American families commonly borrow to help pay for college. How America Pays for College 2018 reports that two-thirds of families who borrow rely on undergraduate student loans, which don’t require any collateral (such as a house or car) in exchange for the borrowed money. In addition, student loans typically offer an option to postpone payments until the student has graduated or left school. Federal student loans, in particular, have very limited credit requirements, so even students without a significant credit history can qualify.
Federal student loans are taxpayer funded and made by the federal government. Private student loans are funded by banks or other financial institutions. Private loan borrowers without any credit experience typically need a cosigner to help them get approved for the loan.
Where undergraduates turn when borrowing money for college
During the 2017-18 school year, 39 percent of students borrowed at least some amount to pay for college, with 36 percent borrowing their funds through a student loan program. About half of students who used a student loan to pay for college also used credit cards or some other type of loan to pay for some expenses; three percent of students who borrowed exclusively used some other type of loan or credit instead of student loans.
Students most often turn to the federal government for student loans. Federal student loans have a limit or maximum amount an undergraduate may borrow. Should a student need more than the limit, he or she might apply for a private student loan in addition to a federal loan. Among students who used student loans, nearly two-thirds used only federal loans, one-quarter used both federal and private student loans, and one-sixth used only private student loans.
The average federal student loan amount borrowed was $7,137 for academic year 2017-18; the average private student loan amount was $7,819.
- Students who attend four-year colleges are equally likely to borrow federal student loans whether they attend public or private colleges (35% vs 38%, respectively).
- Students at private colleges, where tuition is typically higher, are much more likely to use private student loans in addition to federal student loans, than those at public colleges (23% vs 10%, respectively).
- Low- and middle-income students are more likely to borrow federal loans than high-income students (34% and 33% vs 26%, respectively).
- Middle-income students are more likely than low- and high-income students to borrow private student loans (15% vs 11% and 12%, respectively).
Reducing the cost of student loans
Although students have the option to postpone payments while they are still in school, nearly half of families (47%) with student loans are making payments while the student is in school. By making payments all along, less interest accrues (grows) or capitalizes (is added to the principal), which helps reduce the total cost of the loan.
Our survey asked students: “If you had a choice when it came time to make principal and interest payments on your loans, would you prefer to make smaller payments over a longer period of time (which typically costs more in total) or make larger payments over a shorter period of time (which typically costs less in total)?
- 57 percent: Would rather make larger payments over a shorter period (costs less)
- 36 percent: Would rather make smaller payments over a longer period (costs more)
- 7 percent: Not sure
While student loans are an important resource in helping families pay for college, many students who borrow are cost-conscious and look for ways to reduce the total cost of borrowing.
Find out more about How America Pays for College 2018.
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About this study
How America Pays for College 2018, a national study by Sallie Mae and Ipsos, explores how much families of undergraduates spend on college, how they pay for it, and how they reach their funding decisions.