Your Guide to Student Loans in California: Everything You Should Know About Paying for College

Whether you need money for your college expenses, it’s important to consider all your options. Student loans are a popular option, but before applying for this product, make sure you have researched all grants and scholarships you could qualify for as these are free funds and you do not need to return them.

This article was written by financial specialists from the company firstcal.net. They explain from a financial professional’s point of view factors that must be taken into account by California residents taking a student loan and getting other types of financial aid for college expenses.

Federal Student Loans in California

First of all, all students should try to get federal student aid. For this, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA) online. This is how college students access a wide range of federal student aid options.

When filling out the application, you should be ready to provide the required information about yourself, your school, and your financial need. You should be ready to enter personal information including full name, birth date, home address, citizenship, and more. You’ll also need to specify which college you are planning to attend, and your expected college expenses.

Once you have completed the application, you can see your federal loan options, as well as options for private loans.

Benefits of Federal Student Loans

Federal student loans offer advantages many private loans don’t. Some of these benefits include:

• Low, fixed rates. The government does not perform credit checks. And you are likely to be eligible for fixed, low rates.
• Income-based repayment and postponement options: If you have difficulty repaying your loan, you can request deferment or forbearance. Moreover, you can take advantage of income-driven repayment plans designed to help you repay the debt easier.
• Loan forgiveness. Those who qualify can take advantage of various student loan forgiveness programs. If your loan is forgiven, you are no longer obligated to make loan payments.

Types of Federal Student Loans in California

Below are common types of federal student loans for California residents.

1. PLUS Loans: There are two types of PLUS loans available: Parent PLUS and Grad PLUS loans. Parent PLUS loans are federal student loans issued directly to parents. A grad PLUS loan is a Direct Loan issued by the U.S. Department of Education to a graduate or professional student. To qualify, you must not have an adverse credit history.
2. Direct Subsidized Loans: These loans are available only to undergraduate students who have financial needs. This product involves no credit check. The Department of Education will pay the Department of Education while you’re studying, for six months after you graduate, and during deferment. The amount you can borrow will be determined by your school.
3. Direct Unsubsidized Loans: These loans are made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need. You will have to pay the interest during all periods. The amount you can borrow will be determined by your school.

Private Student Loans in California

Private loans should only be considered after exhausting all federal loan options first, or if you do not qualify for federal aid funded by private organizations such as banks, credit unions, online lenders, some colleges, and state-based organizations. The interest rates are regulated by Congress. Bear in mind that private lenders follow regulations that differ from federal loans, so their interest rates can vary significantly.

Besides, private loans come with variable or fixed interest rates that may be higher than federal loan interest rates. Private creditors may require you to make payments on your loans while you are still studying. In opposition, you don’t have to start repaying federal student loans while you are at school, graduate, or your enrollment student status chances to less than half-time.

You can apply for federal loans once a year (and there is a deadline in each state), while you can apply for private loans as needed. Even if you think you might need to apply with a private lender, it’s still recommended to submit your FAFSA first. That way, you can understand what federal aid you may get first.

If the FAFSA deadline is missed and you’re having difficulty paying for college throughout the year, private loans are likely to help you make payments. Just do not forget that private lenders may process your loan request for a longer time.

Here are some of the best private lenders offering student loans in California.

• College Ave – Best Overall
• Sallie Mae – Best for Graduate Students and Non-degree Granting Schools
• SoFi – Best for No Fees and Discounts
• Ascent – Best for Borrowers Without a Cosigner
• LendKey – Best Marketplace
• Citizens Bank – Best for Parents

Grants and scholarships

You can fill out the FAFSA to find some grants and scholarships you may qualify for, but there are a variety of others that you should also consider.

For example, the University of California’s (UC) Blue and Gold Opportunity Plan gives full tuition and fees to a California resident whose total family income is less than $80,000 a year and you qualify for financial aid

The Middle Class Scholarship program is for undergraduates and students pursuing a teaching credential with family income and assets up to $201,000.

Moreover, the California Dream Act allows some undocumented students to apply for and receive state-based financial aid and institutional scholarships.

Below are some additional scholarships you might consider:

California Scholarships

• Army ROTC has 2, 3, and 4 year full tuition scholarships available for qualified California students. Each scholarship also includes a $1,200/year book allowance and a monthly stipend (allowance) between $300-$500.
• The California Restaurant Association Educational Foundation Scholarship is for outstanding undergraduate students and high school students with interest in the restaurant and hospitality industry. The scholarship varies between $2,000 and $2,500 is awarded over the course of two semesters.
• The California Association of Winegrape Growers Foundation awards two 4-year scholarships and four 2-year scholarships to high school seniors whose parent or legal guardian is employed by a California winegrape grower. The scholarship varies between $2,000 and $8,000.

You may also qualify for grants offered to California residents.

California Grants

• The Cal Grant Program makes college affordable for middle and low-income Californians through state funds administered by the California Student Aid Commission (CSAC).
• The California Chafee Grant Program may provide up to $5,000 per academic year of free money to foster youth and former foster youth to use for college courses or vocational school training.
• Law Enforcement Personnel Dependents Grant Program provides a need-based educational grant to dependents and spouses of police officers, firefighters, and Department of Corrections and California Youth Authority employees.
• Child Development Grant is designed for students attending California postsecondary educational institutions who intend to teach or supervise in the field of childcare and development in a licensed children’s center in California.

Make sure to explore all the available scholarships provided in the state to help students plan for education.

If you are unsure where to begin, visit the California Student Aid Commission’s (CSAC) website, which is a good place to start.

Institutional, Local, and National Scholarships

Looking for scholarships and grants can be challenging. We recommend that you talk to your guidance counselor about any suitable options that you might qualify for.

Your college or university’s website may also have a financial aid section that describes specific funding opportunities.

For example, UCLA offers various scholarships for incoming students. For example, the Gertrude Pomish Scholarship is awarded to students who actively participate in and demonstrate a strong record of community service.

UC Berkeley also has a section devoted to scholarships. For example, the Fiat Lux Scholarship creates opportunities for resilient students with unique life experiences to make a profound impact at the University of California, Berkeley.

What Percentage of Students Have Scholarship Aid in California?

The state ranks 1st in total financial aid dollars and spends over $2 billion on aid. The table below describes how that aid is distributed.

How to Repay Student Loans

Before you take a student loan in California, it is important to think about its repayment. You can typically choose among several repayment options.

The good news is -that you’ll have time to repay your loan once you graduate from a school. Typically, it takes about 10 years to pay back a standard student loan, but you may be eligible for allowances if you need more time to repay your loans (up to 25 years).

Federal student loan interest rates can vary significantly based on when you get the loan. In 2022-2023, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 4.99%, the rate on Direct PLUS loans for graduate students, professional students, and parents is 7.54%; and the rate on Direct Unsubsidized loans for graduate and professional students is 6.54%. Federal student loans have fixed interest rates that are set annually by Congress.

Private loan interest rates are set by the lender and vary widely due to many factors. They usually offer higher interest rates and less flexible repayment options as compared to federal aid.

Different kinds of repayment plans

• Standard Repayment Plan. Standard repayment plans include making monthly payments over 10 years. Generally, you will pay less interest over the life of your loan under a standard plan than an extended or income-driven plan.
• Extended Repayment Plan. The Extended Repayment Plan allows you to repay your loans over an extended period of time. Payments are made for up to 25 years.
• Graduated Repayment Plan. The graduated repayment plan is a type of federal student loan repayment plan that slowly increases your monthly payment over time.
• Income-Based Repayment (IBR). Income-driven repayment (IDR) plans make it easier for federal student loan borrowers to pay back loans if your debt is high compared to your income.
• Income-Contingent Repayment (ICR). Income-contingent repayment is one of five income-driven repayment plans you can apply for to lower your federal student loan payments.
• Income-Sensitive Repayment. Income-sensitive repayment (ISR) is a repayment method for loans serviced by lenders participating in the Federal Family Education Loan Program (FFELP).
• Pay As You Earn (PAYE). PAYE is an income-driven repayment plan that caps monthly student loan payments at 10% of the borrower’s discretionary income and may result in loan forgiveness after 20 years of on-time payments.
• Revised Pay As You Earn (REPAYE). REPAYE is a repayment plan that bases the loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount owed.

Student Loan Refinancing

You can refinance private student loans if you qualify for a better interest rate. Often, you can consolidate and refinance both your federal and private student loans into one loan and a single interest rate. It’s a smart move to relieve your debt repayment and manage your budget better in general.

Combining your loans (consolidating them) with one lender allows you to refinance your loan and get a more suitable term and lower interest rate. If your current financial situation is better compared to when you received your original loan, you may qualify for a lower interest rate with refinancing or even reduce your repayment term to pay back the debt more quickly!

But, keep in mind that if you refinance federal student loans with a private lender, you will lose federal benefits and protections, such as student loan forgiveness and forbearance, as well as income-driven repayment plans.

Student loans forgiveness

Student loan forgiveness may look attractive, but it it not so easy to get your debt written off. Each state has specific Public Service Loan Forgiveness programs, and not every student can qualify for them.

Before you explore the available options, you need to understand the terms of forgiveness, cancellation, and discharge. For example, if you are no longer required to repay your loan due to your job, that could fall under cancellation or forgiveness. Or, if your college was closed before you graduated, this would typically be called a discharge.

There are various circumstances that may lead to federal student loans being canceled, forgiven or discharged:

• Bankruptcy Discharge. In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is not an automatic process.
• Closed School Discharge. A closed school discharge eliminates your federal student loans if your school closes before you complete your program
• Death Discharge. Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out.
• False Certification of Student Eligibility or Unauthorized Signature/Unauthorized Payment Discharge. Due to various circumstances, you may qualify for a Direct Loans or FFEL Program loan discharge due to identity theft or mistakes made by a school.
• Public Service Loan Forgiveness (PSLF). If you have worked in public service (federal, state, local, tribal government or a non-profit organization) for 10 years or more (even if not consecutively), you may be eligible to have all your student debt canceled.
• Perkins Loan Cancellation. Your Federal Perkins loan(s) may be eligible for cancellation. If granted, the cancellation releases you from your obligation to repay all or a specified portion of your loan(s).
• Teacher Loan Forgiveness. Student loan forgiveness programs can provide financial relief for teachers who took out education debt to pay for college.
• Total and Permanent Disability Discharge. This is a type of student loan forgiveness for borrowers who cannot work due to a physical or mental impairment.
• Unpaid Refund Discharge. To be entitled to an unpaid refund discharge from your federal loan, you must have attended the school for less than 60% of the loan period.

California Specific Student Loan Forgiveness Programs

Before you apply for federal loan forgiveness programs, you’d better consider other options, too. For example, there are forgiveness programs created specifically for borrowers who live in certain locations. Below are some of the possibilities for California residents.

• Bachelor of Science Nursing Loan Repayment Program (BSNLRP) provides loan repayment assistance for Registered Nurses who agree to serve in Medically Underserved Areas (MUAs) or Health Professional Shortage Areas (HPSAs) in California.
• California Mental Health Loan Assumption Program (MHLAP). The purpose of this program is to provide an incentive for practicing mental health professionals to deliver therapy or counseling services in underserved areas of West Virginia. Applicants must certify that they possess educational debt in an amount equal to or exceeding $10,000.
• California Dental Association (CDA) Foundation Student Loan Repayment Grant. Through the CDA Foundation Student Loan Repayment Grant, one lucky dental student may qualify for student loan repayment up to $105,000.

Frequently Asked Questions

How does a student loan work?

A student loan is money borrowed from the government or a private lender in order to pay for college. The loan has to be repaid later, plus interest that builds up over time. The funds can usually be used for tuition, room and board, books or other fees.

What are the eligibility requirements for a private student loan?

Each lender has its own eligibility requirements. Typically, you’ll need to be a U.S. citizen or permanent resident, have good credit, be enrolled for at least a half-time basis, and meet an income threshold. If you do not meet those requirements, you can add a cosigner to your application. If you don’t have a cosigner, you can search for lenders that offer student loans without a cosigner and student loans for international students.

How do student loan interest rates work?

Your interest rate is what you pay to borrow money, which is depicted as a percentage. Student loan interest usually accrues daily, starting as soon as your loan is disbursed. In other words, student loans typically accrue interest while you’re in school.

How do private student loans differ from federal student loans?

Federal student loans are provided by the federal government. They have various benefits and protections and also have more flexible repayment options and lower rates. Private student loans are issued by a private lender, such as a bank, credit union, state agency, or a school. They come with higher borrowing limits and have no prepayment penalties.

Is there student loan forgiveness in California?

Yes. The state has several student loan forgiveness programs that are available specifically to California residents.

How do I apply for a student loan?

To apply for a federal student loan, you must first complete and submit a Free Application for Federal Student Aid (FAFSA) form. You can also apply for private college loans directly from each lender’s website.

Where can I get a student loan with bad credit?

You can get federal student loans from the U.S. Department of Education even if you have poor credit. This is because federal student loans do not have a minimum credit score requirement. Some private lenders also offer student loans to borrowers with bad credit.

What does it mean to cosign on a student loan?

When you add a co-signer to your application, you’re jointly and legally responsible for the loan. Using a co-signer is an important decision. If you do not make payments for any reason, a co-signer will be expected to make them. This may ruin your relationship.

How do you get a student loan without a co-signer?

You can fill out the FAFSA to get federal student loans that don’t require a co-signer. There are also private lenders that don’t need a co-signer. Instead, they make a decision based on your credit score and future earning potential.

Category: General

Tags: California, college, finance, money, student loan, students