Amended in Senate August 20, 2014

Amended in Assembly May 23, 2014

California Legislature—2013–14 Regular Session

Assembly BillNo. 2377


Introduced by Assembly Member John A. Pérez

February 21, 2014


An act to add Article 4.1 (commencing with Section 94157) to Chapter 2 of Part 59 of Division 10 of Title 3 of the Education Code, relating to student loans, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

AB 2377, as amended, John A. Pérez. Student loans: California Student Loan Refinancing Program.

Under existing law, the California Educational Facilities Authority Act, the California Educational Facilities Authority is, among other things, authorized to borrow money and issue bonds, notes, and other obligations. The authority is also authorized to hold or invest in student loans, create pools of student loans, and sell bonds bearing interest on a taxable or tax-exempt basis or other interests backed by the pools of student loans.

This bill would establish the California Student Loan Refinancing Program under the administration of the authority, with the goal of helping eligible college graduates to refinance student loan debt at favorable rates by creating a revolving fund so that additional refinancing may occur to help more qualified borrowers, as defined, through the creation of a loss reserve account, as defined. The bill would authorize the authority to contract with any financial institution, as defined, for the purpose of allowing the financial institution to participate in the program. The bill would require the authority to establish a loss reserve account, consisting of moneys deposited by the authority, as specified, for each financial institution with which the authority enters into a contract. The bill would specify the conditions under which a qualified loan, as defined, may be enrolled in the program in order to obtain the protection against loss provided by its loss reserve account.

The bill would establish eligibility requirements for qualified borrowers to participate in the program. The bill would require the authority to submit an annual report to the Governor and the Legislature describing the program’s financial condition and results, as specified. The bill would authorize the board of the authority to adopt emergency regulations for the implementation of the program established by the bill.

Because this bill would authorize the authority to raise and expend funds for new purposes, the bill would make an appropriation.

Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

The Legislature finds and declares all of the
2following:

3(a) Over the last decade, tuition within the California higher
4education system increased 145 percent at the University of
5California and 191 percent at the California State University.

6(b) The Middle Class Scholarship Act will lower the costs of
7tuition for prospective students; however, more needs to be done
8to assist those students who have already graduated and suffered
9the worst of the affordability squeeze, causing them to incur more
10student loan debt in order to complete their college degrees.

11(c) Student loan debt is a drag on our economy, preventing
12graduates from entering graduate schools, achieving financial
13independence, buying property, and starting businesses.

14(d) In the United States today, there is more than $1.2 trillion
15in outstanding student loan debt, which works out to an average
16of more than $26,000 per graduate. This level of debt translates
17to more than $200,000 per graduate in lost savings and home
18equity, which in total accounts for $4 trillion in lost national wealth.

P3    1(e) As of 2013, California residents had an average of just over
2$20,000 in student loan debt upon graduation. Of the approximately
3250,000 California residents who received bachelor’s degrees both
4in and out of the state in 2012, 52 percent had some level of student
5loan debt.

6(f) Through the California Educational Facilities Authority, the
7state has the ability to develop a student loan refinancing and
8consolidation program to assist college graduates carrying student
9loan debt to meet their payment obligations.

10

SEC. 2.  

Article 4.1 (commencing with Section 94157) is added
11to Chapter 2 of Part 59 of Division 10 of Title 3 of the Education
12Code
, to read:

13 

14Article 4.1.  California Student Loan Refinancing Program
15

 

16

94157.  

As used in this article, unless the context requires
17otherwise, the following terms have the following meanings:

18(a) “Executive director” means the Executive Director of the
19California Educational Facilities Authority.

20(b) “Financial institution” means a bank as defined under
21paragraph (4) of subdivision (b) of Section 1201 of the Commercial
22Code, including a federal- or state-chartered bank, that has been
23approved by the authority to enroll qualified loans in the program
24and has agreed to all terms and conditions set forth in this article
25and as may be required by the authority. A financial institution
26shall have a branch or office, or be otherwise present for
27jurisdictional purposes, in California.

28(c) “Loss reserve account” means an account in the State
29Treasury or in any financial institution that is established and
30maintained by the authority for the benefit of a financial institution
31participating in the program for the purposes of any of the
32following:

33(1) Depositing all required fees paid by the financial institution
34and the qualified borrower.

35(2) Depositing contributions made by the state and, if applicable,
36the federal government or other sources.

37(3) Covering losses on enrolled qualified loans sustained by the
38financial institution by disbursing funds accumulated in the loss
39reserve account.

P4    1(d) “Private student loan” means a loan issued by a private
2lending institution for the costs of attendance at any public or
3private nonprofit college or university in the United States,
4notwithstanding the definitions in subdivisions (i), (k), and (l) of
5Section 94110.

6(e) “Program” means the California Student Loan Refinancing
7Program created pursuant to this article.

8(f) “Qualified borrower” means an individual meeting all of the
9following requirements:

10(1) Residency in California.

11(2) Completion of a bachelor’s degree.

12(3) Employment in a public service program or by a nonprofit
13organization located in California.

14(4) Able to repay, as determined by the authority.

15(5) Meeting the criteria established by the financial institution
16and the authority.

17(g) “Qualified loan” means a loan or a portion of a loan made
18by a financial institution to a qualified borrower to refinance a
19private student loan under the program. A qualified loan made
20under the program may be made with the interest rates, fees, and
21other terms and conditions agreed upon by the financial institution
22and the qualified borrower.begin insert Only a loan determined by the authority
23to be an educational loan nondischargeable in bankruptcy as set
24forth in Section 523 of Title 11 of the United States Code as that
25section existed on August 15, 2014, shall be a qualified loan
26eligible for financing under this article.end insert

27

94158.  

(a) The California Student Loan Refinancing Program
28is hereby established under the administration of the authority.
29The goal of the program is to help college graduates who meet the
30eligibility criteria of the program, who are defined as qualified
31borrowers under Section 94157, to refinance student loan debt at
32favorable rates. This goal would be achieved through the creation
33of a revolving fund so that additional refinancing may occur to
34help more qualified borrowers, and through the creation of a loan
35loss reserve that can be leveraged by private lenders in the private
36student loan market.

37(b) The authority may contract with any financial institution for
38the purpose of allowing the financial institution to participate in
39the program.

P5    1(c) A credit union operating pursuant to a certificate issued
2under the California Credit Union Law (Division 5 (commencing
3with Section 14000) of the Financial Code) may participate in the
4program only to the extent participation is in compliance with the
5California Credit Union Law. Nothing in this article shall be
6construed to limit the authority of the Commissioner of Business
7Oversight to regulate credit unions subject to the commissioner’s
8jurisdiction under the California Credit Union Law.

9

94159.  

(a) The authority shall establish a loss reserve account
10for each financial institution with which the authority enters into
11a contract.

12(b) The loss reserve account for a financial institution shall
13consist of moneys deposited by the authority and, as applicable,
14deposited by the qualified borrowers, the financial institution, or
15any other source.

16(c) Notwithstanding any other law, the authority may establish
17and maintain loss reserve accounts, as provided in subdivision (c)
18of Section 94157, with any financial institution under any policies
19the authority may adopt.

20(d) All moneys in a loss reserve account established pursuant
21to this article are the exclusive property of, and solely controlled
22by, the authority. Interest or income earned on moneys credited to
23the loss reserve account shall be deemed to be part of the loss
24reserve account. The authority may withdraw from the loss reserve
25account all, or a portion of, the interest or other income that has
26been credited to the loss reserve account. Any withdrawal made
27pursuant to this subdivision shall be used for the sole purpose of
28offsetting costs associated with carrying out the program, including
29administrative costs and loss reserve account contributions.

30(e) The combined amount to be deposited by the financial
31institution into any individual loss reserve account over a three-year
32period, in connection with any single qualified borrower, shall be
33not more than seventy-five thousand dollars ($75,000).

34

94160.  

(a) If a financial institution seeks to enroll a qualified
35loan in the program in order to obtain the protection against loss
36provided by its loss reserve account, after disclosing relevant
37qualified loan financial information to the qualified borrower, it
38shall notify the authority in writing on a form prescribed by the
39authority, within 15 calendar days after the date on which the
40qualified loan is made, of all of the following:

P6    1(1) The disbursement of the qualified loan.

2(2) The dollar amount of the qualified loan enrolled.

3(3) The interest rate applicable to, and the term of, the qualified
4loan.

5(4) The amount of any administrative fee related to the
6processing of an existing loan or the issuance of a new loan.

7(b) The executive director may authorize an additional five days
8for a financial institution to submit the written notification
9described in subdivision (a) to the authority on a loan-by-loan basis
10for a reason limited to conditions beyond the reasonable control
11of the financial institution.

12(c) When making a qualified loan that will be enrolled under
13the program, the financial institution shall require the qualified
14borrower to whom the qualified loan is made to pay an
15administration fee as determined by the authority. The financial
16institution shall also pay an administration fee in an amount equal
17to the fee paid by the qualified borrower. The financial institution
18shall deliver the fees collected under this subdivision to the
19authority for deposit in the loss reserve account for the financial
20institution.

21

94161.  

(a) The authority shall establish procedures under
22which financial institutions may submit claims for reimbursement
23for losses incurred as a result of qualified loan defaults. A financial
24institution that charges off all or part of a qualified loan to the loss
25reserve account may file a claim for reimbursement with the
26authority if all of the following conditions are met:

27(1) The claim occurs contemporaneously with the action of the
28financial institution to charge off all or part of the qualified loan.

29(2) The charge off on a qualified loan is made in a manner that
30is consistent with the financial institution’s usual method for
31making determinations on personal loans that are not qualified
32loans.

33(3) The financial institution has met all of the conditions
34established by the authority to assist the borrower in making
35payments prior to filing a claim for reimbursement.

36(b) Costs for which a financial institution may be reimbursed
37from its loss reserve account include the amount of qualified loan
38principal charged off, accrued interest on the principal, reasonable
39out-of-pocket expenses incurred in pursuing its collection efforts,
40including preservation of collateral, and any other related costs.
P7    1Proper documentation of the expenses, to the satisfaction of the
2authority, shall be presented at the time of the claim.

3(c) If a financial institution files two or more claims
4contemporaneously, and there are insufficient funds in the loss
5reserve account at that time to cover the entire amount of such
6claims, the financial institution may designate the order of priority
7in which the claims shall be paid.

8(d) A financial institution may seek reimbursement of qualified
9loan losses prior to the liquidation of collateral, if any, from
10defaulted qualified loans. The financial institution shall repay the
11loss reserve account for any moneys received as reimbursement
12under this section if the financial institution recovers moneys from
13the qualified borrower or from the liquidation of collateral for the
14defaulted qualified loan, less any reasonable out-of-pocket expenses
15incurred in collection of this amount.

16(e) In any case in which the payment of a claim under this
17section has fully covered a financial institution’s loss on a qualified
18loan, the financial institution shall assign to the authority any right
19or title to, or interest in, any collateral, security, or other right of
20 recovery in connection with a qualified loan made under the
21program.

22

94162.  

Notwithstanding Section 10231.5 of the Government
23Code, the authority shall annually submit a report to the Governor
24and the Legislature that describes the program’s financial condition
25and its results. Programmatic results described in the report shall
26include, but not necessarily be limited to, the total number of
27qualified borrowers served and the dollar amount of qualified loans
28issued for all new qualified loans issued since the report for the
29prior year. The report required by this section shall be submitted
30in accordance with Section 9795 of the Government Code.

31

94163.  

The authority may enter into agreements with financial
32institutions, or with other agencies of the state, to provide necessary
33assistance in carrying out the program, including origination and
34servicing of qualified loans.

35

94164.  

Notwithstanding the other provisions of this article, the
36authority may facilitate the development of a secondary market
37for a qualified loan under the program by providing security for
38that loan, thereby increasing participation in the program by
39financial institutions and improving access to qualified borrowers
40to refinance private student loans. For purposes of this section, the
P8    1actions that the authority may take include, but are not necessarily
2limited to, assigning all or a portion of any loss reserve account
3to any other entity in connection with providing security for a
4qualified loan, including a trustee of a securitization trust,
5transferring a qualified loan from a financial institution to a
6securitization trust, and assisting underwriters in marketing a
7qualified loan to the secondary market.

8

94165.  

The authority may adopt emergency regulations for the
9implementation of the program. Any emergency regulations that
10may be adopted by the authority under this section shall be adopted
11in accordance with the Administrative Procedure Act (Chapter 3.5
12(commencing with Section 11340) of Part 1 of Division 3 of Title
132 of the Government Code). The adoption of these regulations
14shall be deemed to be an emergency and necessary for the
15immediate preservation of the public peace, health and safety, or
16general welfare.



O

    97