Jonathan Hughes: [00:00:00] Hi, and welcome to the MEFA Podcast. My name is Jonathan Hughes. Tell me if this is where you are right now. You have your admissions decisions from the colleges that you or your student applied to, and you have the financial aid offers too. And the question you have is how are you supposed to pay this balance?

Maybe you have questions specifically about how much you can borrow. Once again, you’re not alone. Borrowing for college is a huge topic. It’s a topic that so many parents and students have questions about. So let’s hear one from a real student at Blue Hills Regional Technical High School.

Student 2: Is there a certain amount or cap on how many loans you can take out?

Jonathan Hughes: Okay. I think it’s more useful to talk about limits on the amount you can borrow, and that depends on the loan program. So to answer [00:01:00] that, I have to first talk about the two different types of loans. There are federal loans and then there are private or alternative loans, and there are different rules for each.

So it helps to know the difference. Federal loans come from the federal government and there are two types. The first is the federal direct student loan. This is the only loan that is considered financial aid, and I bet this one’s familiar to you because if you file the FAFSA, you probably see it on your financial aid offer.

And this loan definitely has a limit to how much you can borrow. First year students are able to borrow up to $5,500 in the Federal Direct Student Loan Program. You probably see that amount listed on your financial aid offers, and this goes up to $6,500 in the sophomore year, $7,500 in the junior year, and then it stays at $7,500 for the senior year.

Now you may ask why there are loan limits to these programs. These federal direct student loans don’t require a credit check to [00:02:00] be approved. All you need to do to qualify is to file a FAFSA. And because there are no credit checks, they limit the amount that you can borrow through this program. We recommend that if you are going to be borrowing anything at all for your education, that you start by taking these loans first because they offer forgiveness options.

They offer the ability to tie your repayment amount to your income and. Now if you need to borrow beyond the Federal Direct Student loan, then you have options. And first, we’ll discuss one option. The plus Loan Plus Loans are also federal loans, and plus stands for Parent Loan for undergraduate student.

So as the name implies, a parent would need to apply for this loan and be credit approved for it. And just like the Federal Direct student loan is only the student’s responsibility, the plus loan is only in the parent’s name. But there are limits to how much a parent can borrow for this loan as well. So beginning [00:03:00] this year, parents of new students are limited to borrowing $20,000 and plus loans per year.

And this is where it gets interesting. $65,000 in total per student. So if you’re doing the math there, you may notice that $20,000, which is your yearly limit. Times four equals $80,000, not $65,000. So if you calculate that throughout the four years, you will need more than the $65,000 limit. Think carefully about applying for a plus loan.

And one more thing I’ll say about the plus loan is that unlike the Federal Direct student loan that we talked about, it is not considered financial aid and doesn’t have most of those repayment benefits that we talked about. So if you’re thinking about borrowing to pay a balance out of college, you should compare plus loans against other loan options.

Which brings me to our last type. Alternative or private education loans. And these are loans [00:04:00] from banks, credit unions, and state-based organizations like Mefa. For these loans, you can typically finance up to the entire balance due at the college for an academic year. Is there a lifetime cap on how much you can take out in private loans?

That would depend on the lender, and it’s a good question to ask if you’re considering applying for a loan. And of course, every time you apply for a new loan, you’ll have to pass a credit check, and having a lot of outstanding loans or loan debt may hurt your chances of being approved at some point. So I have to say that even though there may not be a strict cap on the amount that you’re able to borrow, it’s always a good idea to only borrow what you absolutely need.

And use savings and cash before turning to borrowing. Be a wise borrower. And the first way to do that is to limit borrowing. But that’s a topic for another show. I’ll be back with another one of these questions shortly if you want to hear it or see it. Follow the show wherever you’re hearing [00:05:00] or seeing this one now.

As always, thanks to Shaun Connolly, our producer, Lauren Danz, Lisa Rooney, Christina Davidson, AJ Yee, and Meredith Clement for posting. My name is Jonathan Hughes and this has been the MEFA Podcast.