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Five Things Most Families Need to Know About Student Loans

Five Things Most Families Need to Know About Student Loans

August 21, 2023

Navigating Federal Student Loans and FAFSA: Key Considerations for Families

ONE -- $31,000 is the maximum amount dependent undergrad students can borrow in federal direct student loans.

Annual limits are:

  • $5,500 in year 1
  • $6,500 in year 2
  • and $7,500 each subsequent year until the $31,000 overall limit is reached.

TWO -- You must complete the FAFSA to access the Federal Direct Student Loans and the Parent PLUS Loans.

Experts advise families to always prioritize taking federal direct student loans first due to their many benefits such as a fixed interest rate and a wide variety of repayment options, but you can’t access them without filling out a FAFSA each year.

Parent PLUS loans have a lot more red flags, but you still need the FAFSA in order to access them.

THREE – Understand your monthly loan payments would be BEFORE you take the loan.

Most people wouldn’t rent an apartment or buy a car before fully understanding the monthly payment and whether they can really afford it. Yet many families are surprised when they see home big their student loan payments are.

Accepting the loans is fairly easy, but do the hard work upfront of calculating the monthly payment to truly figure out how much in loans you should be taking out. Use this handy calculator to help out.

Experts use a rule of thumb that a student should borrow no more, over their ENTIRE college career, than their expected annual salary in the first year after graduation.

FOUR – If you are comparing different schools, you might find that you get offered

unsubsidized loans at some schools, and subsidized loans at others.

As if college loans aren’t confusing enough, the same family applying to schools in the same year may get one type of federal direct loan at some, and another at others.

This is because your Expected Family Contribution (EFC) is compared to the total cost of attendance at each school and used to calculate your financial aid award.

All families who complete the FAFSA qualify for the federal direct unsubsidized student loan, but a family’s EFC must be lower than the total cost of the school to potentially qualify for a subsidized loan.

Federal subsidized direct loans are a better deal because the government pays the interest on the loan while the student is in school. Unsubsidized direct loans accrue interest right away, even though the student does not generally have to begin repayment until 6 months after graduation.

FIVE -- You won’t know the interest rate on your federal loan each year until a few weeks before the school year starts. Most families receive their financial aid letters in the winter or spring, but the interest rates on federal loans are not set until July 1.

This information is adapted from information provided by College Inside Track a local company that helps families select colleges and negotiate financial aid to make the college experience better for parents, students, and your financial future. Since putting the kids through college is a major financial goal for many families, I have looked for partners who could help my clients. I work with College Inside Track. Find out more about them at this LINK.

Funding for a child’s, or children’s, college education is a major undertaking. There are plenty of moving parts. If you would like to talk about your situation with and experienced, well-trained fiduciary financial planner, I would love to visit with you. As a fiduciary financial planner, I’m always an advocate for my clients. I love talking with new people. Reach out and we can have a get-acquainted visit. Just follow this LINK to find a time that works for you.

Yes, I am a CERTIFIED FINANCIAL PLANNER™ professional and a Behavioral Financial Advisor. A am an advocate for my clients ALL THE TIME – a fiduciary financial planner.

And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.