Key takeaways:
- In most cases, you can only take out student loans once a semester or annually.
- Borrowing student loans for all four years at once can lead to higher accrued interest and debt the student doesn’t need.
- Multi-year student loans could speed up the approval process each semester, but only disburse funds as needed.
Can you take out a student loan for all four years at once?
Whether you can take out student loans for all four years at once depends on the source.
- Federal student loans can only be borrowed once a year or semester, up to the annual loan limit. Undergraduates can borrow up to $5,500 in Direct Subsidized Loans and $12,500 in Direct Unsubsidized Loans each academic year.
- Others private student loan lenders offer a multi-year approval programs, which pre-approves you for loans during your entire degree program. With soft credit checks each year, these lenders verify that your financial information is still current before disbursing the loan to your school.
Keep in mind – federal student loans tend to have lower interest rates, deferred interest, and more repayment options than private student loans (though private lenders may also offer deferred interest).
Should I take a student loan for four years at once or one year at a time?
You should generally only take out student loans once a year or semester. And in most cases, that’s all you can do anyway. Even with multi-year approval programs, the lender only officially approves additional funding each year after the soft credit check. If you no longer meet the minimum requirements of the loan, the lender won’t grant you the additional cash.
There are three reasons you generally want to take out student loans once a year rather than all four years at once:
1. You could pay more in interest
Except with federal Direct Subsidized Loans, almost all loans will start accruing interest immediately after you borrow it, even while you’re still in school. If you borrow money for your senior year of college as a freshman, you’ll be gathering interest on that cash for three years before you even reach your last year of school.
If you wait until your senior year to take out the loan, you’ll only start accruing the interest at that point.
2. Circumstances can change
You never know what the future is going to bring. Your situation can change vastly between day 1 of your first year of college and day 1 of senior year. Students could opt to transfer schools with lower costs or drop out if they decide school isn’t for them. Others have to leave due to family or medical emergencies. Schools can close and tuition prices change. You might face financial difficulties, or you could finish college early.
By taking out the money in one lump sum, you could be putting yourself in a deeper debt for no reason if any of these events or similar ones occur.
3. You might be tempted to spend it
Most lenders will only disburse the student loans directly to your school. However, a few transfer the money to your bank account instead. If you receive the entire four-year loan at once, it might be difficult to avoid the temptation to spend it, especially in emergencies. Using this cash early can result in not enough money to finish your education and legal and financial issues if the money wasn’t used for school expenses.
In almost all cases, you don’t have an option to take out the entire student loan at a single time. Even with multi-year loans, you’re only pre-approved based on your financial situation when you applied and you’ll only receive the money if you still meet the requirements for the loan each year. If you have any questions about your financial aid options, talk to your school’s financial aid department or reach out to a financial advisor.
Before taking out a student loan, consider all your funding options like scholarships, grants, and federal aid. Visit the Citizens Student Hub today to get started.
