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July 1 brought with it big changes to federal student loans, as revisions under the One Big Beautiful Bill Act took effect.
Along with a lifetime maximum loan limit for student borrowers, and fewer options when it comes to loan repayment, the changes include limits on how much parents can borrow for their children’s education.
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Personal finance expert Suze Orman writes that she’s “all for parents borrowing less,” but warns (1) that limits to federal loans could push families to turn to private loans.
Limits to Parent PLUS loan program
Prior to the changes ushered in on July 1, parents could borrow up to the cost of attendance, minus any other aid received (2). Now, parents can borrow a maximum of $20,000 a year on behalf of each student, to a maximum of $65,000 per student.
The National Association of Student Financial Aid Administrators notes (3) that the new rules mean that if parents borrow the maximum of $20,000 each year, and their child is in a four-year undergraduate program, they would reach the aggregate maximum before their child has completed school, leaving them with a shortfall.
Orman writes that she sees “too many families take on a lot of student loan debt that they don’t get paid off before retirement,” and advocates that students should instead choose schools that cost less.
However, Orman believes that the changes to federal loans will push families to seek out private loans to make up funding shortfalls.
“The government hasn’t really done anything to make college more affordable. It has simply decided to limit its involvement, which means private lenders — banks, fintech companies — will be the only option above the new federal PLUS loan limits,” Orman writes.
How families pay for college
According to a 2025 report (4) from private student lending firm Sallie Mae, families of American undergraduate students spent an average of $30,837 on higher education in the 2024-25 academic year.
For the average family, 48% of those costs are covered by income and savings, with 38% coming from parents and 10% coming from students; that amounts to $14,828.
Scholarships and grants make up the second-largest source of funds for the average family, covering 27% of the average total cost (scholarships making up 16% and grants 11%), at an average of $8,354.
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Another 2% typically comes from relatives and friends, amounting to $533.
The rest, at an average amount of $7,122, is covered by loans: 11% borrowed by parents (an average of $3,453) and 12% borrowed by students ($3,669).
For parents borrowing to pay for their children’s education, Federal Parent PLUS loans make up, on average, 4% of the total cost of attendance. Private education loans make up 2% of average costs, with the remainder coming from home equity loans or lines of credit (1%), credit cards (1%), retirement account loans (1%) and other loan sources (2%).
Private student loans
Private student loans don’t offer the same safeguards as federal student loans; federal student loans offer fixed interest rates and income-driven repayment plans (5).
Orman notes that when it comes to private student loans, you have to qualify, “just like borrowing for a car or a home purchase,” and the interest rates can be variable. Orman says that while starting interest rates “can be very good if you have a fantastic credit profile,” they “can rise to nearly 18% depending on your finances.”
Orman hammers home that borrowing — any kind of borrowing — to pay for your children’s education is a problem, because “No one is asking you if borrowing for a child’s education will make a mess of your financial security.”
“I need you to think about your retirement,” Orman writes. “If borrowing for college means you save less for retirement, or even worse, you have these loans to repay once you are retired, that gets a failing grade in my class on smart family finances.”
Orman firmly believes that when it comes to borrowing for education, it should always be the student taking out the loans.
The total cap on federal student loans for dependent undergraduate students is $31,000 — that’s unchanged from prior to the One Big Beautiful Bill Act — and Orman says that amount is “a solid guardrail.”
“It’s a manageable sum your child should be able to pay off within 10 years after graduation,” Orman writes.
“That’s how you reap the benefits of a college education without taking on too much debt.”
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
Suze Orman (1); U.S. Department of Education Federal Student Aid (2), (5); National Association of Student Financial Aid Administrators (3); Sallie Mae (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
