Student loans are a must-have for many incoming and current college students who cannot cover the rising cost of college on their own.
In fact, the total amount of outstanding student loan debt continues to rise each year as college costs increase across the country. More than 45 million student loan borrowers collectively owe more than $1.52 trillion, according to LendEDU.
The most recent statistics reveal the average student loan debt upon graduation is just under $30,000, highlighting the consistent need for financing among the majority of new college students.
Applying for student loans to help pay for higher education costs takes some know-how, starting with an understanding of just how much is available via borrowing.
Here’s what you need to know about covering the expense of college with student loans with the help of federal and private loans.
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Maximum Federal Student Loan Limits
Federal student loans are available from the Department of Education and they are often the first option for new and current college students. Federal student loans are relatively easy to apply and qualify for, based on information provided in the Free Application for Federal Student Aid (FAFSA).
Although federal student loans are the first course of action for students who need to borrow, there are limit caps for how much can be taken out each year. The maximum limit depends on several factors including the degree program pursued and the student’s school year.
Undergraduate Federal Loan Limits
First-year undergraduate students
Dependents can borrow $5,500 with no more than $3,500 in subsidized loans. Independent students can borrow up to $9,500, with the same limit on subsidized loans.
Second-year undergraduate students
Dependents can borrow $6,500 with no more than $4,500 in subsidized loans. Independent students can borrow $10,500, with the same subsidized loan limits.
Third-year and beyond undergraduate students
Dependents can borrow $7,500 with no more than $5,500 in subsidized loans. Independent students can borrow $12,500, with the same subsidized loan limits.
Borrowing is capped at $31,000 for dependent students and $57,500 for independent students.
Graduate Federal Loan Limits
Annual loan limit
Graduate students can borrow up to $20,500 in unsubsidized loans only.
Total borrowing limit
Graduate students are capped at $138,500 in total, which includes all undergraduate loans.
Parent PLUS Loan Limits
For parents who want to borrow for their child’s education costs, Parent PLUS loans are available up to the full cost of attendance, less any other financial aid received.
Maximum Private Student Loan Limits
The majority of student loans fall under the federal category, but for some students, the loan limits make it difficult to cover the full cost of attendance.
Currently, they make up an estimated 7.5% of all student loan debt among past and present borrowers. The average private student loan debt is $10,000, lower than the federal average, mainly because this source of financing is a secondary option for most borrowers.
Private student loans are available to borrowers with strong credit and some impose income minimums to qualify. For college students, it can be a challenge to qualify for a private student loan without a cosigner, so many borrowers opt to add one to help them qualify.
Private student loans also have total maximum borrowing limits, but they typically extend up to the full cost of attendance, less any other financial aid received. This higher loan limit can help college students and their parents cover more of the cost of college.
Avoiding the Overborrowing Pitfall
Securing the maximum student loan funding through federal, private, or a combination of loans can help you gain some peace of mind that your education-related expenses will be fully covered. However, that does not necessarily mean that getting the full extent of student loans is the best option for incoming or current college students. All student loans must be repaid after leaving school, so gauge exactly how much is necessary before accepting new loans.
Both parents and students can be smart about borrowing for education by calculating the total cost of attendance for an undergraduate or graduate degree program at the start. All colleges and universities provide this information each year to students, adding up the cost of tuition, room and board, and other necessary fees.
Taking a close look at this bottom-line number helps in creating a student loan strategy that does not exceed what you truly need. If a student or parent receives excess loan funding from the school or the lender, it is best to pay them back immediately. Evaluating the total cost of earning a degree and repaying unnecessary funds helps keep the interest burden of student loan debt down after graduation.
Author: Melissa Horton
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