It’s almost that time again: Summer is dwindling, professors are preparing lessons, and college students are wondering “How much student loans can I get?” With the rising costs of college, many students will turn to lenders to help them afford their education.
Unfortunately, many borrowers don’t know where or how to start looking, or how much they can take out in student loans. Without knowing the answers to these questions, students run the risk of ending up with too many student loans that will burden them financially for years to come.
So how do you borrow responsibly while still getting the money you need? First, let’s take a look at the different kind of student loans.
How much student loans can I get?
Federal student loans
The first type of loan that students should consider is federal loans. These loans are funded by the federal government, and will be presented to you in your financial aid award letter from each school after you fill out the FAFSA — meaning you don’t need to go to a bank to apply for them.
The US government has two financial aid programs: the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Perkins Loan Program, although the latter expired on Sept. 30, 2017.
The Direct Loan Program is the largest and most commonly used federal loan program, containing four different types of both subsidized and unsubsidized loans. Meanwhile, the Perkins Loan Program is a school-based program for students with exceptional need. You can compare federal loan options here.
So, how many loans can you take out from the federal government? If you qualify, you can get $5,500 to $12,500 per year in Direct Subsidized and Unsubsidized Loans depending on certain factors (including your year in college).
The loan limits vary depending upon if you are an independent student or still claimed as a dependent by your parents. Dependent students may receive $31,000 total over the life of their loan (no more than $23,000 in subsidized loans). Independent students can take out $57,500 over the course of their undergraduate career (again, no more than $23,000 in subsidized loans.)
Private student loans
If you’ve been to a bank in the last few months you’ve probably seen flyers, posters, or brochures about student loans and how low “Bank X’s” rates are.
Student loans from banks or other credit lenders are considered private loans. They aren’t part of the federal government’s student aid programs, and in some cases can’t be lumped together with federal loans for consolidation or repayment.
So why would you want to take out a private loan? Well, sometimes federal loans just don’t cover all your expenses. For instance, if you go to a more expensive university and pay a higher tuition, that’s less money for use towards your room and board.
So, how many loans can you take out and how much could you borrow from a private lender? The answer: It depends.
Why? Some lenders have rules regarding yearly borrowing (such as total cost of attendance minus financial aid), while others may just have a certain maximum yearly amount you can borrow. The lack of parameters (and higher interest rates) often makes them more dangerous than federal options if students don’t keep an eye on their finances.
When determining a loan amount, private lenders will look at your credit history. If you do not have any credit history you’ll likely need a parent or trusted adult cosign the loan for you. The bank will look at your cosigner’s credit history and income to see how much you may be eligible for.
If you’re taking out the maximum amount from both federal and private loans, you might feel rich now but pay the price later. Because interest compounds, the more money you take out, the more money you will have to pay back.
As a rule of thumb, keep in mind that if you borrow $5,000 for housing (and maybe a spring break in Cabo), you’ll actually end up paying closer to $7,000 after interest over the ten year repayment period.
How much do I need?
Instead of asking “How much student loans can I get?” consider how much you really need.
The answer to this question is going to be different for each individual. Depending on your school’s tuition, room and board, books, and living costs, your college expenses could differ wildly from someone else’s.
Thankfully both CollegeBoard and the Department of Education have created tools and calculators that anyone can use. Check out the FAFSA4Caster to estimate how much federal aid you’re likely to receive, and CollegeBoard’s tool to calculate how much college will cost.
Already have student loans? Check out Student Loan Hero’s calculators to determine how much you’ll pay in interest, compare your loans, or find your expected monthly payments.
Only after you have a solid idea of what your expenses will be and what federal aid awards will cover should you move on to researching private loans. With their variable interest rates and repayment options, it’s safer to stick to as much federal aid as possible before applying for additional aid.
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