California Creates Student Loans for Undocumented Students

Photograph by Marquicio Pagola/Getty Images

Undocumented students in California will have an additional way to pay for college during the next school year, thanks to a loan program signed into law on Sept. 28 by Governor Jerry Brown. It is designed specifically for students without legal residency.

At least 18 states allow undocumented students to pay in-state tuition, according to the National Conference of State Legislatures. Undocumented students aren’t eligible for federal financial aid such as Pell Grants and federal student loans; nor can they get private student loans. Five of the 18 states—California, Minnesota, New Mexico, Texas, and Washington—fill some of that gap by letting undocumented students receive state financial aid. California’s aid was previously limited to grants and work-study.

In a statement proposing the bill in April, the office of State Senator Ricardo Lara explained the need to add loans to that list. “These students have an estimated ‘gap’ in their financial aid packages of roughly $5,000 to $6,000 at the University of California and $3,000 for the California State University that other students with similar financial circumstances do not have.”

The new California DREAM Loan Program will let undocumented students in the CSU and UC systems borrow up to $4,000 a year, with a lifetime maximum of $20,000. The loans are structured to mirror the federal subsidized direct loans for undergrads. They carry the same rates, come with a standard 10-year repayment period, and don’t accrue interest while a student is enrolled for at least half-time studies.

Legislative analysis of the bill estimates that about half of eligible UC students will access the loans, starting with about 1,500 borrowers in the first year and growing to 1,800 borrowers by the fourth year. The analysis doesn’t estimate the number of CSU students who may borrow, but it says costs for the CSU system will be about half as much as those of the UC system. Overall program costs are expected to surpass $9 million a year, split 50-50 between the state and individual institutions. The goal is to reduce state funding over time as students repay the loans.

    Before it's here, it's on the Bloomberg Terminal.