There’s a particular kind of stress that hits parents around June. Your kid committed to a school. The financial aid package arrived. You did the math. And the math isn’t great.
If you’re in that spot right now, here’s the good news: you have more options than you think. Here’s the less-good news: some of the rules changed in 2026, and the playbook your neighbor used for their kid three years ago might not work the same way today.
This guide is for parents who want to understand their options clearly, make smart borrowing decisions, and avoid the traps that cost families thousands.
What Changed in 2026 (The Short Version)
The One Big Beautiful Bill Act capped federal Parent PLUS Loans at $20,000 per student per year. Before this, parents could borrow up to the full cost of attendance with virtually no ceiling. That era is over.
For families at schools where the gap between aid and cost of attendance exceeds $20,000, this means finding additional funding sources. If your student is at a private university with a $60,000 sticker price and $30,000 in aid, the PLUS cap leaves a $10,000 gap that didn’t exist before.
For a deeper look at how the cap works and three strategies to bridge that gap, see our earlier breakdown: Parent PLUS Capped at $20K: Three Smart Ways to Bridge the Gap.
Your Options, Ranked by Cost
1. Scholarships and Grants (Free Money)
This should always be the first stop. Departmental scholarships, outside awards, employer tuition benefits, and state grant programs are all still available. Many have summer deadlines. The 30 minutes it takes to apply for a $1,000 scholarship is the best-paying “job” available to any family.
2. Federal Direct Student Loans (Your Student’s Name, Not Yours)
Before you borrow as a parent, make sure your student has maxed out their federal Direct Loan eligibility. For 2026-27:
- Dependent freshmen: up to $5,500 ($3,500 subsidized)
- Dependent sophomores: up to $6,500 ($4,500 subsidized)
- Dependent juniors/seniors: up to $7,500 ($5,500 subsidized)
These loans are in your student’s name, carry a 6.52% fixed rate for 2026-27, and offer income-driven repayment options and potential forgiveness programs that parent loans do not.
3. Parent PLUS Loans (Now Capped)
Federal Parent PLUS Loans remain available, but with a $20,000 per year cap. The 2026-27 fixed rate is 9.07% with a 4.228% origination fee. That origination fee means borrowing $20,000 with $19,154 getting disbursed to the school, but you repay the full $20,000 plus interest.
PLUS loans do not offer income-driven repayment options the way student Direct Loans do. Understand what you’re signing.
4. Private Student Loans Through Credit Unions
This is where many families are finding better math in 2026. Credit union lenders often offer rates that compete with (or beat) federal PLUS rates, without the 4.228% origination fee. Your student can borrow in their name with you as a cosigner, which means:
- Potentially lower rates based on your creditworthiness
- No origination fee eating into the disbursement
- Cosigner release options after a track record of on-time payments
- A flexible line of credit* to support all four years of college
Compare private student loan rates from credit unions to see how the numbers stack up against PLUS for your family.1
5. Home Equity and Other Parent-Held Assets
Home equity lines of credit (HELOCs), 529 distributions, and cash savings can all play a role. But be careful: raiding retirement accounts to fund college is almost never the right call. Your student can borrow for school. You cannot borrow for retirement.
The Cosigner Question
If your student is taking a private loan, the cosigner decision is significant. Cosigning means you’re equally responsible for repayment. But it also typically unlocks better rates and approval for students with limited credit history.
The key protections to look for:
- Cosigner release: Can the cosigner be removed after 24 to 48 months of on-time payments?
- Death/disability discharge: What happens to the loan if something happens to the student or cosigner?
- Forbearance options: Are there hardship protections during the repayment period?
For a full breakdown of how cosigning changes the loan equation, read: How a Cosigner Changes Everything About Your Private Student Loan.
Building Your Family’s Funding Stack
Think of college financing as layers, not a single source:
Layer 1: Free money (scholarships, grants, 529 savings)
Layer 2: Student’s federal loans (Direct Subsidized/Unsubsidized)
Layer 3: PLUS or private (compare both, pick the better math)
Layer 4: Student earnings (work-study, summer jobs, co-ops)
Layer 5: Family cash flow (monthly contributions from income)
The mistake most families make is jumping straight to Layer 3 without fully exploring Layers 1, 2, and 4. An extra $5,000 per year in scholarships eliminates $5,000 in borrowing and roughly $7,000 in total repayment over 10 years.
Three Rules for Borrowing Smart
Rule 1: Borrow in your student’s name first. Federal student loans have better protections, lower rates, and income-driven repayment options that parent loans don’t.
Rule 2: Compare PLUS against private before automatically choosing federal. The 9.07% PLUS rate plus 4.228% origination fee means the effective cost of a PLUS loan is higher than it looks. A private loan at 6% to 8% with no origination fee can save your family thousands.1
Rule 3: Never borrow more than your student’s expected first-year salary. This is the simplest guardrail in student lending. If the total four-year debt will exceed what your student can reasonably earn in their first year out of school, the borrowing plan needs to change.
What to Do This Week
If you’re reading this in June, you still have time to get organized:
- Calculate your actual gap (cost of attendance minus all aid, grants, scholarships, and student federal loans)
- Run the numbers on private loan rates alongside the PLUS option
- Talk to your student about what’s realistic, including what they can earn and contribute
- Read about the real cost of freshman year so you’re not blindsided by hidden expenses in September
The parents who navigate this well aren’t the ones with the biggest bank accounts. They’re the ones who plan, compare, and borrow intentionally.
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1Subject to credit qualification and additional criteria. Savings or lower interest rates are not guaranteed and depend on your individual financial profile, loan terms, and credit history.
*Subject to annual review and credit qualification. Must meet school’s Satisfactory Academic Progress (SAP) requirements.
