A college loan is the least favorable way to pay for college, as it eventually must be paid back, but yet for many students, it has been a lifeline to obtaining higher education and making a better life. Ultimately, college loans are without limit; students can borrow as much as banks or financing companies are willing to loan them. However, some loan programs come with strict loan limits. This overview will help outline these limits.
The federal Stafford loan program is the one that students are likely to first get a loan from. Stafford loans come in two types, subsidized and unsubsidized. The federal government will pay the interest on subsidized loans while a student is in college at least half time and for six months after leaving college, meaning that payments are not due right away and the loan principal does not get any larger due to interest. Unsubsidized loans require payment of interest immediately, either through direct payments or addition of principal to the loan. Subsidized loans require financial need to qualify, while unsubsidized loans are available to all.
Although the Stafford loan program offers good benefits, it also comes with strict loan limits. Loan limits change based on the year in school and are different based on the status of the student (independent or dependent). Dependent students are considered to have the support of parents or guardians in paying for school, while independent students are considered to be on their own. Students automatically become independent at age 24 or when entering graduate school.
Dependent freshmen can borrow up to $5,500, while independent students are limited to $9,500, but both are capped at just $3,500 in subsidized loans. Sophomores see their limit rise to $6,500 for dependent students and $10,500 for independent students, with a maximum of $4,500 subsidized. Juniors & seniors in college have the same limits: $7,500 maximum in Stafford Loans (dependent) or $12,500 (independent), with a maximum of $5,500 subsidized. Graduate students are limited to $20,500 a year in Stafford loans, with no more than $8,500 of that being subsidized.
There are also lifetime limits of $31,000 for dependent undergraduates, $57,500 for independent undergraduates, $138,500 for graduate students, and $224,000 for health professions students. This limits often become important when a student needs a fifth or sixth year of college to complete their program. The student may have already maxed out the limit before reaching that point. This information was drawn from Sallie Mae’s rate tables.
The federal government also offers the PLUS loan program. It provides additional loans through the parents of dependent students and directly to graduate students. Anyone offered a PLUS loan must pass a credit check to insure they have an acceptable credit rating. The loan limit for the PLUS program are simply the total cost of education minus other financial aid.
Another federal loan program for college is the Perkins Loan program. It offers needy students loans with a fixed rate of 5%. Loan limits for the Perkins Loan are $4,000 a year for undergraduates and $6,000 a year for graduate students.
Finally, another loan option is private loans. These loans are only limited by the lender and their assessment of the student’s (or co-signer’s) ability to repay the loan. Many banks and credit unions offer such loans with a variety of different terms and conditions.
The most important loan limit to consider is the student’s ability to repay the loans after leaving college. Many students borrow money as a matter of course without considering their realistic income after graduation. Other options, such as a part time job, scholarships, taking a semester off to work,