BILL ANALYSIS Ó SB 1289 Page 1 Date of Hearing: August 8, 2012 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 1289 (Corbett) - As Amended: June 26, 2012 Policy Committee: Higher EducationVote:6-2 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill requires private or independent postsecondary educational institutions, the California State University (CSU), and the University of California (UC) if the UC Regents concur, to provide specified information to students regarding federal and private student loans. Specifically, this bill: 1)Requires each institution to provide the specified information in all printed and online financial aid materials distributed by the institution to applicants and students and also with private loan application made available by the institution. 2)Allows the institutions to continue using financial materials in print before January 1, 2013 if an insert containing the required information is included. 3)Requires each institution, as part of a financial aid award package including private loans, to provide specified information regarding those loans. 4)Requires any institution providing a private loan lenders list to provide general information about loans available through the lender and the basis for each lender's inclusion on the list. 5)Requests the California Community Colleges to comply with all of the above. FISCAL EFFECT Costs for CSU and UC to update financial aid materials and SB 1289 Page 2 comply with the bill's notice requirements will be minor and absorbable. COMMENTS 1)Background . The cost of higher education has unquestionably increased over the last decade, forcing students to take out increasingly high levels of debt to finance their education. Students have two options when looking to take out loans - federal loans and private loans. Federal loans, like Stafford Direct Loans, have fixed rates with set caps, limits on fees, and flexible repayment options. While federal loans make up the majority of student loan borrowing, there are limits to how much money students can borrow under federal loan programs; the remaining unmet needs to cover total educational expenses are often financed through private loans. According to the Institute on College Access and Success (TICAS), private student loans are one of the riskiest ways to finance a college education. According to TICAS, like credit cards, private student loans usually have variable interest rates that are higher for those who can least afford them - as high as 18% in 2008. But unlike credit card debt, these loans are nearly impossible to discharge in bankruptcy. Private student loan borrowers are also not eligible for the important deferment, income-based repayment, or loan forgiveness options that come with federal student loans. 2)Purpose . According to the author, consumers, especially students without parental support and parents whose first child is headed to college, lack readily accessible and understandable information about the cost of a college education. They also lack unbiased, expert advice on the best way to borrow money to finance their education. 3)Opposition . The California Association of Private Postsecondary Schools argues that similar disclosures are already required under the federal Truth in Lending Act and under U.S. Department of Education financing aid regulations. 4)Prior Legislation . SB 1355 (Corbett) of 2008, a substantially similar bill, was vetoed by Governor Schwarzenegger, who argued that the federal disclosure requirements are sufficient. SB 1289 Page 3 Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081