trading federal borrower protections for a loan secured by your home. For most families, it isn’t worth it. Our HELOC vs. student loans comparison walks through when it does make sense.

Final Thoughts

The 2026 federal loan changes narrowed borrowing options for graduate students and parents more than any single policy shift in decades. Grad PLUS is gone, Parent PLUS is capped, and there’s now a hard lifetime ceiling on federal borrowing.

The practical upshot: families who used to default to federal loans for the whole bill now have to shop. Compare federal Direct Loans first, then run private loan quotes against Parent PLUS pricing before assuming the federal option wins. And revisit the price of the school itself — when the borrowing options shrink, the sticker price matters a lot more.

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