BILL ANALYSIS �
AB 534
Page 1
Date of Hearing: May 8, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 534 (Wieckowski) - As Amended: April 29, 2013
Policy Committee: Higher
EducationVote:8-4
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the state's postsecondary education
institutions to provide counseling to all students with loans
from the institution or a private lender or recommended to a
student by the institution. Specifically, this bill:
1)Requires the University of California (UC), the California
State University (CSU), the California Community Colleges
(CCC), accredited independent institutions, and private
postsecondary institutions, to provide entrance and exit
counseling, with specified information, to these students at
each of their respective campuses.
2)Stipulates that a lender shall not accept a final application
for a private student loan without receiving certification
from the applicant's institution that the applicant has
received the required entrance counseling.
3)Authorizes the institution to assess a reasonable fee, not to
exceed $50, to the lender to defray the costs of the
counseling.
4)Declares that nothing in the bill is to be interpreted to
conflict with federal law.
FISCAL EFFECT
UC and CSU estimate annual systemwide staffing costs of several
hundred thousand dollars, and the CCC estimates annual costs for
all colleges exceeding $1 million. These costs would only be
partially offset by revenues from the authorized fee. (The
AB 534
Page 2
segments note the bill allows them to assess the counseling fee
but does not require lenders to pay the fee. Moreover, a portion
of the fee revenue would be offset by the administrative cost
for assessment and collection from lenders.)
The segments point out other issues: (a) private loans have
fees, interest rates, and payment plans that are very
customized, based on the borrower's credit rating and whether
there is a co-signer, thus it would be challenging for colleges
to know, track, and disseminate these details to students with a
high level of accuracy and efficiency; (c) private loans are
often initiated by the student (unlike federal loans wherein the
school determines eligibility), thus the school is usually
notified about a private loan later in the process, and actually
often after the fact; (c) the bill does not acknowledge existing
private lender disclosure requirements under the Truth in
Lending Act.
COMMENTS
1)Purpose . According to the author, AB 534 is intended to
require consistent counseling for students regardless of the
source of their loan. The bill intends to mimic, for private
loans, counseling already required for federal loans, whereby
students receive basic information 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.
2)Background . Federal student loans have fixed rates with set
caps, limits on fees, and flexible repayment options. While
these loans make up the majority of student loan borrowing,
there are limits to how much students may borrow under federal
loan programs, thus students' remaining "unmet need" to cover
total educational expenses are often financed through private
loans. Unlike federal loans, private loans often lack certain
consumer protections and flexible repayment options of federal
loans, such as unemployment deferment, income-based repayment,
and loan forgiveness programs.
In its 2011 report on student debt, the Institute for Access
and Success indicates that 33% of bachelor's degree recipients
graduated with private loans, with an average loan amount of
$12,550. There is great variation in private loan borrowing
among different types of institutions, however. Private loans
AB 534
Page 3
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.
3)Opposition . The California Bankers Association (CBA) argues
that compliance with this bill will be very difficult and is
another attempt to demonize a loan product. They contend the
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 fee provision.
4)Prior Legislation . 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.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081