Using student loans to pay for college involves easy answers and difficult choices
High school students often look at big name universities and think, “That’s it for me.” It is exciting to have high ambitions, but reality can be set easily. Big name schools often come with high ticket prices.
Some students may receive a large financial aid package that covers most of their educational expenses because of their academic, athletic, or artistic abilities. Other students may have parents who can afford college, or who have saved money through a tax-saving plan.
But for most college students, it usually involves borrowing money through student loans. Although loans offer the benefit of helping you meet your short-term goals, taking on too much debt can have long-term negative financial consequences.
How Much Money Can You Get In Student Loans?
Remember that there are two types of student loans – federal and private. It is best to maximize the amount of money borrowed through federal student loans before it is converted to private lenders. The current credit limits for student loan loans are:
- Undergraduate students can borrow up to $ 5,500 a year depending on financial need, the amount of other aid received, and the availability of funds at their chosen college or career school. Loan funding is limited, so file as soon as possible. Undergraduate students can borrow between $ 5,500 and $ 12,500 a year in direct subsidized loans or direct off-loan loans, depending on certain factors.
- Graduates can borrow up to $ 8,000 a year in Perkins loans depending on financial need, the amount of other assistance received, and the availability of funds at their chosen college or career school. Graduate students can also receive up to $ 20,500 each year in direct non-performing loans. Graduate students may be eligible to borrow the rest of their college expenses in credits, subject to satisfactory completion of the credit check.
- Parents of dependent undergraduate students may also borrow money through loans to cover the rest of their college expenses not covered by other financial aid, and again subject to satisfactory completion of the credit check.
There are life caps that can be received through federal student loans. If the total loan does not cover the cost of attending a particular college, students and parents can turn to the private student loan market for additional funds. Keep in mind, however, that private lenders have different rates and payment terms that can affect long-term financial liquidity.
How Much Money Would You Make Through Student Loans?
This is often a very personal question to answer, and one that must be carefully considered by each family. Try not to mix the emotions of wanting to attend a particular college with the reality of being able to pay for it. Keep these factors in mind when deciding how much money to borrow through student loans:
- How much will you borrow in total? Find out how much it takes for most students to earn an undergraduate degree from the college under consideration, and then determine if you need a college degree to enter a particular profession. This should give you a rough idea of how much it will take to borrow over four to ten years or more, which it can take to complete your education.
- How much will you have to repay? The federal government provides a repayment estimator that will give you a good idea of the monthly payments that will be required after graduation.
- Who will pay? Some parents are happy to take student loans, while others want their students to take responsibility. Compare the estimated payments against the expected pay of the repaid borrower.
- Is it worth it? If an estimated payment leads to financial strain, the family must consider their options. Students may want to fully attend a community college or other college, the family may come together to earn extra money, or the student may intensify seeking scholarships to locate additional funds.