Student Loan Borrowers: A Guide to Financing Your Studies

Going to university can be a fun and exciting time — but it also often comes with a hefty price tag. Indeed, annual tuition fees can range anywhere from as low as $2,000 to (if you’re hoping to enroll at one of the world’s most expensive institutions) an eye-watering $75,000.

Then there’s all the related expenses of postsecondary education: textbooks, supplies, accommodation, food, transportation… The list goes on.

The good news, though, is that there are many forms of financial assistance out there to help you pay for college or university, either through federal or private student loans.

But just how much can you borrow in student loans?

Well, there generally are limits on the amount you can borrow, and this guide will walk you through your options so you can make an informed decision.

How much can you borrow in federal student loans?

Federal student loans are loans that you take out directly with the United States Department of Education to pay for college, either as a student or as a parent or guardian.

There are three main types of federal student loans, which are offered directly through the DoEd’s StudentAid.gov website:

• Direct Subsidized Loans, which are offered to undergraduate students with financial need. The DoEd pays the interest while you’re still in school at least half-time, during the six-month grace period after you leave school, and during a period of deferment.
• Direct Unsubsidized Loans, which are offered to undergraduate and graduate students with or without financial aid. It is your responsibility to pay the interest.
• Direct PLUS Loans, which are offered to a graduate student (called a Grad PLUS Loan) or to the parents of a dependent undergraduate student (Parent PLUS Loan). The interest is covered by the loan borrowers.

How much you can borrow depends on the particular loan you’re applying for, as well as whether you’re a dependent or an independent student, whether you’re in graduate or undergraduate school, and what year you are in school — as described below.

Undergraduate students

Direct Subsidized Loans and Direct Unsubsidized Loans are offered to eligible students enrolled at a FAFSA-approved four-year college or university, community college, or career, technical or trade school.

You can borrow up to $23,000 for the entire duration of your education through a subsidized loan, and up to $31,000 (as a dependent student) and $57,500 (as an independent student) through an unsubsidized loan. The table below shows the annual total limits and aggregate total limits for both types of loans:

	Direct Subsidized Loans	Direct Unsubsidized Loans
Year 1 total limit	$3,500 (dependent and independent students)	$5,500 (dependent students) / $9,500 (independent students)
Year 2 total limit	$4,500 (dependent and independent students)	$6,500 (dependent students) / $10,500 (independent students)
Year 3 and beyond total limit	$5,500 (dependent and independent students)	$7,500 (dependent students) / $12,500 (independent students)
Lifetime total limit	$23,000 (dependent and independent students)	$31,000 (dependent students) / $57,500 (independent students)

Note: Interest rates are fixed at 5.50% for both subsidized and unsubsidized loans disbursed on or after July 1, 2023 and before July 1, 2024.

Graduate students

If you’re enrolled in a master’s or doctoral program, such as a PhD, MD or JD, you may be eligible for a Direct PLUS Loan or a Direct Unsubsidized Loan (Direct Subsidized Loans are available to undergraduate students only).

Graduate loan borrowers in the Direct PLUS program are eligible for full financing of the cost of attendance, and up to a lifetime total of $138,500 through a Direct Unsubsidized Loan, as shown in the table below:

	Direct PLUS Loans	Direct Unsubsidized Loans
Annual total limit	Up to cost of attendance	$20,500
Lifetime total limit	Up to cost of attendance	$138,500 (no more than $65,500 of this amount may be in subsidized loans)

Note: Interest rates for graduate students are fixed at 8.05% for Direct PLUS Loans and 7.05% for Direct Unsubsidized Loans disbursed on or after July 1, 2023 and before July 1, 2024.

How much can you borrow in private student loans?

Private student loans (which are offered privately by banks, online lenders, credit unions and other financial institutions) can be a great option if you’re not eligible for a federal student loan or if you need to borrow more money to cover your postsecondary education expenses.

That said, they generally come with higher interest rates (which may be fixed or variable, depending on the provider), less flexible repayment options, and extensive credit checks. As such, it’s a good idea to first exhaust your federal loan options before turning to private loans.

How much you can borrow in private student loans varies between providers, and they typically have their own eligibility requirements and payment terms. If you choose to take out a private loan, even in addition to a federal loan, make sure to do your research and compare plans and providers.

Some of the best private student loan providers are shown in the table below, along with the maximum amount you can borrow with each one:

Loan provider	Fixed APR interest rates	Maximum amount
Ascent Funding	4.09%–15.66%	$200,000 for undergraduate loans / $400,000 for graduate loans
Laurel Road	5.19%–10.14%	No limit
LendKey	4.39%–10.39%	Cost of attendance, minus aid
Sallie Mae	4.50%–15.49%	No limit
Splash Financial	5.44%–9.99%	No limit

Note: Interest rates and maximum loan amounts are subject to change without notice. For the most up-to-date information, visit the relevant loan provider’s website.

How much should you borrow in student loans?

Just because a certain loan provider allows you to borrow funds up to a certain limit (or even no limit at all), it doesn’t mean that you should take out a loan on the maximum amount.

Indeed, the more you borrow in student loans, the more interest accrues and the more you’ll have to pay back over time. So, it’s generally a good idea to only borrow what you need — after all, you don’t want to find yourself struggling with paying off your student debt.

As a rule of thumb, don’t borrow more than your expected starting salary after graduation. For example, if you borrow $25,000 in loans (including interest), your starting salary should be at least the same amount.

Is there a benefit to borrowing less than the cost of tuition?

Borrowing less than the cost of tuition can have several benefits, including:

• Reduced debt burden after graduation, making it easier to manage your finances and achieve financial stability sooner.
• Lower interest costs over the life of the loan, saving you money in the long run.
• Less financial stress, both during and after college, allowing you to focus more on your studies and career goals.
• Improved credit score, making it easier (and cheaper) to borrow in the future for things like buying a car or a home.

Can you increase your student loan amount?

If you need to increase your student loan amount, speak to your loan provider or servicer about your options to see if you’re eligible. For federal loans, you’ll generally need to complete a new FAFSA form.

You can even take out multiple loans. For example, federal loan borrowers can take out all three types of loans (Subsidized, Unsubsidized and PLUS) all at the same time.

What happens if you don’t use all your student loan?

When you take out a student loan, the funds are typically disbursed directly to your school to cover tuition, fees and other education-related expenses. If your loan covers more than the total amount you need (for example, if you’ve taken out a loan for the maximum amount that you’re eligible for, and you’ve received a grant that covers most of your tuition), one of two things will happen:

• Your school will hold any remaining funds for your use on other educational expenses
• Your school will send you a check for the remaining funds

In the case of the latter, you can use the leftover student loan money for qualified education-related expenses, like textbooks, technology needed for school, transportation to and from school, and even room and board.

Another, and possibly better, option is to return the money to the lender, as this reduces the amount of interest accruing on your loan. For federal student loans, you’ll have 120 days to return the funds, either wholly or partly; for private student loans, return timeframes vary, so it’s best to contact the lender as soon as possible.

If you miss this window, you can always start paying off some of your existing student debt.

What happens if you drop out of college/university?

If you drop out of college or university, you’ll still be responsible for paying back your student loans according to the terms of your loan agreement.

Once you drop out, your loans will enter their grace period before you need to start making payments. This period is typically six months, during which time interest may continue accruing on your loans.

If you’re struggling to repay your loan, there are options available to help you manage your payments, including income-driven repayment plans and loan consolidation. Deferment and forbearance are also options, which temporarily postpone or reduce your payments.

How to calculate your student loan repayment

You can easily and quickly calculate your loan monthly payments with a student loan calculator, but if you want to put your math skills to use and do it yourself, you’ll need to follow this formula:

P ÷ { [ (1 + r)ⁿ ] - 1} ÷ [r (1 + r)ⁿ ] = A

Where:

• P = Loan amount

• r = Interest rate (expressed as a decimal number, divided by 12 monthly payments per year)

• n = Total number of payments (number of years times 12 months)

• A = Monthly payment

Let’s say you’re a graduate student and you borrow a total of $20,000 through a federal Direct PLUS Loan at a fixed interest rate of 8.05%, and that you choose to repay your loan over 10 years.

To calculate your monthly payment, you’ll first need to convert the interest rate percentage to a decimal format (8.05 / 100 = 0.0805), and then solve the equation with the following properties:

• P = $20,000

• r = 0.0805 ÷ 12 months = 0.006708

• n = 10 years x 12 months = 120 monthly payments

Here’s how the math works out:

20,000 ÷ { [ (1 + 0.006708)¹²⁰ ] - 1} ÷ [00.006708 (1 + 0.006708)¹²⁰ ] = 243.18

How to pay for college after student aid

If you have other costs that a loan won’t cover, you might want to consider the following:

• Apply for scholarships. There are all sorts of scholarships out there that will help you pay for your education. Many are merit-based, so make sure you do your research.
• Get a grant. Unlike loans, grants don’t have to be repaid, and can come from the government, your school or an organization. If you received a Pell grant from the DoEd, however, you may be required to pay back all or part of it.
• Switch schools. If you’re enrolled in a school with high tuition fees, you might want to consider transferring to a public university or community college.
• Find a job. Working while studying, whether part or full time, or even freelancing your services, can be a great way to cover your cost-of-living expenses, while it also allows you to gain some real-world work experience.
• Find ways to save money. This includes buying used textbooks, getting roommates, moving back in with your family, and cutting down on some luxuries, like $12 takeaway cappuccinos.

Key takeaways

To sum up, here’s everything that we covered in this article:

• Research your options, including loan limits, interest rates and eligibility criteria.
• Exhaust your federal loan options first before turning to private loans.
• Beware of scams. Although unexpected offers may sound legit (like “President Biden loan forgiveness”), it’s rarely the case.
• Only borrow as much as you need.
• Stay on top of your monthly payments.

Got a question about student loan services or loan limits? Let us know in the comments section below.

This article is a partial update of an earlier version originally published on December 6, 2022. In the update, we added in new sections for the benefits of borrowing less, what to do with leftover funds and what to do after dropping out of college, as well as reviewed the existing information for accuracy.