Financing higher education can be challenging. While financial aid applications are cumbersome enough, you also need to be mindful of the fact that there’s a limit to the amount of student loans you can take out. Federal limits determine your eligibility for subsidized, unsubsidized, and PLUS (parent loans for undergraduate students) student loans. Private lenders also cap the amount that you can borrow, but those limits are lender-specific.
Several different factors go into determining how much you can borrow each year and throughout your college education. The type of degree you’re earning and your student status—whether or not you are dependent on your parents—are used to calculate how much you can borrow.
Once we’ve covered the loan limits, we’ll discuss what you can do if you find that you exceed them. There are a few options that you can pursue if you need more money. Keep in mind that though these caps are in place, you’ll always want to make sure that the amount that you borrow is compatible with how much money you’ll be making after graduation. Make sure that you can afford your monthly payment once you enter repayment. After all, these limits exist to make sure that you only borrow what you need.
So, what is the maximum student loan amount for your specific situation?
How to determine your federal student loan maximum
The maximum federal student loan amount – how much you can borrow as direct subsidized, direct unsubsidized, or direct parent PLUS loans – varies depending on your situation as you complete your FAFSA (Free Application for Federal Student Aid). You can figure out the limit to what you can borrow at a particular time by answering these three questions:
- What type of degree program are you pursuing? Undergraduate students are allowed to borrow less than graduate students. Since a graduate-level education usually costs more and older professional students are less likely to have parental support, these limits are higher.
- What is your student status? Are you dependent on your parents or applying for financial aid as an independent student? If your parents plan to help you pay for school, has your co-signer been approved or denied for a PLUS loan? If you’re financing your undergraduate education, is this your first, second, third, or fourth year of school?
- How much have you borrowed this year? How much have you borrowed while pursuing this degree? Your annual loan limits and lifetime limits are two different things. There are loan limits that apply to what you’ve borrowed in one year and aggregate loan limits that apply to what you’ve borrowed ever since you’ve been in school.
Direct subsidized and unsubsidized federal student loan limits
Subsidized and unsubsidized loans are capped at $31,000 through four years of an undergraduate education if you’re a dependent student. As an independent undergraduate student, you can borrow up to $57,500 towards your undergraduate degree.
Dependent undergraduate students can borrow up to $5,500 as a first-year student, depending on financial need. Independent students, or those whose parents have been denied a direct PLUS loan (if your co-signer has a poor credit history, for example), can borrow up to $9,500 per year. For each of four years of school, you can borrow an additional $1,000 every academic year. Regardless of whether or not you depend on your parents, only $23,000 of your federal student loans will be subsidized.
Additionally, you can’t borrow more than the school’s cost of attendance. Students can only receive direct subsidized loans during a maximum eligibility period. This is equal to 150% of the published length of the degree program. For example, you can only take out loans for six years if you’re enrolled in a four-year bachelor’s program.
Graduate students can borrow up to $20,500 in federal loans each year. You can borrow a maximum of $138,500 as a graduate student, but that figure includes money you’ve borrowed as an undergraduate, too. All federal loan programs available to graduate students are unsubsidized.
Parent PLUS loan limits
If you’re a graduate or professional student or have a parent with a good credit history, consider a PLUS loan. There aren’t any specific limits to the amount of money that you can borrow with a PLUS loan. This type of loan is capped at what your school lists as the cost of attendance (which includes tuition, fees, room, board, books, and travel) less any other financial aid that the student receives. Parent PLUS loans come with higher interest rates, so be sure to max out your federal subsidized and unsubsidized loans first.
Private Student Loan Limits
Private lenders each set their own loan limits. Most cap the loan amount of private student loans at the cost of attendance less any other financial aid received. Consider private loans after you’ve taken out as much as you can in federal student loans. Federal student loans generally offer more flexibility when it comes to repayment options and more alternatives like loan forgiveness programs along with lower interest rates.
What if I still need to borrow more money for school?
- Consult your financial aid advisor. If you’ve reached the maximum, talk to your financial aid office. There are several ways to fund your education apart from federal student loans. Often, schools and states have programs, or your adviser can point you towards some local scholarship options that may grant you more money. If none of those strategies pan out, they may have ways to tweak the formula so that you’ll have access to what you need.
- Consider switching to part-time. If you are approaching the student loan maximums, consider reducing your course load to part-time. This helps on two fronts. First, you’ll continue making progress towards your degree, but going to school part-time also allows you to work. Money earned can cover future tuition costs. By being enrolled at least half-time, your current student loans will be automatically placed in deferment. As long as student loans are in deferment, monthly payments are postponed. If you aren’t enrolled at least part-time, though, you’ll have to seek deferment on other grounds.
- Use savings or an emergency fund to make up the difference. If you have savings set aside—whether in a Roth IRA or some other type of retirement fund, or a rainy-day fund—you may want to dip into those funds to pay for school. You can withdraw contributions from a Roth IRA for your education without incurring penalties or taxes as long as you’ve had it open for more than five years. Before you take money from your savings, make sure that it’s absolutely necessary, and exercise this option as a last resort. Dipping into your savings can have lasting consequences, so make sure that using it to fund your education will put you in a better position, in the long run, to make up that deficit.
- Secure private student loans. As mentioned earlier, federal student loans are preferable to private loans thanks to generally lower interest rates and the flexibility that comes along with income-based repayment options or loan forgiveness programs. If you exceed the federal limits, consider using a private lender as a last resort. The terms of your loan may vary from lender to lender, but most will give you up to the total cost of attendance outside of any other funding you’ve received. If you need it and you qualify, private loans can bridge the gap between federal loans and the total cost of your education.
Student loan limits and next steps
Student loan limits are in place to make sure that you don’t borrow more money than you need to finance your education. Regardless of what path you choose to finance your schooling, you’ll still be on the hook for paying it back once you graduate.
You can secure a maximum amount of $57,500 in federal loans as an independent undergraduate student. As a graduate student, you can rely on up to $20,500 a year, but no more than $138,500, which includes what you may have already borrowed towards obtaining your undergraduate degree.
If you decide to pursue additional education, such as a second bachelor’s degree, you’ll need to figure out how to secure additional funding. To make it work, you’ll need to consider some alternative solutions.
Your financial aid office is a great place to start. They may be able to manipulate variables in the formula that is used to calculate your loan eligibility. If not, they can help you find the funds that you need from your school or your state through other loan options or by pointing you towards scholarships.
If all of those avenues turn into dead ends, draw from your savings or drop down to part-time status. When all else fails, turn to private loans to make up the shortfall.
Carefully consider all your options before and beyond the student loan maximums. The choices that you make at these critical junctures can either drag you down or set you on a springboard for success.
Joshua Holt is a former private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He is always negotiating better student loan refinancing bonuses for readers of the site.