How are Student Loan Amounts Determined and Distributed?

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By Tara Carter

You’ve just graduated high school, and now it’s time to start thinking about college. Along with many other determining factors, cost seems to be at the top of everyone’s list when determining where they want to go to school. For many, paying for college out-of-pocket isn’t an option. So, as an alternative, they turn to scholarships and student loans to make up the difference in price.

There are many different types of student loans available, but ever wonder how lenders determine how much to give? Or, even more important, how the student loans are distributed once they are awarded?

First, the types of loans available depend on the school you’re planning to attend. From there, factors like student year classification, and dependent or independent status play a role in how much you are able to receive in an academic year as well.

Annual Borrowing Limits for Direct Subsidized and Unsubsidized Loans

Dependent Undergraduate:

  • Year 1: Up to $3,500 Subsidized –> $5,500 Combined with Unsubsidized
  • Year 2: Up to $4,500 Subsidized –> $6,500 Combined with Unsubsidized
  • Year 3+ : Up to $5,500 Subsidized –> $7,500 Combined with Unsubsidized

Independent Graduate:

  • Year 1: Up to $3,500 Subsidized –> $9,500 Combined with Unsubsidized
  • Year 2: Up to $4,500 Subsidized –> $10,500 Combined with Unsubsidized
  • Year 3+ : Up to $5,500 Subsidized –> $12,500 Combined with Unsubsidized

Graduate/ Professional School:

  • $20,500 (Unsubsidized Only)

Medical:

  • $40,500 (Unsubsidized Only)

Along with loan limits that vary annually, there are also cumulative borrowing limits for student loans.

Aggregate (Cumulative) Borrowing Limits for Direct Subsidized and Unsubsidized Loans

Dependent Undergraduate:

  • Up to $23,000 Subsidized –> $31,000 total

Independent Graduate:

  • Up to $23,000 Subsidized –> $57,500 total

Graduate/ Professional School:

  • Up to $65,500 Subsidized (undergraduate & graduate) –> $138,500 total (undergraduate & graduate)

Medical:

  • Up to $65,500 Subsidized (undergraduate & graduate) –> $224,000 total (undergraduate & graduate)

After determining how much aid you’re eligible to receive, it’s time to start thinking about how the aid will be disbursed. Loan disbursement varies depending on the type of loan you receive, which includes grants, student loans, work study, and parent loans.

According to Federal Student Aid, your college or university will first apply your rewarded money towards tuition, fees, and (if you live on campus) room and board.[i] Any money that is left over will be paid to you or your parent for other expenses. If for any reason the loan is not needed, you have 120 days to cancel your student loan with no penalties.

If you receive work study, your school must pay you directly unless you request for the money to be used for educational purposes like tuition, and placed into your student account.

 

 

 

[i] https://studentaid.ed.gov/sa/fafsa/next-steps/receive-aid#how

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