Smart Loan Borrowing
Topics Covered
Federal Loan Types
Borrowing Limits
Repayment Plans
Accepting Federal Loans
Parent PLUS Loans
“One Big Beautiful Bill” (OBBBA or OB3A)
Impacts
Key Undergraduate Federal Loan Statistics
Borrower Percentage: Each year, 30-40% of all undergraduate students borrow federal student loans.
Average Debt: Students borrow an average of over $30,000 to complete a bachelor's degree.
Participation Rate: 70% of students who receive a bachelors degree have education debt by the time they graduate.
Total Borrowers: Over 6 million college students received federal loans for the 2023-24 academic year.
Types of Federal Loans for Undergraduate Students
Direct Subsidized Loan (need-based, not everyone qualifies)
Fixed interest rate (6.39% for 2025-26)
Interest is deferred as long as you are enrolled at least ½ time
Must sign a Master Promissory Note (MPN) before funds are disbursed to school
Repayment begins six-months after graduation, dropping below ½ time, or stopping school.
Direct Unsubsidized Loan (NOT-need based)
Fixed interest rate (6.39% for 2025-26)
Interest begins accruing immediately
Must sign a Master Promissory Note (MPN) before funds are disbursed to school
Repayment begins six-months after graduation, dropping below ½ time, or stopping school.
Key Points
What is Interest Capitalization?
Capitalization occurs when unpaid interest on a loan is added to the principal balance (the original amount borrowed).
Principal: Money that you borrow.
Interest: The cost of borrowing the money.
Capitalization: When interest is added to the principal. When unpaid interest is added to the principal, it creates a new, higher balance.
Example (You may only borrow $10,000, but will be required to repay $10,000 + $3,558 in interest for a total of $13,558)
Don’t over-do it!
Be conservative: Only borrow what you need. Don’t over-borrow.
Remember: You can only borrow a portion of what you are eligible for. You are not obligated to borrow the full amount.
Dependent Student Loan Borrowing Limits
for Undergraduates
Annual Loan amounts will be prorated for those attending less than full time.
Aggregate limit for Dependent Undergraduate students is $31,000 with more than $23,000 in Subsidized Loans.
Independent Student Loan Borrowing Limits
for Undergraduates
Annual Loan amounts will be prorated for those attending less than full time.
Aggregate limit for Independent Undergraduate students is $57,500 with more than $23,000 in Subsidized Loans.
New Federal Student Loan Repayment Plans
Standard Repayment
Tiered repayment plan with terms ranging from 10-25 years depending upon amount borrowed.
Repayment Assistance Plan (RAP)
Income-driven repayment over a 30 year time period with monthly payments of between 1% to 10% of income.
Options for struggling borrowers
Borrowers can only request a 9 month forbearance (pause on payments) within a two year period.
Economic Hardship and Unemployment Deferrals are no longer available.
Parent Loans for Undergraduate Students (PLUS)
Parent Loan for Undergradate Student (PLUS) Loan
Fixed 8.94% Loans borrowed by the Parent (Biological parents, adoptive parents or step-parents) for students use
Must participate and be a Contributor on the students FAFSA
Must have no adverse credit history
Annual PLUS Loan Limit: $20,000 per year per dependent student
Aggregate PLUS Loan Limit: $65,000 per dependent student
Must sign a Master Promissory Note (MPN) before funds are disbursed to school
New Parent PLUS Loans disbursed after July 1, 2026 are restricted to a Standard Repayment Plan ONLY.
Income-driven repayment, Public Service Loan Forgiveness (PSLF) plans are no longer available. Not eligible for Repayment Assistance Plan (RAP).
Alternative / Private Loan Lenders to explore:
CFNC NC Student Assist Loan and NC Parent Assist Loans (CFNC.org) to learn
One Big Beautiful Bill Act (OBBA) Impacts
Parent PLUS Loans: New Annual + Aggregate Limits
Parents of dependent undergraduate students who take out Parent PLUS Loans will now have an annual borrowing limit of $20,000 per student and a lifetime limit of $65,000 per student. Will impact students attending higher-cost colleges and universities, and may force parents to turn to private loan lenders to finance costs.
Fewer Repayment Plans Available for all new Federal Loans
For new federal loan borrowers, Repayment Assistance (RAP) and Standard Repayment are the only two repayment plans available. Plans assisting those who are experiencing economic hardship or unemployment are no longer available.
Graduate PLUS Loan Program Eliminated
The Graduate PLUS Loan program, which allowed graduate and professional students to borrow up to the full cost of attendance, has been eliminated for new borrowers. Graduate students will instead need to finance graduate and professional school costs using Unsubsidized Federal Loans and Private Loans.
Ashly Wilson Crosby Scholars Community Partnership Assistant Director of Financial Aid + Advising