How tighter student loan caps will affect higher education

Beginning in July, federal student loan reforms will reshape how students finance higher education. The changes introduce new borrowing limits, eliminate certain loan options, and distinguish between graduate and professional degrees when determining how much students can borrow. Most provisions take effect July 1, 2026, and apply to federal loans first disbursed for the 2026–2027 academic year.

Existing students are protected from many of these changes, which will apply mostly to members of incoming classes (see the helpful PDF chart prepared by the National Association of Student Financial Aid Administrators).

This article discusses the changes, their implications, and why accounting students may be especially affected.

Undergraduate student loan limits remain unchanged

Although many of the recent student loan reforms have focused on graduate borrowing, undergraduate financing remains the foundation of federal student aid programs (along with community colleges and trade, career, or technical schools, which are not the focus here). Federal Direct Loans continue to serve as the primary borrowing option for undergraduate students and, here, the caps remain unchanged.

Annual loan limits vary by the student’s year in school and dependency status. Broadly speaking, dependent undergraduate students can borrow up to $5,500 in their first year, up to $6,500 in their second year, and up to $7,500 per year during their third and fourth years. Independent students have higher limits and can borrow up to $9,500 in their first year, up to $10,500 in their second year, and up to $12,500 per year during their third and fourth years. Lifetime undergraduate borrowing is capped at $31,000 for dependent students and at $57,500 for independent students. These borrowing limits have remained largely unchanged for many years and are not indexed for inflation, which is one reason they cover a smaller share of college costs today than they did in the past.

Several considerations determine a student’s dependency status, which, as noted, affects these caps. Section 480(d) of the Higher Education Act of 1965 (20 U.S.C. §1087vv(d)), as amended, defines an “independent student” as an individual who meets any of the following criteria:

• 24 years of age or older.
• Married.
• Has legal dependents other than a spouse.
• Enrolled in a master’s, doctoral, or professional degree program.
• Veteran or currently serving on active duty.
• Emancipated minor or in legal guardianship.
• Orphan, in foster care, or a ward of the court after turning 13 years old.
• An “unaccompanied,” self-supporting homeless youth or at risk of becoming one.
• Certain other unusual circumstances apply.

Because federal loan limits rarely cover the full cost of attendance, undergraduate students typically finance the remaining costs through a combination of scholarships, grants, family contributions, savings plans such as 529 accounts, part-time employment, and, in some cases, Parent PLUS or private student loans. For many students, though, undergraduate borrowing represents the first step in financing higher education and can influence whether they later pursue graduate study.

New federal loan limits for graduate study

One of the most significant policy changes in 2026 involves new borrowing limits for graduate and professional students. Under prior rules, graduate students could combine Direct Loans with Graduate PLUS Loans, which allow borrowing up to the full cost of attendance. Beginning in 2026, however, the Graduate PLUS Loan program is eliminated for new borrowers.

Moving forward, graduate students will rely primarily on Direct Loans with stricter borrowing caps. Most graduate programs, including accounting, will be limited to $20,500 per year and $100,000 in total lifetime borrowing for graduate study. However, those enrolled in a narrow set of professional degree programs (i.e., medicine, dentistry, law, etc.) will have higher borrowing limits — $50,000 per year and $200,000 in total lifetime borrowing for professional study.

Under the previous system, federal loans could be taken out up to a school’s cost of attendance, which includes living expenses such as housing and food. The new borrowing caps are no longer tied to the cost of attendance. As such, students may need to rely on other resources to cover the full cost of both tuition and living expenses.

Additional changes affecting families

The 2026 reforms also introduce new limits for Parent PLUS loans. Historically, parents could borrow up to the full cost of attendance for a dependent student’s undergraduate education, less other financial aid received by the student. Beginning in 2026, Parent PLUS borrowing will be capped at $20,000 per year per student, with a lifetime limit of $65,000 per student.

Parent PLUS loans have long served as a supplemental financing option when student loans, scholarships, and other aid do not fully cover college expenses. Because the loans are issued to parents rather than students, repayment responsibility rests with the parent borrower. In some cases, families have relied heavily on Parent PLUS loans to cover tuition at higher-cost institutions.

As a result of the recent changes, some families may need to consider alternative financing strategies, such as scholarships, savings plans, or lower-cost educational pathways when planning for how to pay for a student’s college education.

Implications for accounting education

The effects of these policy changes will vary across fields of study. Professions that involve graduate education for licensure, such as accounting, may be particularly affected. Despite the professional nature of the field and the licensure requirements associated with becoming a CPA, accounting degrees are not classified as professional degrees under a final rule issued by the Department of Education in May on the new federal student loan framework (see “Dept. of Education Releases Final Rule on Professional Degree Programs,” JofA, May 5, 2026). Professional degree programs under the applicable definition generally involve degrees that signify entry into professional practice, such as law, medicine, pharmacy, dentistry, and theology. The Department of Education determined that accounting programs do not fall within that definition, and as a result, most graduate accounting programs, including master of accountancy (M.Acc.) and master of business administration (MBA) degrees designed to help students reach the 150-credit traditional education pathway to CPA licensure, fall under the standard graduate borrowing limits of $20,500 annually and $100,000 in total federal loans.

Although many accounting graduate programs require only about one additional year beyond a bachelor’s degree, the cost can still be significant. Given the new 120-hour alternative pathway to CPA, in combination with the lower borrowing limits for accounting graduate students, the number of accounting students pursuing a graduate degree may begin to decline (see “AICPA, NASBA Propose Additional Path to CPA Licensure, Individual Mobility,” JofA, Feb. 14, 2025).

Alternatives to student loans

Federal student loans are only one component of higher education financing. Scholarships and grants remain among the most valuable sources of financial aid because they do not require repayment. Employer-sponsored tuition-assistance programs can also play a role in graduate education, as some accounting firms financially support employees pursuing graduate coursework or meeting CPA licensure education requirements.

Students may also use 529 college savings plans and state-sponsored prepaid tuition plans to fund education expenses. In addition, many students offset costs through part-time employment and experiential employment opportunities, including teaching assistantships and internships. Following advocacy by the AICPA, 529 college savings plan rules have been expanded to allow certain postsecondary credentialing expenses, including those associated with the accounting profession.

While private student loans are also an option, they often have less-desirable interest rates, fewer borrower protections, and more limited repayment flexibility than federal student loans.

For more on this topic, listen to the AICPA Personal Financial Planning Section podcast episode “Education Funding.” Section members can download the client brochure “2026 Tax and Financial Planning Tips: Education Costs.”

— Emily D. Cokeley, CPA, Ph.D., and Ashley Bentley, CPA, Ed.D., are both assistant professors of accountancy at East Tennessee State University. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.