2025-2026 Student Loan Breakdown

The new student loan rates are out for the 2025-2026 school year, and it’s a mixed bag.

This week, I’ll break down both what we’re sure of for this coming year and what may be changing for the years ahead.

Where rates come from:

First, federal student and parent loans are based on a simple equation after the 10 year treasury note auction every May. They just take that snapshot and add 2.05% for the Direct Student Loan and 4.6% for the Parent PLUS loan.

Federal student loans rates & fees:

So for the 2025-2026 school year, the Direct – or Stafford – loan will be 6.39%, down just slightly from the prior year’s 6.53%.

And that’s the rate for both the subsidized and unsubsidized Direct Student Loan. The difference between those two being that, for the subsidized student loan, there are no payments due until six months after college, whereas, for the unsubsidized loan, students are responsible only for paying their monthly interest during college and for six months thereafter.

And while your loan administrator and even the Department of Education may tell you that you can defer that interest until after college – essentially putting it on your tab – it’s very important to understand that, if you do that, the interest you owe will compound (that’s called “capitalizing debt”) during those years, and in the end, you’ll wind up owing much more than you borrowed. So definitely plan to pay the interest as you go to save money down the line.

In either case, once those six months after college are up, your regular payments begin with both interest and principal.

They haven’t announced the official fee yet, but it’s been 1.057 for the past five years, and even before then, it was within a few thousandths of a point, so we don’t expect that to change or change by much. And that fee will be packed into the loan, meaning for every $1000 you borrow, the loan administrator will get $10.57, the college will receive $989.43, and you’ll owe the full $1000.

How much students can borrow:

For dependent students, meaning you’re dependent on one or more parent (you’re under the age of 24, not married, have no dependents of your own, and are not enlisted in the military), the most you can borrow is $5500 for your first year of college. Based on your need as determined by filling out your FAFSA, up to $3500 of that may be subsidized. But the difference between the total $5500 and any portion of the $3500 (all, some, or none) you may be offered as subsidized will be available to you unsubsidized. So your $5500 first-year student loan may include up to $3500 in subsidized loans, and $2000 — or whatever is left to make up the difference — in unsubsidized loans.

This is typically broken down by term, so for a two-semester school year, for instance, you’ll be offered half for the fall semester and half for the spring semester. You can choose not to take it or to take less of it for a semester, but you can’t roll anything you didn’t use one semester into a future semester. It’s use-it-or-lose-it.

For your second year of college, you’ll be offered an extra thousand dollars; that’s a $6500 maximum, up to $4500 of which may be subsidized based on need as determined by filling out your FAFSA.

And for your third and fourth years of college, it’ll be another $1000 more: a $7500 maximum, up to $5500 of which may be subsidized. And if you take more than four years to graduate college, there’s another $4000 available in year five, for a total of $31,000 if needed, up to $23,000 of which may be subsidized, again, based on your need as determined by filling out your FAFSA for each and every single year of college.

For independent students (age 24 or older, or who are married, or who claim dependents of their own, or who are enlisted full-time in the military), they can borrow more: $9500 for the first year, $10,500 for the second year, and $12,500 for year three and again for year four. But the available subsidized amounts won’t change, so it just means an extra $4000 or $5000 a year in unsubsidized loans. Then there’s an extra $12,500 in unsubsidized loans for year five, if needed, for a total of $57,500.

You’ll get 10-25 years to pay off your loan, and the faster you pay it off, the less you’ll pay in interest overall. But if you select an income-driven repayment plan and make 20 years (240 months) of on-time payments, any remaining balance may be forgiven.

Federal parent loan rates, fees, & amounts:

Next is the Direct PLUS Loan, often called the “Parent PLUS” Loan. For the 2025-2026 school year, that’ll be a very high 8.94%, though down just slightly from the prior year’s 9.08%. For the past five years, the fee on that has been a whopping 4.228%, which, again, we don’t expect to change or change by much, though we still await the official announcement at the time of this recording. That fee is also packed into the loan.

This can be borrowed up to the official, federally recognized cost of attendance of your college (after applying all grants and scholarships and after the student maxes out the Direct Student Loan). That means if you have any bill left over, the PLUS Loan can cover it. Again, there’s no prepayment penalty, so the sooner you pay it off, the less you’ll pay in interest in the long run.

All of these federal loans are coordinated between your college’s financial aid office and your StudentAid.gov account.

NJ loans:

Finally, since I’m in New Jersey – and most of my students are too – let’s talk about the NJClass loan. It’s available in three terms: 10-year, 15-year, and 20-year. Just like a mortgage, the longer the term, the higher the rate.

These rates are up significantly from last year. The 10-year loan is available at 6.50% (up from 5.99% last year) with immediate repayment during college years.

The 15-year will now be 7.99% (up a whole point from last year’s 6.99%). With this loan, you’ll only pay interest while in school so the interest doesn’t compound.

And the 20-year loan is now 8.75% (up from last year‘s 7.99%). I don’t recommend taking out this loan because it includes full payment deferral while in school, which means the interest will compound and you’ll pay a lot more than you borrowed.

The 10- and 15- year options have payments due 45 days after disbursement, while the 20-year loan’s payments begin 45 days after graduation (or if your student is not enrolled in a fall or spring semester, so stay in school and graduate).

The good news is there are no fees for this loan, so what you see is what you get. And, again, this can be borrowed up to the cost of attendance after the student takes out the maximum Direct Student Loan.

NJ loan requirements:

However, unlike the Parent PLUS loan, which just requires you to be a US citizen or permanent resident with no felony drug conviction and who hasn’t defaulted on their own student loans in the past, for the NJClass loan, you’ll need a 670 credit score and at least $40,000 in annual income to be an eligible borrower, which means that teenage students almost certainly won’t be. So in a practical sense, this loan is just for the parents. However, unlike other New Jersey aid that may restrict access to students going to college in New Jersey, parents can borrow the NJ class loan for a student to attend just about any college in America.

Again, there are no prepayment penalties, so paying it off faster will save you money. And you can save 0.25% off the 10-year loan with auto-pay. Hey, it’s something.

You’ll need an NJFAMS account at HESAA.org to borrow this state loan.

What may change in 2026:

Now we have to talk about what changes may be coming down the pike. At the time of this recording, Congress is currently debating the “One Big Beautiful Bill Act” which is over 1000 pages long. In it, there are changes to how student aid will work moving forward.

We don’t know what might be negotiated out in the Senate before going to a floor vote, or even if it will pass. But I’ve read through the 5-page student aid fact sheet and, if it passes as is, here are the highlights of potential changes to loans in the future:

The subsidized student loan, where students pay no interest during college, will be terminated effective July 1, 2026. However there’s a three year exception for students who were already getting access to subsidized loans prior to that date. That means today’s high school seniors in the class of 2025, entering college this fall, will still have access to that for all four years of college, but not if college takes longer (and if they only qualified for unsubsidized loans their first year, no change in circumstances later will make subsidized loans available to them). Current juniors in the high school class of 2026 would not have access to any subsidized loan, nor would the younger students behind them.

It also caps the maximum Direct Student Loan at $50,000, which won’t affect dependent students who already have a max below that, but would reduce that fifth year for independent students.

The biggest change to loans is that the Parent PLUS Loan would have a $50,000 aggregate limit over all four years of college. So right now, if you have an $80,000 bill, and your student gets $30,000 in loans, scholarships, and grants, you can borrow the remaining $50,000 all four years. But if this change goes into effect, borrowing $50,000 the first year will max out your Parent PLUS Loan. That’s it. You won’t get another dime for future years.

However, again, this has the same three year exception. So today’s high school seniors are fine for all four years of college. But this could have a drastic impact on younger students.

It won’t affect my students as much, because most of them will have access to the NJClass loan anyway. But there are 49 other states out there, and a lot of families could be affected.

Lastly, loan forgiveness will get a big overhaul. At present, students need to make 20 years (240 months) of on-time payments before any remaining balance is forgiven. But this new bill would change that to 30 years (360 months). And that would be effective July 1 of 2026, with no exceptions. Borrowers already in repayment will be transferred over to this new program as their old programs are terminated.

An important bit of context to this change is that, in a Sallie Mae study from last year, about 80% of college students expected some or all of their loans to be forgiven. And, folks, that’s just highly unlikely to be the case. Sure, the pendulum swings, and what one administration does or one Congress does, the next can reverse or undo. But if you borrow the money, expect to pay it back.

Last thoughts:

That’s a lot to digest, and I didn’t even get into graduate loans or exemptions during med school, or changes coming to borrowers experiencing economic hardships or who are in deferment, or how the PELL Grant could change.

But I tell you guys every year that elections have consequences, and different administrations have different priorities. So here we are experiencing them, for better or worse, however you view it.

So read all the fine print (especially for private loans which may have low introductory rates that balloon or become variable later), borrow responsibly (I would advise as little as you need as late as you can afford to), and if you have more questions, don’t hesitate to reach out to us at 732-556-8220. We are here to help.