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You know college is pricey. But do you know just how expensive it really is?
According to The College Board, the average annual cost for tuition and fees at a public four-year university was $3,510 and $17,860 for a private university in 1990. By 2020, those numbers had jumped to $10,440 and $36,880, respectively. In thirty years, the price of a college degree has more than doubled.
With the high cost of college education, you’ll likely need to borrow money to pay for school. While federal loans are often the first type of loan students consider, there may be limits on how much you can take out. Here’s what you need to know about federal student loan limits, and what your other options are.
Federal Student Loan Limits
Federal student loan programs can be a useful tool for paying for your education since they can have low interest rates and favorable repayment terms. You don’t have to meet minimum income requirements for monthly payments, and most federal loans don’t require a credit check.
To apply, you just need to complete the Free Application for Federal Student Aid or FAFSA. However, you may be limited in how much you can take out in federal student loans.
With the cost of college increasing in recent years, Congress passed laws raising federal loan limits. The government last updated the loan limits during the 2008-2009 academic year, and the rates haven’t changed since.
There are three main types of federal education loans:
Direct subsidized loans
If you’re an undergraduate student with a financial need, you could qualify for Direct subsidized loans, which have advantages over other federal loans.
The US Department of Education will pay the interest on your loan while you’re in school, during the first six months after graduation — your grace period — and during any period of deferment, if applicable. Since the government covers your interest during these periods, you’ll save money by using a subsidized loan over other types of debt.
Your school determines what loans you’re eligible for and how much you can borrow, but you’re also subject to annual caps.
Direct subsidized loans have the following maximum amounts for dependent and independent student borrowers:
- First-year students: $3,500 per year
- Second-year students: $4,500 per year
- Third-year students and up: $5,500 per year
During your college career, you can borrow no more than $23,000 in Direct subsidized loans.
Direct unsubsidized loans
Unlike subsidized loans, both undergraduate and graduate students can qualify for Direct unsubsidized loans, regardless of financial need. However, borrowers are responsible for paying all of the interest that accrues on the loan, even while they’re in school.
How much you can borrow per year is dependent on your student status.
|Third-Year Undergraduate and Up||$7,500||$12,500|
|Graduate or Professional||Not Applicable (All graduate and professional-level students are considered independent borrowers)||$20,500|
For dependent students, the aggregate loan limit is $31,000. For independent students, the limit is $57,000 for undergraduates. If you are a graduate or professional student, the limit is $138,500.
Direct PLUS loans
While Direct subsidized loans and unsubsidized loans have limits, PLUS loans typically do not have borrower limits.
The federal government offers two main types of PLUS Loans: Parent PLUS Loans for parents who want to pay for their dependent undergraduate student’s education, and Grad PLUS Loans for graduate or professional students.
With both types of PLUS Loans, you can borrow up to the total cost of attendance — as determined by your selected college — minus any other financial aid you receive.
Despite their lack of borrower limits, PLUS Loans have three major drawbacks to keep in mind:
- Credit check required: Unlike other federal loans, PLUS Loans require borrowers to undergo a credit check. If you have an adverse credit history, you will need an endorser — a relative or friend with a good credit score to apply for the loan with you — or you won’t qualify for a loan.
- Interest rate: PLUS Loans have the highest interest rate of all federal student loans. For loans disbursed between July 1, 2020, and July 1, 2021, and the interest rate is 5.30%. By contrast, the rate on Direct subsidized and unsubsidized loans for undergraduate students is just 2.75%.
- Disbursement fee: PLUS Loans also have a high disbursement fee. Loans disbursed after October 1, 2020, and before October 1, 2021, have a disbursement fee of 4.228%, which is deducted from the loan amount. If you took out a $10,000 loan, your fee would cost you $422.80.
Private Student Loan Limits
If you’ve used up all of your federal student aid options or don’t want to use PLUS Loans, an alternative to consider is private student loans. Private loans can be a valuable financing option to supplement your federal loans, helping you finish your degree.
Unlike most federal loans, with private lenders, like Earnest, you can borrow up to 100% of the school’s certified cost of attendance, including money to cover the cost of textbooks, housing, and even transportation. And, there aren’t aggregate loan limits. You can take out additional loans if you need more time to finish college, or if you decide to pursue a master’s or professional degree.
Private student loans have some useful advantages over federal student loans:
- Competitive interest rates: If you have good credit, or a co-signer with a solid credit history, you may qualify for a private student loan with a lower interest rate than you could get with a federal student loan. Over the life of your loan, the lower rate could allow you to save a significant amount of money.
- Variable and fixed interest rates: Federal loans only have fixed interest rates, meaning they never change. Private student loans may have fixed or variable rates, which can fluctuate over time. Variable-rate loans tend to have lower interest rates at first, which can be advantageous if you plan to pay off your loan aggressively.
- Flexible repayment options: Private student loans typically offer multiple repayment options that could be beneficial to students both while in school and after graduation. For example, Earnest offers deferring payments until nine months after you graduate, making small fixed payments while in school, interest-only payments while in school, or making full payments as a student to save money on your loan.
If you decide to take out a private student loan, you check your eligibility for a loan from Earnest in as little as two minutes with no effect on your credit.