How much can you borrow in student loans?

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The price tag on higher education has grown by about 25 percent within the past decade, recently reaching an average of $9,200 a year at a four-year public college and $35,800 a year at not-for-profit private schools.

When families can’t foot the entire tuition bill upfront, they turn to student loans. There are two main types of student loans — federal and private — with limits on how much you can borrow. By knowing how much you can borrow, you can plan ahead and make sure you have the funds you need to pay for your education.

Applying for student loans

Private student loans come from private financial institutions, including banks, credit unions and online lenders. You may be able to apply online or in person, usually a few months before the school year begins. While they may have larger student loan limits, private loans typically come with fewer borrower protections and repayment options than federal student loans.

That’s why it’s a good idea to max out your federal student loan limits first. Federal loans are easier to qualify for, usually have lower interest rates and come with generous consumer protections. To apply for federal student loans, you’ll need to submit the Free Application for Federal Student Aid (FAFSA) before each school year.

Federal student loan limits

Using standard federal student loan limits, the cost of attendance and your FAFSA information, your school determines how much you’re eligible to borrow. The amount you can take out is based on:

  • The cost of attending the school.
  • Your year in school.
  • Your status as a dependent or independent student (whether your parents financially support you).

There are three main types of federal student loans: Direct Subsidized, Direct Unsubsidized and Direct PLUS Loans. With Direct Subsidized Loans, the Department of Education pays interest costs while the borrower attends school and during deferment periods. These are only available to undergrads. Unsubsidized loans are available for undergraduate and graduate students, and with these the borrower pays all interest costs.

Students seeking master’s and professional degrees can take out grad PLUS loans, while parents of dependent undergraduate students can take out parent PLUS loans.

Undergraduate federal loan limits

If your parents financially support you, then you’re considered a dependent student. Federal student loan limits for dependents are $5,500 to $7,500 each year, up to a lifetime limit of $31,000. For students who qualify, $23,000 of that total borrowing can be subsidized.

You may be considered independent if you are over the age of 24, a military veteran or married, or if you financially support yourself. Independent students can borrow $9,500 to $12,500 annually and up to $57,500 total. If you’re a dependent undergrad but your parents don’t qualify for a parent PLUS loan, you may be able to borrow up to the federal student loan limits for independent students.

Year in school Annual loan limit (dependent undergraduate student) Annual loan limit (independent undergraduate student)
Year 1 $5,500 (up to $3,500 may be subsidized) $9,500 (up to $3,500 may be subsidized)
Year 2 $6,500 (up to $4,500 may be subsidized) $10,500 (up to $4,500 may be subsidized)
Year 3 and beyond $7,500 (up to $5,500 may be subsidized) $12,500 (up to $5,500 may be subsidized)
Lifetime maximum limit $31,000 (up to $23,000 may be subsidized) $57,500 (up to $23,000 may be subsidized)

Graduate federal loan limits

Students working on a graduate or professional degree can borrow up to $20,500 per year in Direct Unsubsidized Loans, with a lifetime maximum of $138,500 (including any federal loans borrowed during undergraduate school). If a borrower hits the graduate loan limit and needs to borrow more, they can take out a federal grad PLUS loan, up to the cost of attendance.

Type of loan Loan limit
Direct Unsubsidized Loan $20,500 annually (lifetime max of $138,500, including federal undergraduate loans)
Grad PLUS loan Up to the cost of attendance, minus any other financial aid received

Private student loan limits

Private student loans are originated by private institutions such as banks, credit unions and online lenders. Many borrowers apply for this type of financing when they hit federal student loan limits or aren’t eligible for federal options.

Private lenders usually pull an applicant’s credit history and may base the loan limit on the borrower’s creditworthiness, degree program and other factors. If your credit needs work, then your loans may be more expensive. You also might need a co-signer to qualify.

Limits vary by lender, but they typically max out at the total cost of attendance. Below are examples of student loan limits among some private lenders.

Lender Loan limit
Ascent $1,000 – $200,000
Citizens Bank $1,000 – $350,000
College Ave $1,000 – the total cost of attendance
CommonBond $2,000 – the total cost of attendance ($500,000 lifetime maximum, depending on program)
Earnest $1,000 – the total cost of attendance
Sallie Mae $1,000 – the total cost of attendance
SoFi $5,000 – the total cost of attendance
Wells Fargo $1,000 – the total cost of attendance, ($250,000 maximum, depending on program)

What factors into your student loan limits?

Student loan limits are usually based on your year in school, the degree you’re pursuing and whether you have any sources of financial aid, such as grants and scholarships. You also won’t be able to borrow more than the cost of attendance, which usually includes:

  • Tuition and fees.
  • Room and board.
  • Books and supplies.
  • Computers and electronics for school.
  • Travel costs.

Private lenders will also partially base your loan amount on your creditworthiness. Federal student loan limits are based partly on the borrower’s dependency status.

How much should you borrow?

Although student loan limits define how much you can borrow, you aren’t required to borrow the maximum.

Borrowers had an average of $35,359 in student loan debt in 2019, according to an Experian report. Depending on the loan terms, it could take years to pay off the debt — so it’s usually best to borrow as little as possible.

As a rule of thumb, try to keep your monthly student loan payment around 10 percent of your projected after-tax income your first year out of school. For example, if your take-home pay is $2,800 a month, then your student loan payments shouldn’t exceed $280.

The Bureau of Labor Statistics may help you estimate your post-graduation salary, and you can use a student loan calculator to estimate your loan payment based on the loan amount and interest rate.

Can you increase your student loan amount?

Private lenders likely won’t let you exceed their borrowing limits — and you also can’t borrow more than the federal student loan limits, even if you’re attending an expensive school. If you or your parents are willing to take out a PLUS loan, you might be able to fill the gaps.

But aside from borrowing money, you have a few more options:

  • Apply for grants and scholarships. Both of these options provide money that doesn’t need to be repaid, but you’ll need to qualify. You should exhaust these options even before applying for student loans.
  • Contact your school’s financial aid office. Your university might be able to offer its own need- or merit-based aid. It also might be able to put you on an affordable payment plan.
  • Take a part-time job in school. Earning money while you attend school can defray some of your living costs or school expenses. Just make sure you can devote enough time to schoolwork.
  • Transfer to a less expensive school. If you can’t afford the school where you’re enrolled, consider switching to a school with cheaper tuition. Or, you may choose to complete some of your introductory classes at a low-cost community college.

The bottom line

The first step in calculating how to pay for college is understanding your school’s cost of attendance. From there, you can figure out whether you can cover the costs using grants, scholarships and money earned working a part-time job.

If you need to borrow money to pay for school, use your Direct Unsubsidized and Direct Subsidized loan options first. After that, you might be able to cover the rest with a PLUS loan. A private student loan should be your last resort, because they come with fewer protections than federal student loans.

Find out what your monthly payment will be and whether you feel comfortable with the amount. Taking out as little debt as possible gives you the best shot at post-graduation financial success.

Featured image by PointImages of Shutterstock.

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