California Student Loans: What Borrowers Need To Know

Around three out of every five students graduating from high school in California enroll in college within 12 months, according to the Public Policy Institute of California. If you're a California high school graduate hoping to attend college, chances are you'll need to borrow to cover the cost of your degree.

The good news is there are plenty of options for student loans in California. Here's what you need to know if you're looking for some extra financial help for your education.

Student loan options for California students

California students have the same loan options as students across the country. These options include:

• Federal student loans from the Department of Education: Federal loans have affordable fixed interest rates. Direct Subsidized and Unsubsidized Loans are available regardless of credit but have annual and lifetime loan limits. Direct PLUS Loans are available to graduate students and parents of undergraduates who do not have adverse credit, and they allow you to borrow up to the school-certified cost of attendance.
• Private student loans: Private loans are available from banks, credit unions, and online lenders. Lenders check your credit and income and won't offer you a loan if you or a cosigner don't meet eligibility requirements. Student loan interest rates and terms vary by lender, but borrowing limits tend to be higher than those of federal student loans, and you can apply at any point during the year.

Federal loans should generally be the first choice for California students. “Prioritize federal options over private loans due to their more favorable terms and protections,” says Chad D. Cummings, certified public accountant and attorney at The Law Office of Chad D. Cummings. “Think long and hard before electing to apply for loans outside of the federal system, which by its very nature, provides extensive protection for borrowers that are not found in the private lending environment.”

Federal loans offer a choice of payment plans, including income-driven options. You can change plans as needed, or even pause payments with generous options for deferment and forbearance. There are also opportunities for loan forgiveness through an income-driven plan or through public service work, which isn't an option with private loans.

The California Department of Financial Protection & Innovation offers help to student borrowers in the state who need assistance understanding their loan options. If you suspect a lender violates your rights, you can also file a complaint with them.

Current private student loan rates

California Dream Act and financial aid for undocumented students

Undocumented students often face challenges securing funding for school and aren't eligible for federal student loans or the federal work-study program. Private student loans may not be an option from all lenders either. However, California offers specialized assistance to those who need it.

Undocumented students can qualify for state aid and aid through the University of California (UC) system or California State University (CSU) system if they are AB 540 eligible. AB 540 is a nonresident tuition exemption available to students who are classified as nonresidents and meet the following criteria:

• Attend a California high school, adult school, or community college full-time for three years or the equivalent of three full-time years, or complete three years of California high school coursework and three years of attendance at any combination of elementary and secondary schools in the state.
• Graduate from a California high school, obtain an associate degree from a California community college, or fulfill minimum transfer requirements from a California community college to a UC or CSU campus.
• Sign the California Nonresident Exemption Request to acknowledge that you meet the requirements to qualify for AB 540 status and are in the process of adjusting your immigration status.

AB 540 undergraduates can take part in the California DREAM Loan Program if they have financial need and enroll at least half-time at a UC school. The interest rate for loans issued through this program is the same as the rate on Direct Subsidized Loans, and interest does not accrue while you're in school at least half-time. Like federal student loans, there is a six-month grace period after graduation before you must start repaying your loan.

You will need to complete a California Dream Act application to apply. If you are offered a DREAM Loan as part of your financial aid package, you can choose whether to accept it or not. If you accept, you must pay back the loan as promised after graduation.

Loan forgiveness and repayment assistance programs in California

California borrowers can qualify for loan forgiveness through federal programs such as:

• Public Service Loan Forgiveness, which provides forgiveness to eligible borrowers after 120 qualifying payments made while working full-time for a qualifying not-for-profit or government employer.
• Income-driven loan forgiveness, which becomes available after 10 to 25 years of payments (depending on the plan) under an eligible income-driven repayment plan.

There are also some forgiveness and student loan repayment programs specifically for California locals. These include:

• Teacher loan forgiveness in California: California teachers can become eligible for up to $19,000 in student loan forgiveness through the Assumption Program of Loans for Education (APLE). This is administered by the California Student Aid Commission and is open to those who teach full-time for four consecutive years or the part-time equivalent. You must teach in a public K-12 California school and meet other criteria to be eligible.
• California State Loan Repayment Program for health care professionals: This program is available to primary care physicians, dentists, dental hygienists, physician assistants, nurse practitioners, certified nurse midwives, pharmacists, and mental/behavioral health providers who practice in designated California Health Professional Shortage Areas. Borrowers can get up to $50,000 in debt forgiven for a full-time two-year service commitment.

The California Department of Education and your school's financial aid office can both be good resources for finding student loan forgiveness and other debt relief options in California.

Glenn Sanger-Hodgson, a certified student loan professional and founder of Shonan Gold Financial LLC, recommends determining if you'll be pursuing loan forgiveness as a top priority when making plans for loan repayment.

“If a borrower finds that they will need to pursue forgiveness in order to dispatch their loans, or if they are struggling to make payments and need to find a way to lower them, that will help guide them to the best repayment option,” says Sanger-Hodgson.

California-specific resources for student loan borrowers

California provides many important resources that residents of the state can utilize to manage their student loans and ensure they're being treated fairly by lenders. The Department of Financial Protection and Innovation has a comprehensive list of these resources, including:

• The Student Loan Empowerment Network, which consists of legal aid organizations and community-based groups that help people struggling with loan payoff.
• The California Student Borrower Bill of Rights, which provides details about your rights as a borrower established under California law.

Taking advantage of the resources available to you can help you manage the debt you took on to earn your degree.

Tips for managing student loan debt in California

California is one of the most expensive areas of the country to live in, and many people struggle to afford basics like housing, as homes cost around twice as much as they do in most parts of the country.

Student loan borrowers burdened with high expenses should explore all of their student loan repayment options, including income-driven repayment plans for federal student loan borrowers. These plans set payments at a percentage of your discretionary income. Discretionary income is based on your income relative to the poverty level for a family of your size in your state, so California's high cost of living is taken into account when payments are calculated.

Those who don't wish to take advantage of income-driven options or who don't qualify will need to budget carefully to make sure they're able to pay their student loans, cover their bills, and save for other goals such as eventual homeownership and retirement security. Budgeting apps and tracking spending can help balance priorities.