What’s my borrowing limit for student loans?

More than half of young adults who enter college take on debt to do so. The bulk of this debt is student loans, according to the Federal Reserve, which states that “Student loans are by far the most common form [of debt], held by 94 percent of those with their own education debt outstanding.” With student loans being so common, you’d think they’d be easier to understand. But there’s tons of confusion out there about how to get loans, how much you can borrow and what happens once you secure them. Here’s how to understand your borrowing limit.

Related article: How to find free money for college

Federal student loan programs

Part of the difficulty in understanding just how student loans work is the fact that they aren’t one-size-fits-all. There are many types of federal student loans, each with different rates, rewards and responsibilities. The three major types of federal student loans are:

• Direct subsidized loans
• Direct unsubsidized loans
• Direct PLUS loans (divided into parent PLUS loans and grad PLUS loans)

A “federal loan” means it’s administered through the federal government, but there are also private loans from lenders like banks and credit unions. Federal student loans tend to be a better bet for most borrowers than private loans are. Here’s why: Federal loans have fixed interest rates, income-based repayment plans, cancellation options, deferments and interest rate reduction options. Private loans are unlikely to offer these (learn more about private student loan repayment options). If you are looking for money for college, it’s worth your while to compare federal student loan options before going to private lenders. 

Related article: Federal student loan repayment options

What’s my borrowing limit?

How much you can borrow depends on a number of factors, including the cost of your education, any scholarships or awards you’ve received and the money you or your family might be able to contribute. 

The Office of the U.S. Department of Education recommends looking at estimates for salaries in your chosen field when thinking about how much student loan debt to take on. This guide offers information on salaries by profession and education level.

How much student loan help you can get also depends on the type of loan , so let’s look more deeply at each of the federal student loans offered.

Borrowing limit for direct subsidized loans

Direct subsidized loans are the ideal way to get student loans for college. They tend to have the most favorable terms for students, compared to unsubsidized or PLUS loans. 

Only undergraduate students with financial need can apply for a direct unsubsidized loan. The college or university, not the government, will ultimately determine how much money a student can borrow based on financial need.

Direct subsidized loans have very favorable terms while you’re in school. If you’re enrolled at least half-time, the government will pay the interest on the loan. The government will also pay the interest for the first six months after you leave school and during a deferment period. Loans disbursed between July 1, 2019 and July 1, 2020 come with an interest rate of 4.53%. When you pay it back, you’ll be paying the Department of Education, who is the lender for this type of loan.

So how much student loan help can you get with a direct subsidized loan? That depends. Subsidized and unsubsidized loans are often combined to determine the amount of the loan, so it’s necessary to understand both before thinking about your borrowing limit. 

Borrowing limit for direct unsubsidized loans

Direct unsubsidized loans have looser requirements than subsidized loans. Both undergraduate and graduate students can apply for direct unsubsidized loans and there is no need to demonstrate financial need. 

Once again, your college or university will determine how much you can borrow. Unlike a subsidized loan, you are responsible for paying back the interest on a direct unsubsidized loan. If you don’t or can’t pay the interest, even while you’re still in school, it will accrue and get added to the amount of the loan. 

The maximum amount you can borrow is a mixture of subsidized and unsubsidized loans. A lot hinges on your financial need as determined by your school. It also matters whether your parents or guardians can claim you as a dependent or if you’re an independent student. Maximum awards also change from year to year while you’re in school.

The full breakdown of how much you can borrow works out like this:

First year undergraduate annual loan limit: 

• Dependent students: $5,500. Only $3,500 can be a subsidized loan
• Independent students: $9,500. Only $3,500 can be a subsidized loan

Second year undergraduate annual loan limit:

• Dependent students: $6,500. Only $4,500 can be a subsidized loan
• Independent students: $10,500. Only $4,500 can be a subsidized loan

Any undergraduate in their third year or up annual loan limit:

• Dependent students: $7,500. Only $5,500 can be a subsidized loan
• Independent students: $12,500. Only $5,500 can be a subsidized loan

Graduate or professional student annual loan limit:

• Dependent students: Does not apply, as all graduate and professional students are considered independent
• Independent students: $20,500, only unsubsidized loans

Maximum student loan limits:

• Dependent students: $31,000. Only $23,000 can be subsidized loans
• Independent students: $57,500 for undergraduates, with only $23,000 in subsidized loans; $138,500 for graduate and professional students, with only $65,500 in subsidized loans

Borrowing limit for Direct PLUS loans

There is one more type of student loan, but it’s directed toward parents and guardians of students. 

With a “parent PLUS loan” it’s the student’s parent(s) who take out the loan. The parents must have a good credit history and the student must meet some general loan eligibility requirements, such as enrolling in an eligible degree program, maintaining their grades and having a valid Social Security number.

Independent students, such as graduate students, can also get a PLUS loan. In this case it’s called a grad PLUS loan.

In both parent and grad PLUS loans, financial need is not a requirement. PLUS loans granted between July 1, 2019 and July 1, 2020 have an interest rate of 7.08%. Once again, the Department of Education is the lender.

How much you can get through a PLUS loan is determined by the cost of the college or university minus any financial aid you might receive. Therefore, unlike subsidized and unsubsidized loans, there is no hard and fast maximum for how much you can borrow. Rather, your costs and financial aid determine the size of the loan.

The crucial factor with any PLUS loan is credit history. Direct subsidized and unsubsidized loans lack any credit history requirement; it’s only PLUS loans that include this factor. So if you or your parents are thinking about pursuing a PLUS loan, it’s smart to consider whether credit history will be a factor.

Paying back loans

No matter what mix of loans you end up using to pay for school, you’ll eventually need to consider how to pay them back. It may seem early to think about that, but being prepared will help keep you ahead on your student loan payments before they even start.

One method for dealing with loan repayment is a loan consolidation. This process allows you to combine multiple federal loans into one. This could make it easier to handle loan payments, as all your loans will be consolidated into one payment. 

Loan consolidation also opens up new options for repayment plans and loan forgiveness programs. However, the benefits come with a cost. It’s important to look at the pros and cons.

Pros of loan consolidation:

• Simplicity: Having one loan instead of several will make your life easier.
• Lower monthly payment: You’re allowed up to 30 years to repay the loans, making each individual payment lower.
• Access to income-driven repayment plans and forgiveness programs. 
• Ability to switch any variable-rate loans you have to a fixed interest rate.

Cons of loan consolidation:

• Because you can pay the loans back over a longer period of time, you will likely end up paying more interest overall.
• Outstanding interest on your loans will become principal, adding to the balance of your loan.
• If you have any borrower benefits, you’ll probably lose them when you consolidate.
• Likewise, if you already have an income-driven repayment plan or are in a loan forgiveness program, you could lose those benefits when you consolidate. 

There’s a lot to consider when trying to get loans for your education. Beyond just how much in loans you can get for school, you’ll also have to consider the mixture of loans, any other aid you may qualify for and how you’ll pay back loans in the future.