Paying for college is a different experience today than it was 18 years ago.
College costs have gone up, along with the price of just about everything else. The interest rate on student loans gets adjusted each year. . And the most recent overhaul of that impact everyone from grad students to parents to millions of borrowers who haven’t set foot on campus in years.
But one thing hasn’t changed at all since 2008. The typical freshman can still borrow no more than $5,500 in federal student loans.
Borrowing caps for undergraduates haven’t been raised since many of this year’s incoming freshmen were born. Those limits — between $5,500 and $7,500 annually for dependent students up to a total cap of $31,000 — are especially striking when you consider that grad students and parents have been free to take out hundreds of thousands of dollars in federal loans during that same time. (, although their limits remain much higher than those imposed on undergraduates.)
As borrowing limits sat still, college costs have jumped. From 2008 to today, tuition at both in-state public universities and private colleges has increased by more than 85%, according to in annual surveys. The average yearly price of tuition and fees at in-state public universities is now $12,790, while a year at the average private university will set you back $51,316 if you pay full sticker price. Those figures don’t include living expenses.
That $31,000 aggregate limit in 2008 would be the equivalent of nearly $48,000 in purchasing power today, according to the Bureau of Labor Statistics’ CPI inflation calculator. In other words, students aren’t getting the same bang for their borrowed buck.
“The purchasing power of that amount has really gone down a lot,” says Jordan Matsudaira, a professor of economics and public policy at American University and the director of the PEER Center, a research hub based at the university.
[Read: ]
Federal Student Loans: The First Financing Option for Most
Most students who need to borrow for college look to federal student loans first, and there are several reasons for this.
These loans, offered through the Department of Education, don’t require the borrower to have a qualifying credit score or a certain debt-to-income ratio. Every undergraduate student who takes out a loan pays the same interest rate, and that rate is better than most would get through a private lender. This year’s rate is 6.39%.
Federal loans also come with more protections than private loans. Borrowers have access to more affordable income-driven repayment plans and forbearance options. Some can get their remaining loan balance canceled after making a certain number of payments.
Federal student loans make up more than 90% of the student loan market.
Why Undergrad Loan Limits Haven’t Budged
The government makes all sorts of regular adjustments to keep up with inflation. Social Security checks, retirement account maximums and tax brackets all shift as expenses and earnings grow.
Student loan borrowing caps aren’t tied to inflation in any way, and increasing them would require legislative action. In the 18-year stretch since the last increase, through both Democratic and Republican administrations, we haven’t really come close to bumping up the limits.
“I don’t recall it ever coming up in a focused policy conversation,” says Matsudaira, who served in both the Obama and Biden administrations and was the chief economist for the Department of Education during the Biden years.
The 2008 increase came largely as a response to the financial crisis, with policymakers opening up more access to federal loans to ensure students could still finance their education as the private credit market tightened. In the following years, with heightened public attention on debt, there was little political appetite on either side of the aisle to raise loan limits for a group consisting largely of .
But there was another reason the caps weren’t being raised: Data suggested that despite rising costs, the stagnant borrowing limits didn’t appear to be resulting in a greater financial strain on students.
“Although inflation has eroded the purchasing power of loan limits, this trend has not yet coincided with more students reaching their annual loan limit,” authors Kristin Blagg and Jason Delisle wrote in a analyzing loan limits and inflation. “The share of all undergraduates borrowing the maximum has been roughly constant for well over a decade. But that trend occurred during a period of very low inflation and could soon change.”
In fact, they found that the percentage of undergraduate students borrowing the maximum actually dropped from roughly 22% to 20% between 2008 and 2018. Blagg says it’s possible that new data from the high-inflation post-pandemic years might show a reversal of that trend.
She also notes that policymakers have used other tools that may be helping to reduce the need for students to borrow up to the limit. Pell Grants, which is funding given to lower-income students that doesn’t have to be repaid, have become more generous. Since 2008, the maximum amount awarded to Pell recipients has increased from $4,731 to $7,395 annually. A recent change to the Pell Grant formula also has expanded eligibility to more students.
[Read: ]
Which Undergraduates are Borrowing the Maximum?
Blagg expects the decrease in purchasing power of student loans to potentially push some students into taking on greater amounts of debt from less-desirable lending options.
“The decline in loans in real value for undergraduate borrowers means it’s increasingly likely that they may have to look other places for the capital if they need it,” says Blagg, a principal research associate at the Urban Institute. “That might be parents borrowing for their children. That might also be .”
Certain undergraduate students are more likely to bump up against the caps than others, the Urban Institute report found. Nearly 30% of dependent students pursuing bachelor’s degrees borrow the maximum, while less than 15% of those in certificate or associate’s degree programs reach the limit. That’s not particularly surprising, since bachelor’s degrees generally come with higher price tags.
Dependent Black students are the demographic that’s most likely to borrow up to the limit, with 32% reaching the max. The report found that among those pursuing bachelor’s degrees, low-income students were about as likely as other students to borrow up to the cap.
The caps can often pose a challenge to students as they get closer to finishing their degree, says Jeannie Tarkenton, founder and CEO of Funding U, a private lender that provides no-cosigner loans designed to fill financing gaps for students. She says students may be able to cover their first years with a mix of savings and loans, but funding becomes harder as they exhaust their savings and approach their borrowing limits.
“It gets people on track into college, and then inevitably there’s not enough to get all the way to graduation,” says Tarkenton.
[Read: ]
Ideas for Adjusting Undergrad Borrowing Limits
Several ideas have been floated as alternatives for setting undergraduate borrowing caps.
The House version of the One Big Beautiful Bill actually called for increases to both the annual and aggregate limits for undergraduates. Under that proposal, annual limits would have been tied to the median cost of attendance for a student’s program of study, and the total limit would have been raised to $50,000. Those provisions didn’t make it into the final version of the bill.
Some proponents of raising the limits suggest making the annual cap mirror the average cost of an in-state public university. Others suggest focusing more on increasing access to grants rather than allowing students to take on additional debt.
Matsudaira says he believes the limit should increase, and a good first step would be to adjust it to inflation.
“I think having a limit that adjusts with inflation is a pretty natural idea and consistent with the way we handle these kinds of issues in a lot of other settings overall,” he says. “That would be my first pass at it, is just kind of keeping the purchasing power of these things reasonably constant over time.”
More from U.S. 太子探花
originally appeared on
