Recently over lunch and some very good small batch cider, a colleague asked me, How on earth do people rack up these big loans when there’s a limit on federal loans?  It was a very good question: I’ve seen some humongous student loan debt, but I decided to go back over client profiles to really check out where it all came from.

First, some basics; as an undergraduate, you have six options for borrowing to pay the cost of attendance:

Direct Subsidized Loans

These are available for undergraduates who can demonstrate financial need. The borrowing limit on these is $3,500 freshman year; $4,500 sophomore year; and $5,500 for junior year and beyond. So, in four years you could borrow $19,000, and theoretically if your program is 4 years, you can borrow up to 6 years if it takes you that long: $30,000.

Direct Unsubsidized Loans

$5,500/$6,500/$7,500. If you’ve qualified for subsidized loans, these are the upper limits for total amounts. So if you qualified for $3,500 in subsidized loans in freshman year, you could borrow another $2,000 in unsubsidized loans. If you couldn’t qualify, you could borrow $5,500. So the total in four years would be $27,000; take 6 years and the total limit is $31,000.

This level of borrowing is where I’d encourage a full stop. With most bachelor’s degrees, you need to keep a sharp eye on your likely first year salary, and that’s the standard for the limit I recommend borrowing.

Find the definitive word on federal student loans here.

Some schools have a loan program. This is much more rare for undergraduates, and limits can vary.

PLUS loans. These are available to parents of dependent undergraduate students, and directly to graduate students. The maximum is the cost of attendance, and here’s where we get into the whopper amounts—we’re talking not only tuition, but also fees, room and board, and books and equipment. The undergraduate cost of attendance at Northwestern University for 2018-2019 was $75,753. If it doesn’t go up a penny for your four undergraduate years (unlikely) you and your parents could end up owing $303,012 and I guarantee no first year job is going to offer you that salary.

Parents should think long and hard before taking these loans, and in my view almost NEVER should. What if the student drops out? Gets really ill? Goes biking around the world to find themselves? Has a major car accident? Huge investment down the drain, and it happens all the time.

Private loans. Think a long, long time before you take these. They generally appeal to people whose parents’ credit is so bad they can’t qualify for a PLUS loan, and sometimes entice borrowers by offering variable interest rates—low at first, but then watch out. Be sure you understand repayment terms and when repayment begins—sometimes, immediately.

Home equity loans. Parents (and very occasionally, older students) may be able to borrow against home equity. With the new tax laws, these loans are probably no longer deductible. Don’t, just don’t.

So we can immediately see the real dilemma—if you don’t have savings, you’re in real trouble. If family income is really low, then you should get aid. I’d recommend choosing a college primarily on that factor—how much are they offering you?  On the flip side, if you have high income but no savings, you ought to be able to pay from current income, but again college choice should be pragmatic, and you should be looking at a public college unless you can wrangle some kind of merit aid from a private school (not likely, but possible at some schools). Many schools now have a policy that aid is 100% needs based. That may or may not be actual practice. Private school aid always involves “professional judgment” from the financial aid office.

Now let’s look at the most common ways you can accumulate crippling debt.

Borrowing for living expenses

This can really run up the bill. Anyone who needs to borrow money should be choosing the least expensive living accommodations. Usually, that means the dorm. Sure, rent may be cheaper at first glance, but you also have utilities, internet, food (and you’ll end up eating out more often), maybe more transportation, security deposit; be sure you figure all costs that would be provided by the dorm.

If at all possible, a student should have a job. Research has said that the student who works 10 hours a week is better organized and often does better academically than the student who doesn’t work, or works too much.

The real problem with mounting living expenses is someone who is ill, has non-covered medical needs, or whose program is too demanding (usually grad school) to work. As an undergrad, this should definitely be raised with financial aid for “professional judgment”. Grad schools don’t care.

Choosing an expensive school

If you have to borrow more for 4 years than you can earn in the first year of employment, choose a cheaper school. Pretty much no exceptions. Most BA degrees don’t buy you huge salaries, so you don’t want to shoot your whole financial future on just a BA.

The three most important factors are who you are, where your last degree is from, and (if the field requires it) what professional certification you earn. Do you really care if a neurosurgeon got their BA from State U? Many, many CEOs and inventors have graduated from public universities.

Choosing an expensive graduate program

If it’s a professional program, you should know what the employability of the field is. If there’s a public option, take it.

If it’s an academic discipline, and they’re not paying for you, they don’t want you. Employment from graduate programs is abysmal, and statistically you’re not going to get a job as a professor without some extraordinary achievement or other practical experience that sets you apart.

Too many people stay with school because they don’t know what else to do. You’re paying for the privilege.

On the other hand, if you borrow $300,000 and walk out into a job that pays you $150K with a $200K bonus (okay, you’re a doctor), you’re probably okay. It’s not the money you borrowed, it’s what you can earn with the degree. Like any investment, it’s worth putting money in if the ultimate payoff is worthwhile.

Similarly, the BA who’s borrowed $25K has borrowed as much as if they purchased a new car. This is a doable payoff, but only if you have a job. Even better if you can cut your living expenses radically for the first few years so you can also build an emergency fund.

Most huge debt I see comes from graduate work, not undergraduate. Carefully consider the field, and maybe consider working awhile before going directly to graduate school. Hey, you might even find an employer with tuition reimbursement.

Not having a part time job

Even if you can cover everyday spending by working some dumb job part time, you’re going to save a lot of loan expense. Is that latte worth $10?—because that’s about what you’ll pay with a 10 year loan.

Dropping out before finishing

Even worse if you drop out before graduating or take more than 4 years to complete. Any time you put payments in abeyance, the interest charges balloon. People who take time off, move in and out of loan payment, etc. can see their payback amount easily double over time. Remember, the interest is ticking continually: just because you’re not paying it now doesn’t mean it’s gone away. It’s growing steadily like mushrooms in the dark.

Dropping out before finishing also involves a hidden cost—lost opportunity. You already have lost opportunity—even with a free ride, college costs you what you could have been earning by working instead. But a partial degree is worth next to nothing in the job market (for most fields), so you’ve borrowed a lot for nothing. Or, if you’ve changed majors or taken time off, you’ve paid far more in extra years of tuition (and living costs, and lost opportunity) for the same degree. Stick it out—add a minor, or suffer through. Life isn’t perfect–just wait until you get the first crummy job or boss that hates you and you have a huge loan payment to make.

Ignoring the payment or taking a payment scheme

The loan never goes away, and it keeps building. Most of the forgiveness programs haven’t worked. And, if you have any kind of professional license, it can be yanked if you don’t pay. Ignoring it only makes it worse.

IMHO we have a really broken system for paying for what has become virtually essential higher education. Until and unless that changes, we have to work the current system as best we can, and that means making some very pragmatic choices. Don’t get so snagged on the college of your dreams that you close off any possibility of fulfilling after-college dreams.