Students often take out more than one student loan for each academic year because there are so many sources of student loan funding, many of which have caps on the borrowing amounts. When students graduate, it is not unusual for them to have 10 or more separate loan accounts from all the different loans.
Federal Student Loans
The federal government offers a few types of student loans, and students may take out multiple loans each year. Perkins loans offer up to $5,500 per year for undergraduates at a 5 percent interest rate, as of 2011, and are distributed by schools to the neediest students. Subsidized Stafford loans have very low interest rates of 3.4 percent for undergraduates during the 2011 to 2012 school year, but students can borrow only $3,500 their first year, $4,500 their second and $5,500 each subsequent year. Unsubsidized Stafford loans have an interest rate of 6.8 percent and allow students to borrow $2,000 more each year on top of the subsidized Stafford loans. Graduate students have slightly higher borrowing limits for each type of federal loan and also can take out federal PLUS loans at 7.9 percent interest for the remainder of the cost of education.
Private Student Loans
Students also can turn to private student loans to borrow money if they did not get enough through federal lending programs. Students will generally only need one private loan per school year because lenders usually allow students to borrow up to the full cost of attendance minus all other aid received. Private student loan interest rates are usually variable and based on the prime rate plus an amount determined by the student and co-signer's credit scores.
Choosing an Aid Package
Students should fill out the Free Application for Federal Student Aid each year to have federal student loans included in their financial aid packages. Students should generally accept Perkins and subsidized Stafford loans first, because these have the lowest interest rates and the government pays interest while the borrower is in school. After receiving all subsidized aid, students who need to borrow more should turn to other federal loans and receive the maximum amount possible from each of those. Students who still do not have enough money for school should then apply for private student loans directly with banks or credit unions.
After graduating, one way to simplify the process of repaying student loans is to consolidate them. Students can consolidate all of their federal loans together and consolidate all of their private loans together so they make no more than two payments each month. Federal student loan consolidation uses a weighted average interest rate so they will be able to keep the same effective interest cost. Extending the repayment period can lower the monthly payment if desired. With private student loan consolidation, the student applies for a new loan with a new interest rate and a specific repayment period.