There is a process by which your chosen college or university estimates your out-of-pocket contribution toward the cost of attendance. It starts with you filling out a FAFSA and culminates in you receiving your Student Aid Report (SAR), which recommends how much federal aid you should receive.
But this process doesn't always work the way it should for aid applicants sometimes, it leaves federal loan dollars on the table.
Fortunately, the solution is sometimes as easy as a phone call to your college or university financial aid office. Simply saying, "I want to max out my federal aid for this year," should allow you to receive as much federal loan funds as you're legally entitled to. This makes it imperative to know the maximum figures.
The maximum figures depend on whether you're an independent or dependent student in other words, whether your family can help you fulfill the cost of attendance. (Students with parents who don't qualify for the federal government's Parent PLUS Loans are categorized as dependent. This PLUS loan requires that your parent meets traditional federal loan eligibility criteria by not having an adverse credit history.)
Here are the annual federal loan maximums for both dependent and independent students:
- First-year undergraduate — $3,500 subsidized*, $5,500 overall
- Second-year undergraduate — $4,500 subsidized, $6,500 overall
- Third- and fourth-year undergraduates — $5,500 subsidized, $7,500 overall
- First-year Undergraduate — $3,500 subsidized, $9,500 overall
- Second-year undergraduate — $4,500 subsidized, $10,500 overall
- Third- and fourth-year undergraduates — $5,500 subsidized, $12,500 overall
- Graduate and professional students — $20,500 (each year) unsubsidized
*Subsidized loans, which are need-based, are generally preferable to unsubsidized because the federal government pays the interest on your behalf while you're enrolled in school, saving you money. Both subsidized and unsubsidized federal loans come with APRs of 3.76% in 2017.
Receiving your federal aid package
After filling out your Free Application for Financial Student Aid (FAFSA), you will receive your Student Aid Report (SAR) that restates the financial information you included on your initial FAFSA. The SAR gives you the opportunity to make any necessary corrections.
It's important to review and ensure the accuracy of your SAR because the schools to which you've been accepted will use it to determine how much financial aid you're eligible to receive. Included in the SAR and the school's ensuing College Award Letter is your Expected Family Contribution (EFC) toward the cost of attendance.
This is where the process could fail you. If your EFC is $10,000 but you and your family are only able to kick in $5,000 toward your first year of college, you now have a $5,000 shortfall that the makers of FAFSA, the federal government and your college or university could not have accounted for.
Questioning your federal aid package
If that $5,000 can be made up with gift aid (such as scholarships and grants) that doesn't need to be repaid, that's the ideal solution. Taking out more or larger federal loans is your next best option.
But if you're an incoming freshman from a middle-class family and can't demonstrate glaring financial need, you could find yourself in need of additional funds to pay for college. Perhaps FAFSA took the family income you reported and pumped out an EFC that your family cannot accommodate. As a result, maybe your award letter calls for a $2,000 Direct Unsubsidized Loan from the federal government.
The Department of Education actually entitles you to $5,500 of federal loan funds. Telling your school's financial aid officer that you'd prefer to increase its previously suggested figure by $3,500 is well within your right.
Some schools' officers can make this adjustment over the phone. Others may request that you write a letter of appeal documenting your request. This may be the case if you believe you're worthy of additional need-based grants or loans, such as the Pell Grant or the Perkins Loan.
Remember that seeking a bigger federal loan amounts to making a bigger, perhaps longer commitment to paying off your education. Yes, it's within your right to request such funding, but make sure you understand the consequences of borrowing more.
Annual and aggregate maximums of your federal aid package
Whether you're a dependent or independent student, there are set amounts you're allowed to borrow from the federal government each year of your education as well as for the duration.
It's important to note that maximizing your federal loans one year won't lessen your maximum the next. Say you're an independent student with demonstrated need and are looking to finance your four-year undergraduate education with federal loans. Here's your maximum allowance for four years:
- Freshman — $9,500
- Sophomore — $10,500
- Junior — $12,500
- Senior — $12,500
- Overall — $45,000
That still keeps you under your aggregate maximum allowance of $57,500. In fact, this has a built-in cushion for a fifth year of college, as the remainder is exactly $12,500.
The math holds true in the case of dependent students too. Maxing out federal loans on an annual basis would rack up $27,000 in federal loan funds, $4,000 short of the aggregate maximum.
The aggregate federal loan maximum for graduate and professional students, all of whom are deemed independent, was $65,500 (subsidized) and $138,500 (overall) for 2017.
Maximized your loans but still coming up short?
If, even after maxing out your federal loan options, you're still short of meeting your school's cost of attendance, ensure that you've searched high and low for scholarships and grants. Qualifying for as much gift aid (scholarships and grants) as you can should have been your first step before considering federal loans at all, but give it one more try before moving ahead.
If you're still short of covering your cost of attendance, there are two more options: Asking mom and dad to consider the federal government's Parent PLUS Loan option, which comes with a relatively high APR of 6.31%.Asking your parents or another adult to put their creditworthy past to use as a cosigner on a private loan. CommonBond, offers rates for in-school undergrads at variable rates starting at 2.87% APR and fixed rates starting at 5.50% APR (with autopay discounts). We may have exactly the loan solution to round out the funding of your next year in college.
You may have seen your college award letter is being set in stone. Hopefully, you now know that it's open to negotiation in some critical ways. For example, if you find that your college or university has overestimated your ability to pay the cost of attendance, you have the option to maximize your federal loan options.
Know your maximum allowances. And know your school financial aid office's phone number. Both could come in handy when financing your own higher education.