When discussing financing college, many discussions make it sound like you merely need to arrange financing before you start and it will then carry you through the four or more years you spend in school. This is hardly the case. You need to finance your education each year, which brings us to the subject of caps on Stafford loan borrowing.

Stafford loans are the most common student loan on the market. Named after Senator Robert Stafford, it is the general federally guaranteed loan that puts millions through school. The name is actually a bit misleading. It is not a loan per se, but a guarantee by the federal government that the loan will be repaid if the student in question defaults on it. That being said, some of the loans are directly made by the government while others are made through an intermediary such as Chase or Sallie Mae.

A Stafford loan is available to any eligible student who is attending an accredited higher education school. The advantage of the loan is it tends to be cheaper, in the long run, due to the fact the government is guaranteeing the repayment. This effectively means the interest rate charged will be significantly less than on a private money loan – often two or three points less.

There is a downside to using Stafford loans to finance your college education. The primary problem is the issue of the cap. A cap is simply an artificial limit set by the government on the total amount you can borrow in a year or over the length of your college education. Depending on what school you go to, the cap may be such that you will need significant funding in addition to a Stafford loan to make things work.

So, what are the caps? If you are being claimed as a dependent by a parent, you can borrow up to $5,500 as a freshman, $6,500 as a sophomore, and $7,500 as both a junior and senior. If you are independent, these numbers rise to $9,500 as a freshman, $10,500 as a sophomore, and $12,500 as a junior and senior. If you are independent, you can also borrow up to $20,500 for graduate school per year.

How about the caps. As a dependent, you can borrow a total of $31,000 during your lifetime. An independent can borrow $57,500 for undergraduate and $138,500 for graduate or $238,000 if the degree is in certain health fields. Confused yet?

Let’s focus on undergraduate education. If you wrap everything up in four years, the caps are no problem. If you start going over that time limit, you can quickly cap out. The key is to partition what you borrow. If you are only going to be in school a little over 60 percent of the time one year, don’t borrow the full amount because you’ll have nothing left later on.

Stafford loans are phenomenal because they form the basis of financing higher education for so many people. That being said, they are not the most robust of loans, so make sure you plan out your education or you could be left empty-handed when you really need money.

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