BILL ANALYSIS Ó
AB 2377
Page 1
Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2377 (John A. Perez) - As Introduced: February 21, 2014
Policy Committee: Higher
EducationVote:13-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes a program in the State Treasurer's Office
(STO) to refinance student loan debt. Specifically, this bill:
1) Establishes the California Student Loan Refinancing
Program, within the STO and with guidance from the
California Educational Facilities Authority (CEFA)-to help
eligible students and graduates to refinance loan debt.
2) Authorizes the program to use CEFA's bonding authority
to provide student loan refinancing options, as specified.
3) Limits program eligibility to persons meeting all of the
following:
a) California residency.
b) Completion of a bachelor's degree.
c) Employment in a public service program or by a nonprofit
organization.
d) Ability to repay.
e) Any additional qualifications imposed by the Treasurer.
FISCAL EFFECT
Discussions with the author's office and the STO indicate that
the refinancing program would likely use a loan loss reserve
fund, under which graduates could refinance their outstanding
loans at more favorable terms, and CEFA would in turn place a
portion of the loan amounts into a reserve fund to cover
defaults, thus reducing the risk to the financial institutions.
Such a program would need an initial infusion of $5 million to
AB 2377
Page 2
$10 million in state funds. (Of this amount, up to several
million may be available from the balance of funds in a loan
program at CEFA that is winding down.) It is expected that the
state funds could be leveraged up to 10:1. CEFA's administrative
costs would be covered by transaction fees to program
participants.
COMMENTS
1)Background . CEFA issues tax-exempt revenue bonds to (a) assist
postsecondary education institutions in the expansion and
construction of educational facilities; (b) provide public and
private institutions with additional means to assist students
in financing cost of attendance; (c) to develop housing on or
near institutions; and, (d) make grants to private
institutions to assist students in preparing for higher
education. Bonds issued by CEFA are not a debt, liability, or
claim on the faith and credit or the taxing power of the
state. The full faith and credit of the participating
institution is normally pledged to the payment of the bonds.
2)Purpose . The author notes students' increasing debt levels and
contends that student loan refinancing can have a huge impact
on a borrower, potentially saving thousands in interest over
the life of their loans. This bill provides CEFA authority for
loan consolidation, interest rate buy-down, debt
restructuring, establishing a loan loss reserve account, and
alignment with various federal student loan alternative
repayment programs. The program would focus on graduates with
outstanding private student loan debt as opposed to federal
loans.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081