BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1289
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          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
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          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
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           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081