If you need to borrow student loans, there are various federal and private options to consider, and each has a different set of rules and qualifications that affect whether and how much you can borrow. Understanding borrowing limits and how they are determined can help you make informed decisions about financing your college education.
No matter what types of student loans or how many you take out, the maximum amount that you can borrow each year is the cost of attendance, or COA, at your selected college or university.
COA is determined by the school and is used to calculate your federal student aid eligibility, as well as the maximum amount you might be able to borrow in both federal and private student loans. It includes tuition and related expenses like room and board, books and transportation.
While you cannot borrow more than the cost of attendance, you may be eligible to borrow less, which could reduce the amount of student loan debt you have to pay back over time.
The U.S. Department of Education offers several types of loans to students to help finance their education, all of which have different eligibility requirements and loan limits. Private student loans are another option. Most students who need to borrow to help finance their education will need to use some combination of these options.
The maximum amount undergraduate students can borrow each year in federal direct subsidized and unsubsidized loans ranges from $5,500 to $12,500 per year, depending on your year in school and whether you are a dependent or independent student — a determination made based on your Free Application for Federal Student Aid, or FAFSA, which you are required to submit each year to be considered for federal and some other sources of financial aid.
There are also aggregate, or overall, federal student loan limits for your undergraduate education. Dependent students can borrow up to a grand total of $31,000 in subsidized and unsubsidized student loans, with no more than $23,000 of the total in subsidized loans, while independent students can borrow up to $57,500 with the same cap on subsidized loans.
Federal Direct Subsidized Loan Limits
Federal direct subsidized loans are available to eligible undergraduate students who demonstrate financial need. The U.S. Department of Education pays the interest on these loans while you are in school at least half time, during the six-month grace period after you leave school and during periods of deferment.
The financial information reported on your FAFSA is used to calculate your expected family contribution, or EFC — an index number that colleges use to determine your existing financial resources to pay for college and how much you may be eligible to receive in federal student aid, including direct subsidized loans. Keep in mind that the FAFSA Simplification Act of 2020 replaces EFC with the student aid index, or SAI, which similarly will serve as a guideline for the level of financial aid a student might receive when the changes take effect starting with the 2023-2024 academic year.
You may be eligible for direct subsidized loans if your EFC (or SAI in the future) identifies that you have qualifying financial need. Your school will determine the amount you can borrow, but the amount cannot exceed your financial need.
Here’s how much both dependent and independent undergraduate students can borrow in direct subsidized loans:
— First year: $3,500
— Second year: $4,500
— Third year and beyond: $5,500
— Total limit: $23,000
If you are eligible, you should always exhaust direct subsidized loans first because they have better terms than other student loans.
Federal Direct Unsubsidized Loan Limits
Federal direct unsubsidized loans are available to undergraduate and graduate students and are not based on financial need. Interest accrues on these loans at all times, including while you are in school and during periods of deferment. The current administrative forbearance period granted by the federal government because of the coronavirus pandemic is an exception.
The amount of direct unsubsidized loans you may be eligible to receive is determined by your year in school and your status as either a dependent or independent student. The maximum amount you may be able to borrow in unsubsidized loans per year increases each year you are in school, though dependent students are eligible to borrow less than independent students. The federal StudentAid.gov website has a chart that shows how this works.
It’s important to note that there are exceptions to limits on unsubsidized loans for dependent students whose parents are determined ineligible for Parent PLUS loans. Such students may be able to borrow up to the unsubsidized loan limits for independent students.
Federal Direct PLUS Loan Limits
Federal direct PLUS loans are available to parents of dependent undergraduate students — the Parent PLUS loan — or graduate students — the Grad PLUS loan — for costs not covered by other financial aid or loans. Eligibility is not based on financial need, but a credit check is required.
Unlike limits on direct subsidized and unsubsidized loans, there are no specific caps on PLUS loan borrowing. Parents who qualify for a Parent PLUS loan can receive up to the remainder of a dependent child’s college costs as determined by his or her school. Similarly, graduate students may borrow up to the remainder of costs. Remember that those amounts cannot exceed what remains as the student’s cost of attendance.
Applicants for a PLUS loan who are turned down based on their credit may still be able to receive a PLUS loan if additional requirements are met.
Private Student Loan Limits
Federal subsidized and unsubsidized student loans tend to have the lowest interest rates. However, if you or your parent are considering a direct PLUS loan, you may want to compare the interest rate with that of a private student loan from institutions such as banks, credit unions, state-based and nonprofit lenders, and other sources.
Eligibility for student loans from these institutions and the interest rates offered are normally based in part on a credit check. Borrowers with higher credit scores are typically offered better interest rates , while borrowers with lower credit scores may be charged higher interest rates or denied a loan altogether.
Private student loans are typically made directly to students, but since many undergraduate students have not yet established a credit history, a co-signer may be required. As with federal student loans, private student loan borrowers may borrow only up to what will finish covering the cost of attendance, and these loans are usually certified by the school to ensure the student stays within limits.
While the reality is that most students need loans to earn a college degree, the key is borrowing the right amount. Just because you can borrow up to a certain amount does not mean that you should automatically accept the maximum amount.
However, you don’t want to be so wary of debt that you don’t borrow enough, either. It’s wise to consider what your income and financial obligations will be after graduation and when student loan repayment begins.
It can be challenging to decide how much in student loans to borrow. If you need professional assistance, you can reach out to a financial aid administrator at your school or seek out a local state-based organization or nonprofit for some guidance.
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