One of the most daunting parts of planning for college is figuring out the financials. You’ve applied for student aid, grants, and scholarships, and now you need to make up the difference with student loans.
In this article, you will learn what student loan options are available to you and what the maximum borrowing limits are for each.
Student Loan Options
- Federal student loans
- Private student loans
Federal student loans are offered by the U.S. Department of Education. To apply for these loans, you will need to complete and submit the Free Application for Federal Student Aid (FAFSA), which can also qualify you for certain grants, which do not have to be paid back like a loan.
Federal student loans may be subsidized (meaning that the federal government pays the interest on these loans while you are in school or during grace periods) or unsubsidized. Subsidized loans are granted based on financial need, while unsubsidized loans are available to everyone. The interest rates on these loans tend to be lower than private student loans and are fixed each year and not dependent on your credit score or financial history.
Graduate and professional students may also take out unsubsidized federal loans at slightly higher interest rates. Federal Direct PLUS Loans are additionally available for both graduate and professional students and parents of dependent undergraduates to help pay for education expenses not covered by other financial aid.
Many private banks and lending institutions also offer student loans. The terms of these loans are generally not as good as what you can get from a federal student loan, and the options for repaying and loan forgiveness are also not as flexible. These loans may have variable or fixed interest rates, which depend on your credit score.
Private student loans should generally not be your first choice for financing your education, but they can be a great way to cover the difference between what you can obtain from a federal financial aid package and the cost of your schooling.
Federal Student Loans for Undergraduates
When you attend an undergraduate or certificate program, you will likely submit a FAFSA form to see what federal aid you qualify for. Your financial aid package will include federal student loans if needed.
- First year undergraduate annual loan limit: $5,500, with no more than $3,500 of this in subsidized loans
- Second year undergraduate annual loan limit: $6,500, with no more than $4,500 of this in subsidized loans
- Third year and beyond undergraduate annual loan limit: $7,500, with no more than $5,500 of this in subsidized loans
- Total loan limit: $31,000, with no more than $23,000 of this in subsidized loans
If you are an independent undergraduate student, or if your parents are unable to obtain federal PLUS loans on your behalf, then the loan limits are as follows:
- First year undergraduate annual loan limit: $9,500, with no more than $3,500 of this in subsidized loans
- Second year undergraduate annual loan limit: $10,500, with no more than $4,500 of this in subsidized loans
- Third year and beyond undergraduate annual loan limit: $12,500, with no more than $5,500 of this in subsidized loans
- Total loan limit: $57,500, with no more than $23,000 of this in subsidized loans
Federal Parent PLUS Loans
Most undergraduate students under the age of 24 are considered dependents of their parents. The federal government has a loan program that allows parents of these students to take out additional loans to pay for education expenses not covered by other financial aid.