New federal loan limits start July 1; how is IN affected?
Editor’s note: This story was originally published in the June 19, 2026 issue of Indiana Education Insight. The federal student loan overhaul has since taken effect.
A major federal student loan overhaul taking effect July 1 could leave more Indiana families searching for ways to fill gaps in college financing . . . and may also make decades-old state-created nonprofit lender INvestEd more important in the process.
INvestEd issues private student loans with current fixed interest rates ranging from 4.26% to 8.51%, well below the max 17.99% interest rate charged by some for-profit private lenders, and below some federal loan rates. The nonprofit, created by the General Assembly more than 40 years ago, also provides free financial aid counseling to students and families.
INvestEd’s role could become more significant to Hoosier students and families as federal loan limits tighten for parents and graduate students and as millions of borrowers are pushed into a changed repayment system.
The July 1 changes emanate from the Trump Administration’s One Big Beautiful Bill Act. The changes will affect borrowers differently depending on whether they already have loans, plan to borrow again, are entering graduate school, or are parents helping pay for a child’s education.
Among the biggest changes: the Graduate PLUS loan program will be eliminated for new borrowers, Parent PLUS loans will be capped, the Biden-era SAVE repayment plan will end, and new repayment options will replace several existing plans over time.
INvestEd’s role Back Home is to help make sense of the madness with these changes in an already complicated system for families. And demand for its services, from financial aid counseling to loan issuance, is expected to increase as more students will likely face gaps in their federal aid to attend school. The changes could push more demand for private loans going forward.
Bill Wozniak, vice president and chief marketing officer for INvestEd, informs your favorite education newsletter the changes matter most for families that expected federal loans to cover whatever remained after grants, scholarships, and other aid.
Until July 1, Parent PLUS loans generally allow parents to borrow up to the cost of attendance minus other aid. If a school costs $60,000 and a student receives $30,000 in other aid, a parent can typically borrow the remaining $30,000 through a federal PLUS loan.
That changes July 1. Parent PLUS loans will be capped at $20,000 per year per dependent child, with a $65,000 aggregate cap per child. The cap is per student, not per family, meaning parents with multiple children in college can borrow up to the annual limit for each child.
Graduate PLUS loans, which also allow students to borrow up to the cost of attendance minus other aid, go away for new borrowers. Graduate students can still borrow through direct unsubsidized loans, but those loans are capped at $20,500 per year and $100,000 in total for most graduate programs.
A smaller group of professional degree students can borrow up to $50,000 per year, with a $200,000 lifetime cap. Those higher caps apply to certain professional programs, including law, medicine, dentistry, pharmacy, veterinary medicine, and theology. Nursing programs are not included in the higher professional-degree category, a decision that draws concern from some higher education and healthcare advocates.
Wozniak notes that there is a grandfathering period of up to three years for some borrowers who already use Parent PLUS or Graduate PLUS loans, as long as the student remains in the same program. The changes phase in over several years rather than affecting all borrowers at once.
But Wozniak stresses that the new limits still create gaps.
INvestEd began preparing last year after it became clear the federal changes will affect families across the state. The nonprofit visited colleges around Indiana and met with financial aid offices to understand how schools plan to explain the new rules and what families need.
INvestEd’s guidance starts with helping families look for money they do not have to repay. That means completing the FAFSA, checking for scholarships and grants, asking about institutional aid, reviewing Indiana529 savings, and working closely with the college.
“So ‘loan’ is always the last step in the process,” Wozniak states.
But if borrowing is still necessary, INvestEd becomes a more attractive option for some families. Wozniak points out that the nonprofit’s loans do not carry fees and currently have rates below nine percent.
That matters because the federal Parent PLUS loan for the current year carries a 9.06% interest rate and a 4.2% fee, according to Wozniak. The Graduate PLUS loan carries an 8.06% rate and a fee for borrowers who remain eligible under the grandfathering rules. INvestEd’s loans can be used by parents or graduate students, and Wozniak explains that almost all of the nonprofit’s loans are below the current Graduate PLUS rate and do not include a fee.
Still, private loans are not the same as federal loans. Federal loans can include repayment protections, income-driven repayment access and potential forgiveness options that private loans generally do not. Wozniak emphasizes that families must decide whether they value those federal benefits more than a lower rate and no fee.
Some families, he notes, may prefer to keep a federal loan even if it costs more. Others may decide a lower-rate private loan better fits their situation. “Neither family is right, neither family is wrong,” Wozniak says.
The repayment side of the federal loan overhaul is just as complicated. More than seven million borrowers enrolled in the SAVE plan must move to another repayment plan. Borrowers are expected to receive notices from loan servicers starting a roughly 90-day clock to switch plans. If they do not act, they could be moved into a less flexible standard repayment option.
Borrowers with older loans and no plans to borrow again still have several repayment options, including standard, graduated and extended repayment plans, as well as income-based options. But several existing income-driven repayment plans, including PAYE and ICR, are set to be phased out by 2028.
A new Repayment Assistance Plan, or RAP, becomes available July 1. This plan bases monthly payments on adjusted gross income, waives unpaid monthly interest beyond the required payment and includes a $50 monthly payment reduction for each dependent. But borrowers must make payments for 30 years before any remaining balance is forgiven.
Borrowers who take out new federal loans after July 1 generally have fewer repayment choices. They are limited to RAP or a new Tiered Standard Plan, which sets repayment terms based on the amount borrowed. Borrowers with less than $25,000 in debt repay over 10 years, while borrowers with $100,000 or more repay over 25 years.
New undergraduate borrowers will not see changes to federal borrowing limits – just if their parents use the Parent PLUS Loan. Dependent undergraduates can still borrow up to $31,000 in federal loans, while independent undergraduates can borrow up to $57,500. But when those borrowers enter repayment, they face the new, narrower repayment menu.
For Parent PLUS borrowers, the repayment changes are significant. Parents who take out PLUS loans after July 1 no longer have access to income-driven repayment plans. They can only use the new Tiered Standard Plan, which also means those future Parent PLUS borrowers cannot access Public Service Loan Forgiveness through those loans.
All of this new complexity is one reason INvestEd expects more families to call for help. The nonprofit partners with more than 300 Indiana high schools and hosts events for students and families throughout the year. Wozniak says that INvestEd spends months talking with incoming college families about the changes and what they could mean.
“We’ve been talking with the families of incoming freshmen for seven, eight months about what was coming, letting them wrap their head around the world that they were going to see,” Wozniak explains.
The nonprofit also works with the state’s colleges and universities to help direct families to their services if needed. INvestEd maintains staff who answer families’ questions at no charge. Wozniak notes that families often call with detailed situations involving multiple children, different grade levels, and different loan histories – exactly the kinds of cases that are difficult to explain in a general online guide.
Wozniak does not expect private loan demand to surge all at once. Because some borrowers are grandfathered under the current federal rules, he expects the shift to build over several years.
“What I believe we’re going to see is a three-tier wave, a three-tier wave, where lending will grow on the private side, and it will disappear on the Grad PLUS side, and it will shrink a bit on the Parent PLUS side,” Wozniak predicts.
This year, many returning students and parents may still qualify under the old federal rules. Next year, fewer borrowers will fall into that grandfathered group. By the third year, Wozniak expects a much more significant shift from federal borrowing toward private loans.
INvestEd is not the only state-based nonprofit lender in the country, but Wozniak points out that entities like it are not available everywhere. He estimates roughly half of all states have something similar, though each state’s structure varies.
The timing of these latest student loan changes comes after several years of varying disruptions to federal student aid, from the pandemic-era student loan repayment pause to significant problems with the FAFSA rollout in 2023.
Wozniak observes that college financial aid has become an area where everyone in the space almost expects a new major complication each year.
“We don’t know what, we just know it’s going to be something, and this year it’s the Grad PLUS loans and the PLUS loans,” Wozniak states.
The repayment changes may also be difficult for borrowers to track because federal messaging shifts repeatedly over the last several years. Some borrowers are told payments are paused. Then they are told repayment will restart. Some expect low or $0 payments under SAVE. Now that plan is ending.
Wozniak warns that that churn can lead borrowers to tune out the next message from their loan servicer, even when the information is important. “It just keeps changing, and so people almost kind of look away when they see the next reach out by the servicers,” he says.