What is the Limit of a Student Loan?
Planning for a brighter future, it is but inevitable of high school students to look out for the best Ivy League universities that guarantee them a promising dream career. Trust me when I say, that the process is not only interesting but also exhausting, for both, the student and the parents. Trying to meet with their lofty ambitions, students and parents, both have to go through the grueling procedure of not only checking out the universities but also think about the finances to support the education.
Based on their artistic, atheletic and academic capabilities, eligible students are provided with a financial help package which covers almost all their educational costs. Although there are some students who have financially secured parents who can easily afford university or have saved enough money through the government’s tax-advantaged 529 savings plan.
Attending university is a dream for most students and it involves borrowing huge loans from either the federal student loans or the private programs. But, what you need to understand is that while loans offer students with the great opportunity to meet with their educational dreams, taking too much loan is also not a good choice and can have a negative impact on their long term financial plans.
So, before you choose on how to proceed with a student loan, it is very important that you pay a little more attention to the limits of the federal student loans and only then decide whether you wish to take an extra private student loan to fulfil your basic university requirements.
What Are The Limits Of A Federal Student Loan?
Student loans are available in two main categories: Federal and Private student loans. Based on all the factors involved, borrowing money from a federal student loan is considered the best and foremost option. Only after you have gone through the federal student loan options, you should turn to private lenders.
You must also know that the Perkins Student Loan program has been withdrawn as of 2017. Hence, if you were depending on it, you need to reconsider your options and look for the other programs.
Undergraduate Students
The Federal Student Loans are government funded educational loans that are made available to almost all students who meet with the basic requirements, irrespective of their income or the credit score. Thus, obtaining a federal student loan is extremely easy, and is also one of the main reasons why they are so popular for funding college education to students.
An undergraduate student can borrow up to $5,500 in the first year of their college while they can borrow up to $6,500 in the second year and $7,500 in their third year and after.
There are basically two types of undergraduate loans. They are:
• Subsidized: The subsidized undergraduate loans are based on the needs of a student, and the government makes the additional effort to cover the included interest rates. Students who qualify for this loan get almost $3,500 subsidized from the total amount in the first year of their college, while they get $4,500 subsidized in the second year of their college and $5,500 in the coming years.
• Unsubsidized: The unsubsidized loan can be chosen by anyone, irrespective of their need. However, the only concern with these loans is that the interest amount keeps accumulating over the borrowed amount right after you borrow the loan.
In a federal student loan that is offered to undergraduates, a lifetime cap worth $31,000 is offered and $23,000 of the total amount can be subsidized.
Graduate Students
For graduate students, the government doesn’t offer any subsidized loans, but they are eligible to receive $20,500 each year under the Direct Unsubsidized Loans. Graduate students are also eligible to borrow the remaining college costs under the Direct PLUS loans that are subjected only after the completion of satisfactory credit checks.
There is a lifetime limit of $138,000 for the graduate federal student loans. However, it is important for the borrowers to note that this limit includes the loans that are received for undergraduation studies only.
Parents
After the above mentioned loan offers, if your child still requires some help to cover the college funding gap, as a parent, you can borrow money from the PLUS loans in order to cover the remaining college expenses which were earlier not covered by the previous financial helps. However, you are needed to go through a credit check which must not show any adverse or negative pieces.
Private Student Loans
Private student loans are an additional help source that is designed to help students who are out of federal loan options. However, you need to keep in mind that private lenders offer loans at a comparatively higher interest rate, and follow different payment terms which can affect the student’s financial liquidity in the long run.
However, depending on your current financial status, a private student loan can be considered as a better loan option than the PLUS loans. So, if your credit score is excellent or good, and you can easily qualify for a low interest rate, then a private student loan seems like a sensible choice. Also, you need to understand that many private lenders make it a clause to have a co-signer with good credit scores to help the student get the desired loan.
How Much Money Should You Borrow?
How much money is enough for a student to finish his college education? And how much money should you borrow from a lender? These are very personal questions that need to be answered carefully by a family, not the student alone. Make sure that you do not mix your emotions and desire to attend an Ivy League college with the reality of its extensive college fees which, in reality must be paid by you from your savings or the help of a loan. Hence, when deciding the amount of money that you wish to borrow from the student loan programs, keep the following factors in mind.
Total Money You Must Borrow
Research and find the total time taken for most students to get their undergraduate degree from the universities you are considering for your education. Also research the market to understand whether or not you need a graduation degree to enter your desired profession. This thought process will give you a fairly clear but rough idea of the total amount that you need to borrow from your lenders over a period of 4 to 10 years or even more to complete your education.
Also learn about scholarships and the 529 savings plan that is offered to the students from the university. Also check whether students are permitted to work during their graduation period to help reduce the total borrowed amount.
Total Money You will Repay
The federal government also offers a repayment estimator to the borrowers to help them have a better idea of the total monthly payment amount which they will have to repay after their graduation.
As a borrower, you need to understand that you will have to repay the amount with the added interest rate. So, the longer the debt continues, more the money you pay to the lenders. With the help of subsidized loans, students get some relief on the interest rates, even if it is for a shorter time period. But once they have graduated these costs begin to pile up.
Who Will Repay the money?
In some cases, parents happily take up the student loans for their children, while there are others who push their students to take up the responsibility of paying for their own education. In either condition, it is best to compare the estimated payment amount against the expected salary of the person who is repaying the loan.
Is the Loan Worth it?
If the estimated payment total causes a financial stress to the family, it is important that they re-consider all their options. The student may opt for a lower-cost community college in order to complete the basic education requirements and later shift to the desired university or simply choose a completely different college. The family of the student can also work as a team and work hard to earn some extra money to help pay for the loan. Moreover, the student can also take help of scholarship programs to help the funding.
How to Apply for the Federal Student Loans?
After checking all the options, if you finally decide to go ahead with the federal student loans, then you are required to fulfil the college expenses and the Free Application for Federal Student Aid (FAFSA). The details available from FAFSA will be further sent to schools or universities that are in your list, for them to put together a proper financial help package made just for you.
This package will mainly consist of federal loans, grant money, a scholarship plan (depending on the student’s qualifications) and an additional amount that the student needs to earn from the on-campus employment offers.
After you have received your financial package, you will get a clearer idea of what expenses you need to cover with the help of a private student loan or other available college funding sources.
Lastly, it is important for both, students and parents to understand what holds more value to the entire family, and how much financial debt you can afford as a family to achieve your education.
