Big Changes to Parent PLUS Loans

I have long advocated that parents should not borrow to pay for their children’s college education if they have yet to build a strong retirement fund.

But I know many households can’t resist helping their kids, even if it means delaying or risking their own retirement security. Nearly 4 million parents have taken out federal Parent PLUS loans, and the total unpaid balance is more than $110 billion.

The new budget bill, signed into law on July 4, 2025, caps Parent PLUS loans at $20,000 per year and $65,000 per child.

The new bill also requires students to exhaust all their federal borrowing options before their parents can take out a PLUS loan to help pay for school.

Given how hard it seems to be for parents to put their own retirement needs ahead of their child’s college costs, I think new rules limiting Parent PLUS loan borrowing are likely a good thing for many households.

We’ve talked about the oxygen mask rule before: you need to put yours on first, to make sure you are okay, before you turn to helping others. In financial terms, this translates to focusing on building retirement security first, before ever considering borrowing to pay for a child’s college education.

If your child wants a college degree, they have many ways to get that degree on affordable terms. Choosing a college that will offer the highest merit aid package is one option. That could be a private college that is eager for your child to enroll and will offer them scholarships and grants that bring the price tag way down. Or it may mean choosing an in-state public school where tuition can be much lower than net costs at private schools. That makes it possible to get a degree at a state school with reasonable borrowing through the federal undergraduate loan program. Federal Stafford loans for undergraduates come with a financial guardrail: students are limited to borrowing between $5,500 and $7,500 a year. At those levels, total debt at graduation should be more than manageable.

I think the underlying goal of curbing parental overspending is sound. Of course, I fully expect the private loan market to jump on this as an opportunity to attract parents determined to borrow. I hope any of you with a college-bound student will not turn to private loans without carefully considering how this borrowing may impact your financial security.

As I have said often, the greatest gift you can give your children is to be financially secure in retirement. If that means prioritizing retirement savings ahead of paying for a child’s college, that is the right and best parental move.