To advance equity for student borrowers and improve their lives while in repayment, California must assess the drivers of student debt and the distinct and unequal ways it affects borrowers’ lives. This fact sheet highlights key findings from The Century Foundation’s research on student loans in California, identifying ways that the state can help students avoid a lifelong cycle of debt.

In California, fewer students borrow than in other states, but those who do rack up significant debt.

State policy has helped many of California’s students avoid student loans altogether. But some slip through the cracks, finding themselves with lasting debt burdens.

California’s relatively low public university tuition and its financial aid programs contribute to the lower share of students borrowing to pay for undergraduate education. Just 21 percent of in-state undergraduates borrow, compared to 37 percent nationwide, which is a major factor in California’s adult populace having the fourth-lowest number of federal student loan borrowers per capita in the nation. (See Figure 1.)

Figure 1

But there’s a catch: among those who hold student debt, California’s borrowers have a higher average debt amount than in many other states. (See Figure 2.) The average outstanding student loan balance for borrowers in California is $37,400, driven in large part by graduate debt, parent-held debt, and debt from attending for-profit colleges.

Figure 2

This relatively higher debt burden makes California a state where those who have debt face significant financial challenges that are compounded by the state’s high cost of living, especially for borrowers of color who are more likely to lack the safety net of family wealth.

Borrowing is most prevalent among California’s Black students, especially at the graduate level.

By the time an in-state student in California earns their bachelor’s degree, more than half have taken out some student loan debt. But this rises to 84 percent among the state’s Black students, followed by the state’s Pacific Islander students at 80 percent. (See Figure 3.) Average loan balances at the completion of a student’s bachelor’s degree show a similar pattern and are highest for Black students ($33,100) and Pacific Islander students ($30,600).

Figure 3

Although state and federal grant aid programs reduce costs for undergraduate students, graduate students are largely on their own to finance their education. At the graduate level, 80 percent of California’s in-state Black students borrow, which significantly exceeds the national rate for in-state Black graduate students. (See Figure 4.) Black graduate students also have higher annual loans ($26,500) than nationwide ($20,600). Although California’s Latino/a students are less likely to borrow than their peers for undergraduate education, they are more likely than their peers to borrow for graduate education.

Figure 4

It is not surprising that nationwide gaps in borrowing by race and ethnicity extend to California. But the fact that these gaps are, for some groups, significantly worse in California is cause to delve deeper into the state’s portfolio of student loan borrowing to better understand the sources of heavy loan debt.

Two uncapped, high-interest loan programs drive up balances: Parent PLUS and Grad PLUS.

A large number of California’s students avoid student debt altogether, but unfortunately, the state’s families who do borrow are especially likely to borrow from the riskiest federal student loan programs.

Parent PLUS loans and Grad PLUS loans are capped at the cost of attendance, with no regulatory limit on what the college can charge for tuition. These two programs also feature the highest interest rates of federal student loans originated today, currently 7.5 percent. Through Parent PLUS and Grad PLUS, a borrower can—in the span of mere minutes—sign away their financial futures by borrowing tens of thousands of dollars at perilously high interest.

Unlike other federal student loans, Parent PLUS loans must be repaid by the parent of the child who benefits from them—parents who do not reap the economic benefits of the education. These parents also cannot access income-driven repayment, the repayment plan that is most amenable to low-income borrowers. As prior TCF research has detailed, equity concerns follow wherever Parent PLUS is prevalent, including California.

As a share of undergraduate loan dollars disbursed in 2021–22, Parent PLUS is slightly greater in California (28 percent) than in other states (24 percent). The average annual Parent PLUS loan in California is $21,900, which is 21 percent greater than the average for the rest of the United States. That disparity rises to 56 percent in the for-profit sector. (See Table 1.)

Table 1
Institution control Average annual Parent PLUS loan in California Average annual Parent PLUS loan in the rest of the United States Percent difference
Public $18,900 $16,300 16%
Private nonprofit $26,300 $21,000 26%
Private for-profit $22,800 $14,600 56%
Overall $21,900 $18,000 21%
Source: Author’s analysis of data from the Federal Student Aid Data Center, reflecting the 2021–22 award year.

When a borrower is in repayment, failure to pay down the loan balance results in interest capitalization, and the borrower’s debt can increase. This is especially true if the student earned their degree at a lower-quality institution and subsequently cannot find gainful employment, and thus is unable to help their parent(s) repay. Data on Parent PLUS repayment show that, one and five years into repayment, families who took out Parent PLUS for education at a California for-profit college have significantly higher balances than those In the rest of the United States. (See Figure 5.)

Figure 5

Meanwhile, high-interest Grad PLUS loans have comprised an increasingly large share of California’s student loan portfolio since the program’s creation in 2006, an upward trend that shows no sign of slowing. Grad PLUS takes up 24 percent of the annual dollar-total of federal student loan disbursements in California, compared to 14 percent across the rest of the nation. (See Figure 6.) Only Washington, D.C. sees Grad PLUS take up a higher share of annual loan disbursements.

Figure 6

Within California’s graduate debt, concerning trends emerge. Among for-profit colleges, the average annual Grad PLUS loan in California is $30,600, which is 43 percent more than the average among for-profits in the rest of the United States. (See Table 2.)

Table 2
Institution control Average annual Grad PLUS loan in California Average annual Grad PLUS loan in the rest of the United States Percent difference
Public $25,100 $18,800 34%
Private nonprofit $33,200 $30,000 11%
Private for-profit $30,600 $21,400 43%
Overall $31,500 $25,200 25%
Source: Author’s analysis of data from the Federal Student Aid Data Center, reflecting the 2021–22 award year.

For the cohort of borrowers who have been in repayment for five years on a graduate loan from a for-profit college, California borrowers’ average loan balance is $81,600, which is more than double the average for the for-profit cohort in the rest of the United States. (See Figure 7.)

Figure 7

Data on repayment show that borrowers who take out graduate loans for education at a public university appear to succeed at paying down their balances. But the state has a “private graduate debt” problem, posing challenges for lawmakers looking to prevent borrowers from being trapped in unmanageable debt.

Once in repayment, families of color report financial challenges beyond those in the rest of the United States.

Compared to California’s white families, student loan debt is more prevalent and more pernicious for California’s Black families, and to a lesser but still significant extent, California’s Hispanic families as well. By key measures, the experience of Black and Hispanic borrowers in repayment appears worse in California than in the rest of the nation, underscoring the concerns raised by California’s high loan amounts for borrowers of color and in the PLUS loan programs.

Roughly one in four Black adults in California have student loan debt, well above other groups. (See Figure 8.) Moreover, Black borrowers in California are the most likely to report having balances above $100,000.

Figure 8

Racial disparities in family resources, such as intergenerational wealth, create racial disparities in repayment for American families. California’s families are no exception: compared to white borrowers (13 percent), estimates suggest Black borrowers (27 percent) and Hispanic borrowers (33 percent) in California are more than twice as likely to be behind on payments or in default, mirroring national gaps.

The state’s high cost of living makes it all the more difficult for a young person out of college without significant family resources to accumulate new assets such as a home—especially if they have student loan debt. Just 21 percent of Black borrowers in California own their own home, which is less than the rate for Black borrowers in the rest of the United States, 43 percent. (See Figure 9.)

Figure 9

These trends mirror other indicators of financial well-being. An estimated 9 percent of Black student loan borrowers in California report living comfortably, compared to 33 percent of white student loan borrowers in California and an estimated 18 percent of Black student loan borrowers outside California. (See Figure 10.)

Figure 10

The racial wealth gap is closely entangled with student debt and cost of living, churning California’s Black and Hispanic borrowers in compounding financial challenges.

There is good news: the state can monitor the colleges saddling families with the most debt.

No other state’s lawmakers have as much power to shape the nationwide student debt crisis as lawmakers in California, where borrowers hold $146 billion in student loan debt. The state legislature can expand on this report’s findings by commissioning research to fill critical knowledge gaps where the reach of existing data sources ends.

A handful of colleges contribute an outsized share of high-interest PLUS debt, and the state can monitor the practices that lead to these borrowing amounts. At fifteen California colleges, parent borrowers still owe more than two-thirds of their Parent PLUS balance ten years into repayment; at a dozen California graduate schools, the typical graduate borrower owes more than their original balance ten years into repayment. Though the state cannot forbid colleges to issue these loans, it can condition eligibility for Cal Grant program participation on reasonable PLUS borrowing limits and provide prospective students with information about the risks of borrowing these loans.

It is often said, “As goes California, so goes the nation.” In the past decade, policies to reduce or eliminate public undergraduate tuition—both enacted and proposed—may lead to a future in which states’ higher education systems more closely resemble California’s. But the nation needs another roadmap, too: a strategy to reduce uncapped PLUS loan debt. What California does to help its families may help light the path for the nation to prevent the worst student debt outcomes for borrowers nationwide.

For The Century Foundation’s full analysis of student loan debt in California, see our report, The Student Loan Borrowing Undermining California’s Affordability Efforts. This research was generously supported by the Haas Jr. Foundation.