Understanding the Cost of College
College can become a six-figure expense for many families. Tuition and fees vary by school type, as shown below.
| School Type | 2025-2026 Average Tuition and Fees1 |
|---|---|
| Public (in-state and out-of-state) | $11,950 to $31,880 |
| Private (four-year college) | About $45,000 |
With the U.S. median household income around $83,000, many families must plan carefully and save aggressively to cover these costs.2 Loans are another funding option to consider.
Both federal and private loans can help pay for college. Before borrowing, make sure you and your child understand the repayment terms and long-term impact.
Federal College Loans
The federal government offers need-based and non-need-based loans. After you complete the Free Application for Federal Student Aid (FAFSA), a school may include loans in your child’s financial aid package if they plan to enroll part- or full-time.3 All federal loans must be repaid with interest after graduation.
However, federal loans often have fixed interest rates that are lower than private loans. Here are the main types.
Direct Subsidized Loans
- Available to students with financial need.
- The government pays the interest while the student is in school, during the six-month grace period after leaving school, and during approved deferment periods.
Direct Unsubsidized Loans
- Available to undergraduate and graduate students
- Interest begins to accrue while the student is in school
- The borrower is responsible for all interest over the life of the loan
Direct PLUS Loans
- Available to graduate or professional students and parents of dependent undergraduates
- The maximum loan amount is the difference between other financial aid received and the total cost of attendance
- Borrowers cannot have an adverse credit history
Perkins Loans
- Low-interest loans for students with high financial need
- The school acts as the lender
- Fixed 5% interest rate
- Not all schools participate, so check with each financial aid office
Private College Loans
If federal loans are not offered or does not cover the full cost of college expenses, you may want to consider private loans.
These loans are offered by banks and other lenders, but often have higher interest rates than federal loans. Some have variable interest rates that can change over time. For example, some loans can have rates that range from 3.99% to 12.99%.
Private loans are unsubsidized, so the borrower pays all interest. If you do co-sign, you may want to consider additional protections, such purchasing a life insurance policy for your child.
Before choosing a private loan, review the following:
- Interest rate
- Fixed or variable terms
- Origination fees
- Prepayment penalties
Your credit history may affect the rate you receive, which can increase the long-term cost of borrowing. Compare lenders carefully and read the fine print.
When Might You Take Out Loans?
Loans must be repaid with interest. It’s important to start preparing for college tuition payments as early as possible and carefully review all available options. The average student loan debt is now $39,547.4 The average borrower takes 20 years to repay student loan debt, so the sooner you decide how to cover college costs, the less you may need to repay over time.5
A 529 college savings plan allows you to make tax-deferred contributions and withdraw both the principal and earnings to pay for qualified education expenses, such as tuition, room and board, computers, and books. You can withdraw funds from the account at any time, but keep in mind there may be tax consequences if the money is not used for qualified expenses.
Government-backed savings bonds, which you can cash in tax-free to pay for college tuition and fees, are another option to put money away for your child's education.
The Bottom Line
The most important thing is to begin saving early. You may not know how much financial aid your child will receive or whether loans will cover the full cost. Loans can help pay for college, but borrowing should be approached carefully. Consider how much you truly need and how repayment will fit into your family’s long-term finances.
Help build a strong college savings foundation with the right loan options. Invest Today
Sources
- Highlights: Trends in College Pricing. https://research.collegeboard.org/trends/college-pricing/highlights.
- Income in the United States: 2024. https://www.census.gov/library/publications/2025/demo/p60-286.html.
- Complete the FAFSA® Form. https://studentaid.gov/h/apply-for-aid/fafsa.
- Student Loan Debt Statistics. https://educationdata.org/student-loan-debt-statistics.
- Average Time to Repay Student Loans. https://educationdata.org/average-time-to-repay-student-loans.
