BILL ANALYSIS �
AB 534
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Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
AB 534 (Wieckowski) - As Amended: April 15, 2013
SUBJECT : Postsecondary education: institutional and financial
assistance information for students.
SUMMARY : Requires public and private postsecondary educational
institutions provide entrance and exit counseling, as specified,
for students enrolled at their institutions regarding student
loans offered by the institution or a private lender, and
prohibits a lender from accepting an application for a private
student loan without first receiving certification that the
counseling was conducted by the appropriate postsecondary
institution, which may charge a fee to the lender for this
service. Specifically, this bill :
1)Requires the following public and private postsecondary
educational institutions to provide entrance and exit
counseling for students at all campuses within their
respective jurisdictions with respect to any student loan
offered by the institution or a private lender offered or
recommended to the student by the institution or segment:
a) The Regents of the University of California;
b) The Trustees of the California State University;
c) The governing board of each community college district;
d) The governing body of each accredited independent
institution of higher education in this state; and,
e) The governing body of each private postsecondary
educational institution as defined in the Private
Postsecondary Education Act.
2)Allows entrance counseling sessions to be conducted in person
on a written form provided to the student that the student
signs and returns to the institution, or online with the
student acknowledging receipt of the information.
3)Requires entrance counseling be provided before the student
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enters into the loan agreement, expressed in a simple and
understandable manner and providing the student with following
information:
a) To the extent practicable, the effect of accepting the
loan to be disbursed on the eligibility of the borrower for
other forms of student financial assistance;
b) Information on how interest accrues and is capitalized
during periods when the interest is not paid by the
borrower;
c) The definitions of full-time and half-time enrollment at
the institution, during regular terms and intersession
terms, if applicable, and the consequences of not
maintaining full-time or half-time enrollment;
d) An explanation of the importance of contacting the
appropriate offices at the institution if the borrower
withdraws before completing his or her program of study so
that the institution can provide exit counseling;
e) Sample monthly repayment amounts, based on a range of
levels of indebtedness;
f) The obligation of the borrower to repay the full amount
of the loan, irrespective of whether the borrower completes
his or her program of study at the institution;
g) The likely consequences of default on the loan,
including adverse credit reports, delinquent debt
collection procedures, and litigation;
h) Information about whether the student has reached the
maximum on his or her federal student loan opportunities;
i) Specified contact information for questions about the
borrower's rights and responsibilities under the loan, and
information about how a student or a member of the public
may file a complaint about this institution with the Bureau
for Private Postsecondary Education, as specified; and,
j) Information about private loans that is required to be
provided to students by postsecondary educational
institutions pursuant to existing law (Education Code �
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69800).
4)Requires exit counseling be provided as close as practicable
to the date that a student graduates from, transfers from,
withdraws from, or otherwise completes his or her program of
study at, the institution, including all of the following:
a) Repayment plans that are available, including a
description of the different features of each plan and
sample information showing the average anticipated monthly
payments, and the difference in interest paid and total
payments, under each plan;
b) Debt management strategies that are designed to
facilitate the repayment of indebtedness;
c) An explanation that the borrower has the options to
prepay each loan, pay each loan on a shorter schedule, or
change repayment plans;
d) The likely consequences of default on the loan,
including adverse credit reports, delinquent debt
collection procedures, and litigation;
e) Information on the effects of consolidation on a
borrower's underlying loan benefits;
f) Information on grace periods, loan forgiveness,
cancellation, and deferment opportunities;
g) The borrower benefit programs of different lenders;
h) A general description of the tax benefits that may be
available to borrowers; and,
i) Information on how to enroll in income-based repayment.
5)Requires institutions to attempt to provide the exit
counseling information described to the student in writing
when a student leaves an institution without the knowledge of
the institution.
6)Prohibits a lender from accepting a final and complete
application or assessing any fees for a private student loan
without first receiving certification from the applicant's
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postsecondary educational institution that the applicant has
received entrance counseling from the educational institution
and that the counseling was conducted in person, unless the
certification specifies that the applicant elected to receive
the counseling in a manner other than in person.
7)Requires the certification to be signed by the borrower and
the institutional counselor, to include the date of the
counseling and the name, address, and telephone number of both
the counselor and the applicant; allows electronic facsimile
copy of the counseling certification to satisfy this
requirement; and requires the lender to maintain the
certification in an accurate, reproducible, and accessible
format for the term of the student loan.
8)Authorizes an institution to access a reasonable fee to the
lender to defray the cost of additional counseling in an
amount not exceeding $50 for providing the service.
FISCAL EFFECT : Unknown but institutions are authorized to
charge the lender a fee to cover counseling costs under this
bill.
COMMENTS : Need for the bill . According to the author, "The
goal of this bill is to require consistent counseling of
students across their various student loans. This bill achieves
that by mimicking for private loans (in California institutions)
what is already required for federal loans. Students receive
basic information about their federal loans from a financial aid
officer (or via a computer module) when they sign for a federal
student loan and at the time they leave the school.
This bill will require that they also receive comparative
information for their private loans at the times."
Federal v. private loans . Students have two options when
looking to take out loans-federal loans and private loans.
Federal 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 need" to cover total educational expenses are
often financed through private loans. Private loans often lack
the basic consumer protections and flexible repayment options of
federal loans, such as unemployment deferment, income-based
repayment, and loan forgiveness programs. According to The
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Institute for Access and Success in its report on student debt
in 2011, the most recent available national data indicate that
33% of bachelor's degree recipients graduated with private
loans, with an average private loan amount of $12,550. However,
there is great variation in private loan borrowing among
different types of institutions. Private loans are most
prevalent at for-profit colleges, where 64% of graduating
seniors have private loan debt. Neither federal nor private
student loans may be discharged through bankruptcy.
California data . According to data from the Project on Student
Debt, 51% of students who graduated from public and private
non-profit four-year universities in California in 2011 took out
student loans (41st nationally) with an average debt of $18,879
(46th nationally). However, this data is limited because it
doesn't include most for-profit institutions, some nonprofit
colleges did not report their student debt data, and the data
looks only at graduates. Nationally, 66% of college seniors who
graduated in 2011 had student loan debt, with an average of
$26,600 per student.
The Federal Reserve of San Francisco's Student Debt and Default
in the 12th District, indicates the share of private loans
increased rapidly from 2000 through 2007, consistent with the
broader trends of easy credit during the housing boom. At their
peak, private loans made up 26% of the total student loans in
the 20062007 academic year, for a total of $22.6 billion.
Students whose parents earned less than $36,000 accessed private
loans at roughly the same rate as students whose parents earned
more than $105,000 for the 20072008 school year. Private loan
activity began to diminish in 2008, consistent with tighter
credit conditions across all sectors, but they still accounted
for $7.9 billion in 20102011. The recent difficulties facing
credit markets in general, combined with increases in the
availability of federal student loans are reflected in
diminished use of private education loans. There is no reliable
source for exact information on total borrowing from these
sources.
Existing disclosure/counseling requirements . There are several
federal and state requirements intended to inform students'
borrowing decisions:
1)Federal law requires basic entrance and exit counseling for
any student taking out federally backed student loans.
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(Established by HR 4137, the Higher Education Reauthorization
Act of 2008)
2)Federal law requires applicants for private education loans to
submit a signed self-certification form provided by
postsecondary education institutions of higher education
before a private loan can be completed, containing numerous
disclosures and information about federal aid that may be
available in place of a private loan, the estimated total cost
of attendance, and the difference between the total cost and
estimated financial aid. (Established by HR 4137, the Higher
Education Reauthorization Act of 2008)
3)State law requires a public, private, or independent
postsecondary educational institution, except the CCC, to make
specified disclosures related to private student loans in
financial aid material and private loan applications provided
or made available by the institution, such as interest rates,
fees, comparisons to federal aid, and the inability to
discharge the loan through bankruptcy. [Established by SB
1289 (Corbett), Chapter 623, Statutes of 2012]
Arguments in support . Treasurer Bill Lockyer states, "As more
students rely on private loans to help pay for college, it is
important to all of us that they have the adequate information
and advice, and understand the terms of the loan." Consumers
Union notes that this bill creates a level playing field by
ensuring that students with private loans get the same
comprehensive counseling as those with federal loans."
Arguments in opposition . The California Bankers Association
argues that compliance with this bill will be very difficult and
is another attempt to demonize a loan product. They contend
this bill violates the federal National Bank Act and Dodd-Frank
Wall Street Reform and Consumer Protection Act by placing limits
on the extension of credit and assessment of fees and
interfering with a national bank's ability to exercise its
powers to conduct the business of banking. They also oppose the
provision allowing postsecondary educational institutions to
assess a lenders a fee for providing the counseling services
required by the bill.
Technical amendment . The author has agreed to accept a
following clarifying amendment:
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Page 3, line 37: (ii) Information regarding how a student or
any member of the public may file a complaint about this
institution lender with the Bureau for Private Postsecondary
Education Consumer Financial Protection Bureau by calling a
toll-free telephone number, or by completing a complaint form,
which can be obtained on the bureau's Internet Web site. The
toll-free telephone number and Internet Web site address of the
bureau shall be included.
Prior legislation . AB 330 (Chau), set for hearing in this
Committee on April 23, would require postsecondary educational
institutions to provide their net price calculators and average
student debt to the California Student Aid Commission as a
condition of Cal Grant eligibility. SB 1289 (Corbett), Chapter
623, Statutes of 2012, requires postsecondary higher education
institutions to make specified disclosures to students about
private student loans in financial aid materials. AB 2010
(Bonilla), Chapter 641, Statutes of 2012, prohibits a reverse
mortgage lender from accepting a complete and final application
for a reverse mortgage unless the applicant has completed in
person counseling or the counseling certification specifies that
the applicant elected to receive counseling in a manner other
than in-person.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Student Association
California Teachers Association
Chief Executive Officers of the California Community Colleges
Children's Advocacy Institute
Consumers Union
Bill Lockyer, Treasurer, State of California
Los Rios Community College District
Opposition
California Bankers Association
Analysis Prepared by : Sandra Fried / HIGHER ED. / (916)
319-3960
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