ESTATE PLANNING
• All federal student borrowing is capped. The new aggregate lifetime cap is $ 257,500 and it applies to all federal student borrowing— undergraduate and graduate programs together( though it excludes monies borrowed under the Parent PLUS program).
The new law did add legacy provisions to shield students who’ ve already borrowed. Students who received disbursements under the Federal Direct Loan program or the Grad PLUS program before July 1, 2026— and who stay continuously enrolled in those same programs— can generally keep borrowing under the old rules for up to three more years, or until the programs end. That pathway sunsets entirely, however, on June 30, 2029.
The practical effect of the changes is straightforward. The full cost of an expensive degree can no longer be financed with federal loans alone.
A Family Balance-Sheet Problem
One firm estimates the law removes roughly $ 13 billion in federal aid in its first year, about $ 11 billion of it for graduate borrowing.
The private market is already moving to fill the gap, and the numbers are substantial. Mark Kantrowitz, a higher-education analyst, expects private student loan volume, currently around $ 10 billion a year, to double. Lenders such as SoFi and Navient have told Congress they are bracing for the demand.
And for families, the private loan universe is where the risk hides. Private loans generally require a creditworthy co-signer, most often a parent or grandparent. Advisors warn that a grandparent co-signing in their 70s takes on a 10- to 15-year obligation that can outlast their working income.
It can also be harder for the co-signer to get out from under the loan obligations( a co-signer release allows the primary borrower to assume the full responsibility for the loan). The Consumer Financial Protection Bureau found that lenders rejected roughly nine in 10 release applications. That means if the student defaults, the lender can pursue the co-signer’ s wages, tax refunds, and, in some states, even their Social Security.
What this all means in the end is that a student’ s education cost is quietly being turned into a senior family member’ s long-term liability, something secured by that family member’ s balance sheet. For families with wealth to transfer, that’ s a problem to avoid.
Now It’ s An Estate Planning Issue The upshot of this is that student loans have now become an estate planning issue. Usually, most people think of estate planning as an estate tax issue. But here,
If families plan to move wealth to the next generation anyway, education is one of the most efficient and defensible reasons to do it.
New borrowers, meanwhile, will lose most of the previous options available for repayments based on income level. Instead, loans disbursed after July 1, 2026, can be repaid only under a new plan, called the Repayment Assistance Plan, or a tiered standard plan. The new plan will require a minimum payment and the repayment formula will be based on adjusted gross income, whereas the repayment schedule under previous plans could be based on the poverty status of the borrower and could conceivably have been a zero payment in some cases. too, the One Big Beautiful Bill changed the game. The bill made the federal estate and gift tax exemption permanent at $ 15 million per person, or $ 30 million for a married couple, beginning in 2026. For many affluent families, that means estate taxes are no longer an urgent matter.
But as the tax issue recedes, the education funding opportunity arises: If families plan to move wealth to the next generation anyway, education is one of the most efficient and defensible reasons to do it. In real time. While the recipient needs it. With a gift that theoretically has no ceiling.
54 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER / OCTOBER 2026 WWW. FA-MAG. COM