Californians are rightly concerned about the costs of attending college and the amount of money many students need to borrow in order to pay those costs. In a recent PPIC Statewide Survey, 57% of Californians identified lack of college affordability as a big problem. An even larger majority—78%—agreed with the statement that students have to borrow too much money to pay for a college education.
As college costs have risen, the share of students taking out loans has grown substantially in both California and the nation. Just ten years ago, only about one-third of freshmen at four-year colleges and universities in California took out loans compared to 44% in 2014. Equally troubling is the growing size of those loans. Even after adjusting for inflation, average loan amounts for freshmen increased 14% in California between 2004 and 2014 (from just over $6,000 to almost $6,900). Among graduating seniors at California colleges in 2015, cumulative student debt totaled just over $24,000 for those who took out loans.
But not all of the news is bad. There are some encouraging and newly emerging trends in student debt, especially in California.
- Over the past few years the trend toward more loans and higher loan amounts has reversed, with declines in both the share of freshmen taking out loans and the amount borrowed. In California, the share of freshmen at four-year colleges taking out loans has declined from 48% to 44%, and average loan amounts (adjusted for inflation) have declined from over $7,700 in 2010 to under $6,900 in 2014.
- Student debt remains lower in California than in the rest of the nation, with California freshmen less likely to take out a loan (44%) than their counterparts in the rest of the nation (54%). Among those who do borrow, loan amounts are lower in California ($6,851) than in the rest of the US ($7,014).
- The vast majority of students in California attend public colleges, and these students are much less likely to take out loans than students at private colleges. Very few California community college students take out loans, and less than 40% of freshmen at UC and CSU take out a loan, compared to more than 50% of freshmen at private nonprofit colleges and 70% at private for-profit colleges. Among those who take out loans, the amounts borrowed are also lower at California’s public colleges. Graduating seniors in 2015 at UC and CSU who took out loans had a median cumulative debt of $16,600, compared to $23,400 at private nonprofit colleges and $30,500 at private for-profit colleges. The lower rates of student debt at California’s public colleges and universities are related to institutional and state policies that provide scholarship and grant support to many low- and middle income students.
- Finally, and perhaps most importantly, strong job prospects for college graduates, especially in California, mean that the vast majority of students are able to pay back their loans. Loan default rates are very low for students graduating from the state’s public and nonprofit private universities. Students at private for-profit colleges fare much worse. They often accumulate large amounts of debt, and this—coupled with low graduation rates—often makes it a struggle to pay back their loans.
It is important to remember that loans are an important and useful source of financial aid for many students. Indeed, taking on debt can be a very smart economic choice if it allows a student to enroll in and complete college. Policymakers and educators should seek to provide more opportunities for students to strategically use loans to reach their educational goals. Student debt becomes a problem when graduates are not able to pay back their loans—especially if they received a low-quality education and/or took on an exorbitant amount of debt. These are outcomes we should work to prevent.