How Much Can You Take Out in Student Loans a Year?

Every year, millions of students across the U.S. apply for federal and private student loans to finance their education. Some students need to borrow a small amount to cover minor expenses, while others need substantial loans to attend their dream schools. To know how much you can take out each year, it’s essential to understand the breakdown of both federal and private student loans.

Federal Student Loans: The Primary Source

When we think about student loans, federal loans are usually the first option that comes to mind. That's because federal loans typically offer lower interest rates and more flexible repayment options than private loans. But here's the thing: there are strict limits to how much you can borrow in federal loans each year.

Subsidized vs. Unsubsidized Loans: What's the Difference?

• Subsidized Loans: These loans are based on financial need, and the federal government pays the interest while you’re in school. The annual limit on these loans ranges from $3,500 to $5,500, depending on your year in school.
• Unsubsidized Loans: These aren’t based on financial need, and you’re responsible for all interest from the moment the loan is disbursed. The yearly limits for unsubsidized loans are higher than subsidized loans, ranging from $5,500 to $20,500 for undergraduates and graduates.

The combined annual borrowing limit for both subsidized and unsubsidized loans varies. For example:

• First-Year Undergraduate Students: Can borrow up to $5,500 in combined subsidized and unsubsidized loans (only $3,500 of this amount can be subsidized).
• Second-Year Undergraduate Students: Up to $6,500 in combined loans (only $4,500 can be subsidized).
• Third-Year and Beyond Undergraduate Students: Up to $7,500 in combined loans (only $5,500 can be subsidized).
• Graduate and Professional Students: Up to $20,500 in unsubsidized loans each year, with no option for subsidized loans at this level.

Aggregate Loan Limits: How Much Can You Borrow Overall?

There’s also a lifetime limit on how much you can borrow in federal loans:

• Dependent Undergraduates: The total cap is $31,000, with no more than $23,000 of that being in subsidized loans.
• Independent Undergraduates: Can borrow up to $57,500 in total, with the same $23,000 subsidized limit.
• Graduate and Professional Students: Have a total limit of $138,500, including undergraduate loans, and only $65,500 of this can be subsidized loans.

These limits might seem high, but they can quickly add up, especially for students attending high-cost private institutions or seeking advanced degrees.

PLUS Loans: Another Federal Option

In addition to the standard subsidized and unsubsidized loans, there’s another federal option: PLUS loans. PLUS loans are available to graduate students and parents of dependent undergraduates. Unlike subsidized and unsubsidized loans, PLUS loans don’t have a set annual borrowing limit. Instead, you can borrow up to the cost of attendance (COA) minus any other financial aid you’ve received. However, keep in mind that these loans come with a higher interest rate and fees compared to other federal loans.

Private Student Loans: No Borrowing Caps, But Higher Risks

If you’ve maxed out your federal loan options and still need more money to cover your education costs, you might turn to private student loans. Unlike federal loans, private lenders do not set a borrowing cap based on your year in school or dependent status. Instead, they typically allow you to borrow up to your school’s cost of attendance.

However, private student loans come with a few significant drawbacks:

• Higher Interest Rates: Rates on private student loans are usually higher than those for federal loans, and they can vary depending on your credit score or whether you have a co-signer.
• No Federal Protections: Federal loans offer benefits like income-driven repayment plans and loan forgiveness options, which are not available with private loans.

Because private loans don’t have the same caps as federal loans, it’s easy to borrow more than you can afford to repay. This can lead to financial hardship after graduation, especially if you have a hard time finding a job that pays enough to cover your loan payments.

How Schools Determine the Cost of Attendance (COA)

An important part of figuring out how much you can borrow each year comes down to your school’s Cost of Attendance (COA). This figure includes everything from tuition and fees to room and board, books, and even personal expenses. Both federal and private lenders look at the COA to determine the maximum amount you can borrow.

Most schools provide an estimated COA on their financial aid website. Keep in mind that these figures are averages, and your actual costs may be higher or lower depending on factors like where you live and whether you’re a full-time or part-time student.

Here’s an example of what a typical COA might look like:

If you receive scholarships or grants, those amounts are subtracted from the COA to determine how much you can borrow. So, if you get a $5,000 scholarship, the maximum amount of loans you can take out would be $24,700 ($29,700 minus $5,000).

Graduate and Professional Students: Higher Costs, Higher Borrowing Limits

For graduate and professional students, the cost of education is typically much higher than for undergraduates, which is reflected in higher borrowing limits. Many grad students rely heavily on Graduate PLUS Loans because they offer more borrowing power. Since these loans allow you to borrow up to the COA, many students end up with substantial debt loads. Some fields, like law and medicine, result in six-figure debt before even entering the workforce.

Strategies for Managing Your Student Loans

While understanding how much you can borrow is crucial, knowing how to manage your student loans effectively is just as important. Some strategies include:

• Borrow Only What You Need: It can be tempting to borrow the maximum amount each year, but try to stick to what you need to cover tuition and living expenses.
• Use Federal Loans First: Federal loans offer better protections and repayment options than private loans, so maximize those before turning to private lenders.
• Consider Work-Study or Part-Time Jobs: Reducing the amount you need to borrow by working part-time or participating in a work-study program can help minimize your debt.
• Look for Scholarships and Grants: Every dollar you receive in scholarships or grants is a dollar you don’t have to borrow (or pay back).
• Understand Repayment Plans: Familiarize yourself with federal repayment plans, like Income-Driven Repayment (IDR), which adjusts your monthly payment based on your income and family size.

The Big Picture: What You Should Keep in Mind

The key takeaway is this: the amount you can borrow each year depends on a complex mix of factors, including whether you’re an undergraduate or graduate student, your dependent status, and how much financial need you demonstrate. But just because you can borrow a certain amount doesn’t mean you should. Keep your future self in mind when taking out student loans, and remember that the less you borrow, the less you’ll have to repay after graduation.

At the end of the day, loans are a tool—one that can help you achieve your educational and career goals, but only if used wisely. Understanding the different loan options and limits is your first step toward making smart borrowing decisions.