Mark Kantrowitz, a student-loan expert breaks down the major July 1 changes to loan limits and repayment plans, explains who’s most affected, and shares practical strategies for students and parents to choose schools and majors they can realistically afford to repay.
Jeffrey Snyder, Broadcast Retirement Network
Well, we’re gonna welcome back to the show, Mark Kantrowitz. He is, well, I’m gonna call him a guru of a lot of things, but he is certainly a guru of student loans.
Mark, it’s always great to see you. Thanks for making time for us this morning.
Mark Kantrowitz, Private Student Loan Guru
Thank you for having me.
Jeffrey Snyder, Broadcast Retirement Network
You’re normally in Chicago, Illinois, a great city, but you’re actually in Boston for the summer. What are you up to in Boston?
Mark Kantrowitz, Private Student Loan Guru
I serve as director of the Research Science Institute, which is a summer program, research internship program for 100 students from around the world who are brilliant in science and mathematics.
Jeffrey Snyder, Broadcast Retirement Network
So what are they learning about? Obviously, mathematics and science, but where does artificial intelligence fit into the curriculum?
Mark Kantrowitz, Private Student Loan Guru
Well, some of the students will have mentorships in AI. Such as large language models, machine learning, machine vision. Some of them are interdisciplinary and some of them have nothing to do with AI.
Jeffrey Snyder, Broadcast Retirement Network
And it’s like, I just wanna be crunch numbers. I was actually watching a, not to go off track from our topic this morning, but I was actually watching a very interesting biography of Albert Einstein. A lot of facts that I even, I didn’t know, and I’m an old guy.
So hopefully you’ll be able to identify the next Albert Einstein or Stephen Hawking or something to that effect. All right, Mark, July 1st marks a lot of change in student loans. I wanted to catch up with you.
Let’s talk about some of these changes. What’s the top line here?
Mark Kantrowitz, Private Student Loan Guru
Well, the student loan limits have become more restrictive and the repayment plans have decreased from a dozen to two.
Jeffrey Snyder, Broadcast Retirement Network
Wow. I mean, so going from a dozen to two, Mark, that’s gotta create some tumult in the marketplace, in the student loan marketplace.
Mark Kantrowitz, Private Student Loan Guru
Well, it certainly, any kind of transition can lead to chaos. The part of the reason for the reduction in the repayment plans is we had too many repayment plans and students would have a lot of confusion about which repayment plan was best for them. We had two different versions of extended repayment, two versions of graduate repayment for income-driven repayment plans and a bunch of other variations on these repayment plans.
And that was just too confusing. So the One Big Beautiful Bill Act created two new repayment plans to replace the existing repayment plans for new borrowers. These include a tiered standard repayment plan and a income-driven repayment plan called the RAP plan.
The RAP plan is not as generous as the former SAFE repayment plan, but it is in the same ballpark perhaps as income-based repayment, albeit with a 30-year repayment term instead of a 20-year repayment term. The tiered standard- Go ahead, I’m sorry. The tiered standard repayment plan starts off similar to the standard 10-year repayment term, but it will increase the repayment term as the amount of debt increases to as long as about 25 years, and so 10, 15, 20, or 25 years.
Jeffrey Snyder, Broadcast Retirement Network
Apologies for interrupting you, Mark. I didn’t mean to do that. Let me ask you as a follow-up.
I mean, I would imagine you’re getting a lot of inquiries from students and potential students, their parents. What’s the pulse? I mean, is the reaction mixed?
I mean, I can understand the rationale in terms of consolidation, but if you’re going to college or in college, you’re gonna be affected in some way.
Mark Kantrowitz, Private Student Loan Guru
Well, first of all, many students and parents don’t seem to be aware of these changes, and of those that do, there is concern about will they be able to borrow enough to pay for college? Will this shift their enrollment from a higher-cost college to a lower-cost college, such as an in-state public college? Will they be forced to borrow from private student loans?
And all this has them worried, so there’s a lot of concern.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I would be worried if I was in my junior or senior year. I don’t even know when the kids go off to college these days. I mean, do the exploration.
I guess maybe when they’re in elementary school now, they actually start to think about college, but in all seriousness, I mean, it can put a damper on your plans. How does this potentially shape the school that you go to, or whether or not you consider a junior college as an example?
Mark Kantrowitz, Private Student Loan Guru
So the general principle is that you should aim to have total student loan debt at graduation that is less than your annual starting salary. If your total debt is less than annual income, you should be able to repay student loans in 10 years or less. If it’s more, you’ll need an income-driven repayment plan or an extended repayment plan in order to afford the monthly payments.
So live like a student while you’re in school so you don’t have to live like a student after you graduate. Now, with regard to the loan limits, borrowers who have been in school prior to July 1st and borrowed for that education are grandfathered in under the old loan limits. It’s only new borrowers, students who will be freshmen or first-year graduate students this year who will be subjected to the new loan limits.
And it will have potentially an impact on where they enroll. The cost of college, especially some graduate schools, can be high enough that it may make it unaffordable without access to student loans. Now, if we look at data from 2020, a quarter to a third, in some cases more, like in pharmacy or veterinarian, those programs borrow in 2020 were borrowing beyond the new loan limits.
So they will need to borrow from private student loans. But private student loans are credit underwritten. They depend on your credit score, your debt to income ratio, the duration of employment with your current employer, as well as where you’re going to school and what your degree will be.
And you may not be able to qualify if you have a thin or non-existing credit history, especially students who are low income. They may not be able to qualify for a private student loan without a credit-worthy co-signer. About 95% of undergraduate students who receive a private student loan do so with a credit-worthy co-signer, and about three quarters of the graduate students do so.
Jeffrey Snyder, Broadcast Retirement Network
You mentioned that maybe the communication, oh, I’m putting words in your mouth, but I will say that maybe the communication to affected individuals, future students, college students, maybe wasn’t as effective as it should have been. If you’re a guidance counselor, a lot of, geez, I haven’t been in college quite a bit, but would guidance counselors be able to help their students kind of understand some of these new rules, or are they even abreast of what’s going on?
Mark Kantrowitz, Private Student Loan Guru
Well, part of the problem is school’s out for summer. And school counselors also focus on high school seniors who will be enrolling in college, not graduate and professional school students who are most affected by these changes. So their ability to inform the students about the July 1st changes is more limited since the students are in school.
Now, the impact on undergraduate students comes in two forms. First, although the annual and aggregate loan limits for undergraduate students haven’t changed, there is new proration of the loan limits, of the annual loan limits based on your enrollment status. Previously, you could get a full-time loan limits even if you were enrolled half-time.
Now, if you’re enrolled half-time, you will get half of the full-time limits. The other change is that the Parent PLUS loan was previously effectively unlimited up to the full cost of education with no aggregate limit. Now, there are fixed annual and aggregate loan limits, 20,000 a year for each dependent student and $65,000 in aggregate for each dependent student, which is much lower than some people have been borrowing in the past.
On the other hand, for the graduate students, the Grad PLUS loan has been repealed and replaced with new increased annual and aggregate loan limits for graduate students and for professional students. Graduate students are eligible for 20,500 a year and 100,000 in aggregate. Professional school students are eligible for 50,000 a year and 200,000 in aggregate.
And that’s a lot less than unlimited.
Jeffrey Snyder, Broadcast Retirement Network
Certainly a lot less. So if you’re a parent, let’s talk about parents for a second because your child could have their heart set on going to X schools, right? They could say, I wanna go to this school, but how do you counsel parents?
What do you say to parents that they need to, do they need to step in here and maybe help shepherd the student or direct the student, I don’t know what the right word is, to maybe something that’s a bit more affordable and more realistic, even if they have the academics and the other things, the clubs and all the other things that make someone an attractive candidate. What do you say to those, the parents out there who maybe need to offer some guidance to their children?
Mark Kantrowitz, Private Student Loan Guru
Well, it is helpful if the parents steer their children to lower cost colleges. Every college has a net price calculator that can be used to provide a personalized estimate of what your cost will be to attend a particular college as an undergraduate student. So the parents can use that calculator to identify how affordable the college will be and maybe suggest that the students consider lower cost colleges.
So not just considering ability to get in such as a matched school, a reach school and a safety school but also consider a financial aid safety school, which is a safety school where you can not only get in but where you can afford to go even if you get no financial aid. So they certainly should consider that. Oftentimes, if you just lay out the information for your child, they will make the right decision because they know that you’re not going to mortgage your house and your entire future just to pay for their college education.
You will have saved some money before college and you can borrow a reasonable amount to pay for college but not more than your annual starting salary.
Jeffrey Snyder, Broadcast Retirement Network
Let me ask you about college majors because how do you, so thank you for that. Very important and I think, look, I think if you just paint the picture that reasonability can help drive the decision. I think everyone’s fairly reasonable once you get past it.
As a child, I was very hysterical. I wanted what I wanted and I was not gonna give it up and then ultimately that came around. So I think if kids are like me, they’re gonna eventually come around and be a little bit more realistic.
But what about the college major? I mean, there are a lot of different majors out there. How much does the, I guess the return on investment is the only way I can describe it.
What am I gonna earn? How much should that, like say you’re really good in art and you go get an art history degree. Maybe the salary of the art historian maybe doesn’t align with taking on the debt.
So how do you balance the college major, I guess is my question versus the school. Mark? Mark, you still there?
Mark Kantrowitz, Private Student Loan Guru
Yeah, I’m here. I guess we had a connection issue.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, let me re-ask the question. Here we go. Three, two, one.
So Mark, I totally get kind of steering the child and kind of getting past the histrionics of I’m not going to where my friends are or what my expectations are. Totally, totally get that. And that’s the reason why I think people will kind of come around.
But let me ask you about the major, choosing a major, because you have to align your future earnings. At least I would think you would want to align your future earnings versus kind of what your outlay is, what you’re paying for. So how do you pick a major?
Mark Kantrowitz, Private Student Loan Guru
Well, you should major in something, a field that you love, but you also need to consider your ability to repay the debt. Someone getting a bachelor of science degree in nursing where the starting salary is 70, 80,000 a year can afford to repay more debt than someone getting an associate’s degree in underwater basket weaving, which presumably doesn’t pay very well. So you need to use tools or salary tools that you can look at from one from the National Association of Colleges and Employers, payscale.com, salary.com, Bureau of Labor Statistics. These can all give you a sense of the starting salary in each individual field. And then you use that to calibrate how much you should reasonably borrow to pay for the education. And as far as the steering goes, and there are a lot of subtle ways that parents can influence their child’s decision besides just outright saying, well, we can’t afford to send you to this school.
When you do campus visits, if it’s a more expensive college, you visit on the day that it’s raining or where the food served in the cafeteria is not the child’s favorite. That can have a big influence on where they decide to go as well as what the college smells like as soon as they step out of the car.
Jeffrey Snyder, Broadcast Retirement Network
Very, very interesting. I’m not a parent, so I don’t know if my parents use those types of tools and tactics on me, or at least to kind of subtly guide me to where I wanted to go, but it makes a lot of sense. I think it’s the collegiate experience, but it’s also you have to be, you gotta balance the expectations, I think, with the realism.
Mark, we’re gonna have to leave it there. It’s always great to see you. Thanks for sharing a lot of your insight, and we look forward to having you back on the program again very soon, sir.
Mark Kantrowitz, Private Student Loan Guru
Thank you.