The question of how to pay for college has become paramount over the past decade, as student loan debt has skyrocketed to more than $1.5 trillion.
According to a report published at the beginning of February, education loans accounted for just 6.3 percent of America’s total debt in 2010, roughly $760 billion. That surged to 10.7 percent, or a whopping $1.5 trillion, by the end of the decade.
But student loans aren’t limitless: The maximum amount that one person can take out depends on several factors, including whether they’re private or federal loans and your level of education.
According to the Department of Education’s Federal Student Aid office, the maximum amount that an undergraduate student can borrow every year ranges from $5,500 to $12,500, depending on that student’s year in school, dependency status and the type of loan.
For instance, a dependent first-year undergraduate student could only take out $5,500 overall and just $3,500 subsidized loans. But a third year, independent student could take out $12,5000, with no more than $5,500 subsidized.
There are four different types of federal student loans: Direct subsidized (made to undergraduate students who demonstrate financial need), direct unsubsidized (available to all students, and eligibility is not based on financial status) and direct PLUS (offered to graduate students and parents of dependent undergrads who need help to pay for education expenses not covered by other forms of financial aid).
Graduate and professional students are allowed to borrow up to $20,5000 in direct unsubsidized loans.
Loans for undergraduate students currently entail a 5.05 percent interest rate; that climbs to 6.6 percent for graduate or professional students.
But the average tuition cost among public and private institutions is steadily increasing. According to a recent CollegeBoard report, tuition at a four-year private college cost an average of $34,740 during the 2017-2018 school year. Public universities charged an estimated $9,970 to in-state students, and $25,620 to out-of-state students. The yearly price has been growing, on average, by about 2.4 percent at private colleges and 3.2 percent at public colleges.
Students also have to pay for other expenses, like housing, food and books, which can add thousands of dollars a year.
There are other options for students who hit the federal limit and still have costs to cover. They can borrow up to 100 percent of the cost of attendance, or the dollar amount that their college says it costs to enroll, via private student loans that are directly offered by banks and lenders.
Private lenders will examine several different factors when deciding on your student loan amount, according to Student Loan Hero.
- Lenders’ limits or guidelines: Each bank will have its own limits on annual borrowing.
- Credit qualifications: You need good credit in order to qualify for a private student loan. If you don’t have a credit score, you will likely need a parent or trusted adult to cosign the loan with you.
- Education and employment: In order to evaluate the affordability of a loan amount, lenders will look at certain aspects, such as the type of degree you want to earn and your cosigner’s amount
- Cost of attendance: Many will offer to finance your entire cost of attendance, but few private lenders will let you borrow more than what your program costs
Most private student loans have aggregate loan limits (a max amount that you’re allowed to borrow during your academic career) ranging somewhere between $75,000 to $120,000 for undergraduate students, and higher limits for graduate and professional students. These aggregate loan limits usually include all student loan debt, including both federal and private student loans, according to Edvisors.