Key Points
- Federal student loans offer the most borrower protections and flexible repayment options, but Grad PLUS loans are ending in 2026.
- Private loans and education lines of credit may help fill funding gaps, but typically come with fewer protections.
- Alternatives like HELOCs or personal loans are available, but carry different financial risks and borrowing conditions.
When it comes to paying for college or graduate school, students and their families often face a range of student loan choices. Each option comes with its own set of terms, protections, and tradeoffs. With the recent federal changes phasing out the Grad PLUS loan, understanding each borrowing option is more important than ever.
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.
Here’s a rundown of the major student loan types and some alternatives families are considering.
1. Federal Direct Subsidized Loans
Who can borrow: Undergraduate students with financial need.
Loan limits: Annual limits range from $3,500 to $5,500, depending on the year in school.
Key features: The government pays the interest while the student is in school and during certain deferment periods. These loans come with access to income-driven repayment plans, deferment, forbearance, and forgiveness programs.
2. Federal Direct Unsubsidized Loans
Who can borrow: Undergraduate, graduate, and professional students, regardless of financial need.
Loan limits: Up to $20,500 per year for graduate students; lower amounts for undergrads.
Key features: Interest begins accruing at disbursement. These loans also offer access to income-driven repayment and federal student loan forgiveness programs.
3. Parent PLUS Loans
Who can borrow: Parents of dependent undergraduate students.
Loan limits: For the 2025-26 academic year, the full cost of attendance minus other financial aid received. Starting in 2026, there will be new caps on Parent PLUS loans of $20,000 per year, and $65,000 in total per student.
Key features: Requires a credit check, has a higher interest rate than Direct Loans, and does not qualify for most repayment plans. Parents are solely responsible for repayment.
4. Grad PLUS Loans (Ending In 2025-26)
Who can borrow: Graduate and professional students (through 2025-26 academic year).
Loan limits: Up to the full cost of attendance.
Key features: Similar to Parent PLUS in terms of credit checks and higher interest rates. These loans are being phased out due to provisions in the Big Beautiful Bill, ending new borrowing after June 30, 2026. Existing borrowers are grandfathered in for up to three academic years.
5. Private Student Loans
Who can borrow: Students with strong credit or a creditworthy co-signer.
Loan limits: Varies by lender, often up to the full cost of attendance.
Key features: Terms and conditions vary widely. Interest rates may be fixed or variable. Fewer repayment protections compared to federal loans. Should be used only after exhausting federal aid.
6. Education Line Of Credit
Who can borrow: Students or families with good credit.
Loan limits: Typically set by the institution or based on creditworthiness, the goal is to cover all years of college.
Key features: Can offer revolving credit to pay tuition over time. May be reused each semester without a new application. Sometimes lower rates than some private loans but typically lack federal-style benefits.
7. Alternatives: HELOCs and Personal Loans
Who can borrow: Homeowners (for HELOCs); anyone with qualifying credit (for personal loans).
Loan limits: Based on home equity or borrower profile.
Key features for HELOCs: Borrowers use their home equity to secure funds for college. Interest rates are usually lower, but the home is collateral.
Key features for personal loans: Unsecured, fixed-term loans often used to cover smaller tuition gaps. Shorter repayment periods and higher interest rates than student loans. May be required for things like a coding bootcamp.
Pros: These options may offer better interest rates or terms for families with excellent credit.
Cons: They lack student loan protections like deferment, forbearance, income-driven repayment, and forgiveness.
FAQ
What are the main differences in federal and private student loans?
Federal student loans are offered directly by the United States government, and private loans are offered by various private banks and lenders.
How do I choose between Parent PLUS loans and private loans?
Starting in 2026, Parent PLUS loans are actually a last resort versus private loans. You should select a private loan if the interest rate offered is less than the rate of a Parent PLUS loan.
What happens to Grad PLUS Loans after 2025-2026?
The Grad PLUS loan program is ending and borrowers will need to borrow graduate Direct loans.
Can I use a HELOC to pay for college instead of student loans?
Yes, but it's not a recommended option.
Final Thoughts
Choosing how to pay for higher education is rarely straightforward. With federal policy changes coming, including the end of Grad PLUS loans, students and families must weigh each borrowing option carefully.
Understanding the terms, protections, and long-term costs of federal loans, private loans, and alternative credit options can make a real difference when planning for school expenses. Before signing anything, it’s worth comparing all available choices, starting with those that offer the most borrower-friendly terms.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.