When it comes to financing a college education, federal Direct loans are a good first choice. They come with a relatively low 3.73% interest rate, as well as federal protections like economic hardship deferment and income-driven repayment plans. But Direct loans can be restrictive, since you can only borrow up to a certain amount during the course of your studies.
Students who need additional financing to cover expenses typically have two borrowing options: Direct PLUS loans and private student loans. Keep reading to learn more about the federal borrowing limits for the upcoming school year, and consider your options if you need additional loans to meet your financial obligations while you're in school.
Rising college students who plan to borrow private student loans can shop around and compare rates on Credible without a hard credit inquiry.
Federal student loan limits for undergrads during the 2021-22 school year
The amount of money a student can borrow from the federal government is determined by their university's financial aid department, up to a certain limit set by the U.S. Department of Education.
The limit on federal student loans varies depending on whether you're a dependent or independent student. Dependent undergraduate students are those whose parents can feasibly help with the cost of education or borrow on a student's behalf to help them pay for their education. Dependent undergraduates tend to have lower loan limits:
- First year: $5,500
- Second year: $6,500
- Third year and beyond: $7,500
A dependent student can borrow a maximum of $31,000 in federal Direct loans throughout their undergraduate tenure.
Independent students are individually responsible for covering the cost of their education. As a result, these borrowers are able to borrow higher loan amounts. You're an independent student if you meet at least one of the following eligibility criteria:
- At least 24 years old
- A veteran or member of the armed forces
- An orphan, ward of the court or emancipated minor
- Someone with legal dependents other than a spouse
- Someone who is homeless or at risk of becoming homeless
The annual loan limits for independent undergrads are slightly higher than they are for dependent students:
- First year: $9,500
- Second year: $10,500
- Third year and beyond: $12,500
Independent undergrads can borrow a maximum amount of $57,500 during the course of their studies.
The cost of attaining a college degree is higher than ever, with tuition having risen 33% since 2000. That doesn't even account for additional expenses that have skyrocketed with inflation, such as rent, groceries and utilities. Often, the amount a student can borrow in federal Direct loans won't cover the full cost of attending college, leading some families to turn to PLUS loans and private student loans.
If you plan to borrow private student loans, shop around for the lowest possible interest rate for your situation by getting prequalified on Credible.
Federal Direct loan limits for graduate and professional students
Post-secondary education is required for doctors, lawyers and other elite professions. Graduate or professional school adds to the cost of education, although students in these fields of study are typically rewarded with higher earning potential.
The federal Direct borrowing limit for graduate and professional students is $20,500 per year. For their total undergraduate and graduate tenure, a student may borrow no more than $138,500 in federal Direct loans.
Direct loans for graduate students also come with a higher interest rate, at 5.28%. Because of the less competitive terms, students in graduate school should consider their alternative borrowing options, including private student loans.
Private student loans can come with lower interest rates and loan payments than federal graduate student loans, depending on the creditworthiness of the borrower and the total amount of the loan. See student loan interest rates from real private lenders in the rate table below.
What to do if federal Direct loans won't cover the cost of your education
For many graduate and undergraduate students, the total cost of a college education will be much greater than the limits set for federal Direct loans. If you need more money for education expenses, you might consider borrowing PLUS loans or private student loans.
Direct PLUS loans are federal student loans designed to bridge the financing gap when traditional federal loans won't cover the total cost of college. They are only available to graduate students (grad PLUS loans) and parents of dependent undergraduate students (parent PLUS loans). PLUS loans come with the highest interest rates of all federal loans, at 6.28%. They also have a loan fee of 4.228% of the total loan amount.
Private student loans are offered by private lenders, and they don't have set interest rates and loan fees like federal loans do. Private student loan rates are dependent on a borrower's credit score and debt-to-income ratio, as well as the loan amount and repayment term. Because the interest rates vary, it's possible to shop around to find the lowest private student loan interest rate for your situation.
The primary drawback of private student loans is that they don't come with the same borrower protections as federal student loans, like forbearance and income-driven repayment (IDR). But unlike federal student loans, private student loans may be eligible for discharge through bankruptcy.
Private loans can be a smart choice for students who can qualify for a lower interest rate than what's offered by PLUS loans. You can estimate your student loan rate and loan payments without impacting your credit score on Credible.
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