Limits on Federal Student Loans
There is a set limit on the overall amount of money that
undergraduates who are dependents can borrow through the
federal Stafford loan program. This amount has been set
at $23,000 since 1992. The average annual cost of
tuition and room and board at a public four-year college
has risen 135% since 1992 however.
There are also limits on the amount of money that
undergraduates can borrow each year in addition to the
overall limit. On July 1, 2007, the amount that college
freshman can borrow in Stafford loans will rise from
$2,625 to $3,500; limits for sophomores will increase
from $3,500 to $4,500. These amounts are still short of
the annual cost of attending many
private colleges and
some public colleges as well.
The amount of
financial aid available for low-income
students has also languished. The most common form of
direct federal aid for low-income students, the Pell
Grant, has been set at a maximum of $4,050 since 2003.
The Perkins program, which provides low-interest
loans
to students with outstanding financial need, is set at a
maximum of $4,000 a year.
For this reason, private
student loans have become
essential for a lot of families. These private student
loans have exceptionally high variable interest rates
that are subject to change. Generally, the interest rate
is lower with a co-signer than without one, but there is
no guarantee that the interest rates won't rise.