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Why does San Francisco rank so low in share of student debt?

Students make their way around the San Francisco State University (SFSU) campus on January 26, 2022.
Students make their way around the San Francisco State University (SFSU) campus on January 26, 2022. | Camille Cohen/The Standard | Source: Camille Cohen/The Standard

After President Biden announced a major student debt forgiveness plan on Wednesday, the internet lit up with conflicting takes. While many Democrats and progressives supported the plan and saw it as a form of necessary relief in the wake of pandemic upheaval, conservatives (including U.S. Sen. Mitch McConnell) saw it as an affront to those who already paid off their loans. 

For California, confusion abounds about how this plan will affect borrowers across income levels and demographics. 

The Standard’s recent data analysis shows that California—and San Francisco in particular—are jurisdictions with a lower-than-average share of residents with student loan debt. That may come as a surprise to many, especially given California’s notoriously high living costs and the public perception that the state needs to do more to address higher education affordability (58% of Californians think higher ed costs are a big problem). 

Yet, exactly why California and San Francisco’s student debt shares are so low reflects major state and city investments in higher education. And though these numbers present an optimistic picture for student debt forgiveness in these jurisdictions, they don’t capture the entire set of factors that contribute to one’s ability to pay off student loans. 

To further contextualize the dizzying world of college debts and their effects on our city, we’ve located a few key takeaways from Biden’s plan and its impacts on California and San Francisco. 

1. California is an unusual region when it comes to public higher education. And so is San Francisco.  

Compared to other states, California historically invests more in public programs designed to lower the cost of attending a two- or four-year institution. Though California invested less per student than it did some 30 years ago, Gov. Gavin Newsom’s recently signed state budget has changed the game: it increased the share of funding for higher education institutions in 2022-23, and it encouraged upping enrollment for California residents to UC and CSU campuses.  

These efforts reflect what many higher ed advocates know to be true: that lower tuition, debt forgiveness programs and state enrollment largely contribute to California’s relatively affordable higher education. 

Breno Braga, a research associate at the Urban Institute, notes that the state’s efforts to lower tuition could have a particularly positive impact on college affordability. 

“The strongest predictor of a state having high student loans is the average price of tuition in that state,” he said, “and California, it’s considered close to a low-tuition state.”

Average in-state tuition and fees for California came out to about $10,000 in 2021-22, ranking it as the state with the 29th highest public tuition. By comparison, states like Vermont and New Hampshire—both of which also top the list for highest population shares with student loans—show in-state tuition estimates higher than $17,000. 

Moreover, experts say Gov. Newsom’s budget seems especially friendly to higher education institutions because it provides wiggle room for universities to lower tuition. 

“If the universities have more money, they can charge lower tuition. Then, indirectly, that affects student loans,” Braga said. And because the new budget pushes an increase in state school enrollment for California residents, Braga predicts that that may help keep student debt low for locals—those who qualify for lower state tuition. 

When it comes to support programs, California blows other states out of the water in financial aid for public higher education. It consistently ranks within the top 10 states in the amount of grant aid (which students do not have to pay back), according to the Public Policy Institute of California. 

“Despite increases in tuition to offset decreased state budget support, the state financial aid system is able to offset costs for higher education for a great proportion of California residents,” wrote Desiree Zerquera, associate professor at the University of San Francisco School of Education. 

Zerquera also notes that California, in particular, leads the way in providing significant financial support for DACA recipients. 

San Francisco has also taken steps to ensure that the city’s community colleges remain financially accessible across the board. In 2017, SF became the first city in the United States to offer free City College tuition to all residents, regardless of income. 

These factors, in addition to Biden’s recently announced program, are central to maintaining California’s (and SF’s) relatively low share of student loan debt.

2. Comparing racial/ethnic disparities in student debt is difficult in California and San Francisco.

While data from the Urban Institute indicates that the share of SF’s population with student debt remains consistent across communities of color and predominantly white communities, this data may not show the whole picture—at least not yet. 

When aggregating together people of color into “communities of color” using ZIP code information and U.S. Census data—as the Urban Institute researchers did—it’s difficult to accurately see the disparities in student debt shares among different minority groups.  

Non-Hispanic Black borrowers are particularly likely to carry significant amounts of debt, compared to non-Hispanic white and Hispanic borrowers. In jurisdictions like Fulton County (the seat of Atlanta, Georgia), Philadelphia County, and Washington, D.C., their larger Black population might explain why aggregated data for communities of color shows higher shares of student debt. 

San Francisco (and California in general), on the other hand, boasts a much larger population share of Asian and Asian American residents (34%). Asian student borrowers are the most likely to earn a salary larger than their debt balance, and they tend to pay off student loans fastest. 

With a greater likelihood of having graduate education, a higher post-grad salary and a low default rate, Asian individuals might borrow a lot for higher education but are much more likely to be able to pay it off quickly. 

Nonetheless, many predict that the recent debt forgiveness program will help narrow the racial wealth gap and benefit Black borrowers, in particular.  

3. Who does the student debt forgiveness plan really help? 

A common concern surrounding student debt forgiveness is that it benefits too narrow a slice of borrowers. The majority of student debt was held by people with higher incomes, and over 30% of education debt came from households in the top quartile of income distribution in 2019. 

For San Francisco, this means the high earners in tech and finance likely won’t benefit from the program. Nor will much of the city’s population without a bachelor’s degree (60% as of 2019) or any higher education. 

With 41% of SF’s population earning more than $150,000 in income, the numbers might make it seem like Biden’s plan won’t have much of an impact on the city—especially when affluent households are more likely to hold a higher dollar amount of debt.

Yet, Biden’s loan forgiveness is instead intended to help mostly blue-collar workers: those who may (or may not) have obtained a college degree, and who struggle to pay off smaller loans that create a disproportionately large financial burden. 

So even if the amount of education debt is largely held by wealthier households (likely because of increased access to more expensive private education and costly graduate schooling), the share of borrowers with debt is concentrated in the lower quartile of income distribution. 

Wealthier people with college degrees can afford to flock to expensive cities like SF—perhaps another reason why its share of unpaid debt remains relatively low. 

But for many in SF, Biden’s student loan plan could completely erase their outstanding loans and ease the added financial burden they place on low-income and middle-income households. 

4. Biden’s plan—or really, any plan—will be imperfect. 

It’s not easy to pay off student debt, and a lot of factors go into one’s ability to get rid of loans.

Cost of living, public or private education, type of graduate studies and post-grad career choice are just a few of the factors that can affect one’s everyday living costs. 

But Biden’s plan doesn’t include those factors in debt forgiveness. Nor does it make any provisions for those carrying graduate school debt. 

A student walks on San Francisco State University's quad.
Students make their way around the San Francisco State University (SFSU) campus on January 26, 2022. | Camille Cohen/The Standardander campus on Jan 26, 2022. | Camille Cohen | Source: Camille Cohen/The Standard

Some experts say that choice was a strategic “middle ground” that sought to benefit borrowers most vulnerable to heavy debts. Others say the shortcomings reflect the complicated structure of the loan forgiveness program, which requires means-testing borrowers to see if they qualify for aid. 

“A perfect policy would not just be about income—it would be about income in relation to the cost of living in a certain area,” said Braga. “But if you start making a policy too complex, it will be very hard to implement.”