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During the 2017-18 academic year, more than half (53%) of families of undergraduates borrowed to help pay for college, with students twice as likely to borrow as parents. Thirty-six percent of families turned to federal and private student loans.

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.

Student loan types used

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.

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)?

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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Families and the FAFSA—filing, finances, and fears
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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.

Source: How America Pays for College 2018, from Sallie Mae and Ipsos.