Dealing with the Student Debt Problem in California

There are too many students graduating from college in California with unmanageable debt. The typical graduate has more than $30,000 in student loans to pay back when they leave school. If the problems going to be solved, it’s going to take the efforts of both public and private partners working together. There are a few different ideas that might provide some relief and we explore those below.

Public Sector Solutions

Some countries offer loan programs run and fully funded by the government. This is one possible solution to the problem in California, but these programs are expensive to administer. They still result in student debt after graduation and they don’t really address the real root of the problem. It’s probably not the right solution for the student debt crisis in California.

Changing the Minds of Private Lenders

A better choice is to leave the administering of student loans to private lenders that already have the experience in running loan programs. The current system in place in California relies strongly on private lenders. The problem is these private lenders are not usually willing to reduce interest rates for students, as these loans are typically high risk. This leaves students unable to pay much more than the substantial interest payments on their loans for the first few years after graduation.

Sweetening the Pot

One possible solution to this problem was announced by the California legislature. They proposed the creation of a $25 million security fund that would provide protection for private lenders. The belief is that this would make them more inclined to offer favorable interest payments to students so that their payments would be more manageable. Unfortunately, the legislation seems to have stalled for the time being.

Free Tuition?

A more radical idea is eliminating student tuitions altogether so that there’s no need for student loans in the first place. This isn’t really all that realistic though as California’s combined debt already exceeds $150 billion dollars. It’s not clear where the money would come from.

Private Business Lends a Hand

One solution that does provide real promise is giving students the means to payback those loans after graduation by providing them with business opportunities. Bay Area Energy is one company that’s already taking on this challenge. They offer students the chance to build their own small business selling clean natural gas with no start-up costs. This could provide students the financing they need to get started in life and leave their student loans behind.