December 17, 2021
If you’re like 69% of college students in 2019, you’ll rely on student loans to pay for at least part of your education. Taking out student loans isn’t a bad thing — it’s a great way to invest in your future. Student loans can even help you establish credit with a good payment history.
But how much you can borrow in student loans isn’t the same as how much you should borrow in student loans.
In this guide, we’ll look at everything you need to know to make smarter choices when it comes to student loan borrowing.
Federal Student Loan Limits
The U.S. Department of Education offers three main types of loans: direct subsidized, direct unsubsidized, and direct PLUS. Which loan you can take out depends on whether you are an undergraduate or graduate/professional student. Along with the type of loan, your dependent status and year of study affect how much you can borrow.
Federal Student Loan Limits for Undergraduates
Undergraduate students should start by borrowing subsidized loans. If the maximum amount you borrow in subsidized loans is not enough to cover your expenses (there are limits), then you can also take out unsubsidized loans.
Federal Student Loan Limits for Graduate Students
Graduate and professional students are not eligible for subsidized loans. However, they can borrow up to $20,500 in unsubsidized loans each year and up to $138,500 total over the course of their graduate and undergraduate study.
What You Should Know About PLUS Loans
PLUS loans are unsubsidized loans designed for parents borrowing money to pay for their children’s education and for graduate students. PLUS loans can be used to cover expenses for either undergraduate or graduate study.
The maximum amount PLUS loan borrowers can take out is the cost of attendance minus other funding (such as scholarships, grants, other loans, or tuition waivers).
Because each school sets its own tuition and fees, the maximum amount you can borrow in PLUS loans varies by the school you are attending.
How Much Loan Money Should You Borrow?
Even if the U.S. Department of Education offers to lend you more than what your school costs, borrow only as much as you need. Student loans often take over ten years to repay. Borrowing less means you can pay off your loans faster and save money.
It’s not always easy to determine how much money you need to pay for school. When deciding how much to borrow, you should consider a few factors:
Cost of Attendance
Many colleges and universities post their tuition cost and a list of fees on their website. If you can’t find this information, contact the bursar’s office or financial aid office to request it.
Some schools offer information on their website about cost of living, but you can also use a cost of living calculator to get an informed estimate.
Your main three costs will be tuition, housing, and food. But there are other factors you need to consider as well, such as:
- Books and software subscriptions
- Technology (think laptops or calculators)
- Equipment specific to your major
- Dues or fees for student organizations
- Notebooks, pens, and paper
The best way to figure out the true cost of attending a school is to talk to current students. Take advantage of any visitation days to ask questions or use social media groups and online message boards to learn about expenses you may not have considered.
How Long You Will Be in School
Once you’ve calculated the cost of attending your school, multiply that cost by the length of your program (x4 for four years, and so on).
If You’re Considering Graduate School
College tuition is calculated by credit hours. If a class meets five hours per week and the cost per credit hour is $600, then the cost of that class is $3,000 (not including books and other supplies or fees).
Keep in mind, graduate-level courses cost more than undergraduate courses. Fees may be different at the graduate level as well.
It’s always better to rely on other sources of funding before relying on loans. Now that you’ve calculated the cost of attending college, deduct any scholarships or grants from that number before deciding how much to borrow. If you plan to work while in school, deduct your salary from your school costs as well.
How to Calculate Your Ideal Loan Amount
Let’s say your freshman year will cost $25,000 (including tuition, fees, and living expenses).
Freshman year = $25,000
You have $7,000 in scholarships/grants, you made $4,000 working part time last year, and you anticipate making the same amount this year.
Income = $11,000
Subtract your income (including scholarships/grants and salary) from your college costs and you get $14,000 — that’s how much you should borrow in student loans.
$25,000 (cost of attendance) - $11,000 (income) = $14,000 in loans
College is an exciting time to invest in yourself and prepare for a brighter future. And financing that future doesn’t have to take away from your excitement either. With a little knowledge, you can make informed choices about how much to borrow in student loans and start building the life you’re dreaming of.