After years of political bluster and governmental gridlock, existing and aspiring college students finally have answers about the future of federal student loans. While the government will remain the dominant student lender, for the first time in 60 years, they are taking a step back in higher education funding.
Starting July 1, 2026, sweeping changes will go into effect for the federal student loan program, which currently accounts for 92.2% of all student loan debt. From reducing/eliminating PLUS loans to revamping repayment plans, there will likely be an increased need for private student lenders (including credit unions) to help families fill college funding gaps.
Funding futures under the BBB
What might the education financing picture look like for families a year from now? Let’s consider Bailey, a college freshman. Bailey received $8,000 in scholarships and fortunately, her family was able to save some money for her college education—about $12,000. With the average cost of college in the U.S. exceeding $38,000 per year, that leaves Bailey’s family with a balance of $18,000 to cover—and that’s for just her first year of school.
Where can they turn for the difference? Federal Parent PLUS loans have long been a popular choice and an alternative to private student loans. However, the new legislation will limit Parent PLUS loans to $20,000 annually and $65,000 total per child—less than half the cost of Bailey’s remaining four years.
Changes for graduate students
In the 2023-24 academic year, 440,000 graduate students borrowed about $14 billion in Grad PLUS loans—the equivalent of nearly the entire current private student loan market.
Under this program, students could borrow up to the full cost of their grad school program. In July 2026, the Grad PLUS program will be eliminated entirely—20 years to the day it was first introduced. Borrowing limits for other federal graduate student loans will be capped at a lifetime limit of $100,000 ($38,500 less than current limits).
Now we look at Evan, a 23-year-old graduate student pursuing a master’s degree in computer science in the fall of 2026. On average, a master’s degree costs $62,820. Much like our undergraduate student Bailey, Evan is unable to cover the full costs of his schooling, even with a part-time teaching assistant position at his college.
While Evan previously could have taken out a Grad PLUS loan to completely cover his degree, he is now coming up $25,000 short and must find a student loan solution to cover the shortfall in federal funds.
The credit union opportunity
Ultimately, the shrinking of federal loans will significantly expand member financial need. For the hundreds of credit unions who already offer private student loan solutions, this represents a tremendous opportunity to grow and expand their programs to better serve members like Bailey and Evan.
For credit unions not yet offering a solution, the coming year gives ample time to research the market and determine how to step forth with innovative higher education funding solutions that meet the evolving needs of existing and future members.
CU Student Choice offers custom student lending solutions for hundreds of credit unions nationwide, including a unique private education line of credit that offers tremendous convenience to borrowers. With no implementation fees and no need for additional credit union staffing, the Student Choice student lending program offers a low lift for a high return. Contact us to learn more about how Student Choice can make it simple to offer customized student lending solutions that benefit your current and future members.
