Questions about Student Loan Limits

During our webinar about Student Loans 101 (Borrowing), participants asked dozens of questions. Here are the answers to questions on borrowing student loans. These are questions about student loan limits.

If you don’t borrow the full amount of the Federal Stafford loan you are eligible for, will it reduce the loan amount you are offered in subsequent years?

No. Students apply for financial aid one year at a time. Eligibility for subsidized Federal Direct Stafford loans is based on the student’s demonstrated financial need and does not depend on usage of the previous year’s loan eligibility. Likewise, eligibility for unsubsidized Federal Direct Stafford loans and Federal Direct PLUS loans does not depend on a failure to use these loans fully during the previous year.

Federal Direct Stafford loans have annual and aggregate loan limits. Borrowing during a previous year will affect the remaining aggregate loan eligibility but will not affect annual limits during a subsequent academic year.

In particular, if you do not use a Federal Direct Stafford loan one academic year, you cannot borrow these loans after the end of the academic year. The next year’s loans will be based on that year’s annual loan limit, which does not change because of a failure to use loans up to the annual limit during a previous academic year.

I have been offered a $5,500 per year unsubsidized federal loan. Do I have to accept $5,500 per year to be used that year or can I, for example, accept $20,000 during my senior year?

The annual limits for Federal Direct Stafford loans vary by year in school. For a dependent student, the loan limits start at $5,500 for the freshman year and increase to $7,500 for the senior year.

These loan limits are annual limits. The loan limits in subsequent years do not increase if you decide to skip borrowing one or more years. You cannot borrow retroactively for a previous academic year. 

Thus, the most you will be able to borrow during the senior year in college is $7,500, the annual limit for the senior year, and not the amounts you could have borrowed during previous academic years. 

How much can you borrow on a PLUS Loan?

The annual limit on a Federal Direct PLUS loan is the college’s cost of attendance minus all other financial aid. 

The cost of attendance includes tuition and fees, room and board, books, supplies and equipment, transportation and an allowance for miscellaneous personal expenses.

Financial aid includes grants, scholarships, student employment and other education loans.

There is no aggregate limit on PLUS loans.

Parents should not borrow more Parent PLUS loans in total for all their children than their annual income. If total parent debt is less than annual income, the parents should be able to repay the parent loans in 10 years or less. If retirement is less than 10 years away, they should borrow proportionately less. 

What is the best process to determine how much money in loans I will need for 4 years when filling out the Master Promissory Note (MPN)?

The Master Promissory Note (MPN) does not ask the borrower how much they intend to borrow.

But, calculating how much you will need to borrow can help you plan for college costs. 

Multiply the first year’s debt by four to get you in the right ballpark for the total amount of debt. That figure is usually within 15% of the actual total student loan debt at graduation. 

A more precise approach would involve estimating how much you’ll need to borrow each year based on your available resources, such as savings, contributions from income, scholarships and education tax benefits. Assume that college costs will increase by about $1,000 to $1,500 per year. 

If the student will take 5 years to graduate, that may require an extra year of debt.

How can we determine an expected annual starting salary for a high school junior?

If your total student loan debt at graduation is less than your annual starting salary, you should be able to repay your student loans in ten years or less. Thus, when families try to keep student loan debt in sync with annual income, they need to know how much student loan debt is reasonable and affordable for the student. But, how do you predict debt at graduation and annual income after graduation?

To predict student loan debt at graduation with a Bachelor’s degree, multiply the first year’s student loan debt by the length of the degree program (e.g., by 4 if the student will graduate in four years). This should be within about 15% of the actual amount of student loan debt.

Another option is to calculate the one-year net price using the college’s net price calculator, multiply the result by 4 and subtract the total resources to pay for college, such as college savings, scholarships and contributions from income.

To predict the student’s annual starting salary after graduation, identify the student’s likely academic major or occupation. Income data by academic major and occupation can be obtained from payscale.com, salary.com, bls.govand the National Association of Colleges and Employers (NACE). The U.S. Department of Education’s College Scorecard may also have income information.