As a part of a study on financing higher education in California, information is presented on student loans and alternative methods of financing. Part 1 reviews problems caused by a heavy reliance on the federal Guaranteed Student Loan program (GSL). It discusses troubles of the GSL program; the lack of policy purpose; program costs; defaults; generic problems of student loans; and defining the role of loans. Part 2 deals with financing alternatives for higher education, comparatively analyzing proposed new ways of financing higher education that might reduce the dependence on the GSL program. It focuses on the shared burden of financing higher education; the sources of strain on parents and students; managing burdens through managing risk; incentives for financial planning to manage burdens; the importance of details; income contingent loans; prepaid tuition; college savings bonds and IRAs; public service benefit programs; and such additional alternatives as cooperative education programs, raising student earnings expectations, and parental loans tied to the need analysis system. The importance of not repeating the mistakes of the GSL program when new financing mechanisms are introduced is stressed. Lessons drawn from the GSL experience include the following: over-reliance on one financing mechanism risks distorting educational decisions and shifting the burden of cost to one party; subsidies can lead to such over-reliance and can crowd out appropriate growth in grant programs; and great harm to the effectiveness of the student financial aid system can result. Contains 16 references. Tables are included. (SM)