Source: Flickr user Kit.

If you are a degree-seeking college student in the United States, you can qualify for a federal student loan to help pay for your education regardless of whether you've established credit or have a demonstrated financial need to borrow money. However, the amount you're allowed to borrow depends on a couple of factors.

Let's go over how to determine how much you'll be allowed to borrow, as well as an alternative funding source if your federal borrowing limit isn't high enough.

Federal student loan limits
There are two main types of federal direct student loans. Direct subsidized loans are based on the borrower's financial need, and the government pays the interest while the borrower is in school, for six months after graduation, and anytime the loan is in a deferment. Direct unsubsidized loans accrue interest all the time, even while the borrower in school, but they can be obtained regardless of financial need.

Your ability to borrow depends on whether or you're someone else's dependent, how far along you are in school, and whether your parents qualify for PLUS loans. Here's a table to show how much you could borrow.

Year in School

Dependent Student Borrowing Limits (Annual)

Independent Student Limits (and Dependents Whose Parents Cannot Qualify for PLUS Loans)

1st year undergraduate

$5,500 ($3,500 subsidized)

$9,500 ($3,500 subsidized)

2nd year undergraduate

$6,500 ($4,500)

$10,500 ($4,500)

3rd year and beyond

$7,500 ($5,500)

$12,500 ($5,500)

Graduate student


$20,500 (no subsidized loans)

Total borrowing limit

$31,000 ($23,000 subsidized)

$57,500 for undergrads ($23,000 subsidized)

$138,500 for graduate students

Note: Graduate students enrolled in certain health professions programs are eligible for higher borrowing limits than listed here.

There are a few important points to mention here. First, you can only borrow up to the cost of attendance as determined by your school, minus any other financial aid you receive. For example, if you are an independent student in your fourth year of an undergraduate program which your school determines will cost $20,000 to attend, and you receive $9,000 in scholarships, then you will be able to borrow the $11,000 difference -- not the $12,500 limit stated in the table.

Second, there is a time and attendance limit for receiving federal student loans. You must be enrolled at least half-time, and you can only borrow for 150% of the advertised length of your program. So, for a standard four-year undergraduate program, this means you're cut off from further borrowing after six years.

Private loans can bridge the gap, but know the disadvantages
If the federal student loan borrowing limits aren't enough to cover your total financial need, then there are many companies that offer private student loans. In general, private student lenders will let you borrow up to the full cost of attendance, but there are a few drawbacks to be aware of:

  • Private loans are not eligible for popular loan forgiveness programs, such as Teacher Loan Forgiveness and Public Service Loan Forgiveness.
  • You'll need good credit or a cosigner -- or expect to pay high interest rates.
  • Even the lower end of interest rates can be high. The current interest rates on federal student loans are 4.29% for undergraduates and 5.84% for graduate students. After a pretty extensive search, I couldn't find a private lender advertising fixed rates below 5.75%. There are student loans offering variable rates lower than this, but these can adjust upward dramatically if market rates rise.

For these reasons, it's generally better to exhaust your federal borrowing options before considering private student loans. However, if the cost of attendance is beyond your federal borrowing capacity, then they can be a good tool to bridge the gap. Public-service website maintains a list of many private lenders and the loan products they offer, so take a look at your options if you may need a little extra financial assistance.

Federal is usually best
While it's important to borrow only what you need and not a dollar more, your best bet is to borrow as much as you can in the form of federal student loans before looking to private lenders. Federal loans have several excellent benefits, such as flexible repayment options, forgiveness programs, easier qualification, and lower interest rates, which generally make them superior to their private counterparts, which should be used only if federal loans are not enough to cover your financial need.

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