BILL ANALYSIS Ó
AB 721
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Date of Hearing: April 7, 2015
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Jose Medina, Chair
AB 721
(Medina) - As Introduced February 25, 2015
SUBJECT: Student financial aid: private student loans
SUMMARY: Establishes requirements on institutions related to
disclosure of student loan data and disclosure of information to
students seeking private loans. Specifically, this bill:
1)Requires public, private or independent colleges, except
California Community Colleges (CCC), to provide average
graduate loan debt information, as defined below, to the
public on the institution's internet website and to the
California Student Aid Commission (CSAC).
a) Requires the institution to report and calculate all of
the following:
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i) The number of students who started as first-time
students at the institution and received a certificate,
associate's degree or bachelor's degree during that
academic year;
ii) The number and percentage of students in (a) who
borrowed while enrolled through any student loan program;
including federal, state, institutional, and any private
loans certified by the institution;
iii) The total principal borrowed in the loans in (b);
and
iv) The number and percentage of the students in (a) who
borrowed while enrolled through any federal student loan
program.
b) Requires the institution to report the following to
CSAC:
i) The percentages calculated pursuant to (ii) and
(iv); and,
ii) The average cumulative principal borrowed by those
students who took out loans, separately for certificate,
associate degree, and bachelor degree programs.
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c) Provides that "loans" includes cosigned loans that
financed a student's own enrollment or attendance, but not
parental loans.
2)Requires public, private and independent institutions, prior
to processing a private student loan, to comply with (1) and
to provide the student information concerning all unused
federal student loan moneys available to that student.
3)Requires an institution that does not participate in federal
student loan programs to inform the student of such and that
the student may be eligible for federal loans at a
participating institution. The institution is required to
provide the student with information regarding the Cal Grants
and Federal Student Aid websites.
EXISTING LAW: Requires public, private and independent
postsecondary educational institutions, except the CCC, to state
in printed and online financial aid materials and with private
loan applications specified information related to federal
student loans and private loans.
FISCAL EFFECT: Unknown
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COMMENTS: Purpose of this bill. According to The Institute for
College Access and Success (TICAS) report, entitled Project on
Student Debt, Class of 2013, 55% of graduating seniors at
California's public and private four-year colleges had student
loans. The average student loan debt of these graduates was
$20,340. Nationwide, about one-fifth of students' debt was
comprised of private loans. According to the author, as a
growing number of students borrow to pay for college, it is
important to provide students the information necessary to make
informed choices about college attendance costs and student
lending options. This bill will require institutions to
disclose the average debt of graduates, inform students of
available unused federal student loan moneys prior to certifying
a private loan, and inform students if the institution does not
participate in federal loans.
Average graduate loan debt data. This bill would require
public, private, independent postsecondary education
institutions, and CCCs that certify private loans, to disclose
average debt of graduates by degree level. California's public
and most nonprofit, private four-year institutions disclose this
data currently to one or more of several organizations (U.S.
News & World Report, Peterson's and College Board) that conducts
annual surveys of colleges that include questions about student
loan debt. To make the annual surveys easier for colleges, the
organizations use questions from a shared survey instrument
called the Common Data Set (CDS). TICAS, in creating the
Project on Student Debt, Class of 2013, licenses and uses the
data from one of the surveying organizations. According to
TICAS, one limitation of the Common Data Set is that very few
for-profit colleges report debt data through CDS and national
data show that borrowing levels at for-profit colleges are, on
average, higher than borrowing at other types of colleges. The
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data disclosure requirements of this bill are based on the CDS.
Federal loan debt disclosures. In addition to CDS, there are two
other notable formats in which institutions report student loan
information. The Integrated Postsecondary Education Data System
(IPEDS) is required for all institutions and includes annual,
but not cumulative, student loan debt information. Federal
"gainful employment" (GE) rules will require most for-profit
programs, and certificate programs at non-profit and public
institutions, to provide program-level median graduate loan debt
data. The GE rules are scheduled to take effect July 1, 2015;
pending the outcome of ongoing industry litigation. This bill
follows the CDS average graduate loan debt formula; committee
staff understands that 84% of students that graduated from a
bachelor's degree program in California attended an institution
that voluntarily disclosed CDS data.
Private loans vs. federal loans. Private loans typically have
variable interest rates and are not eligible for deferment,
income-based repayment, or loan forgiveness that is available
with federal loans. Private student loans are also much harder
than other forms of consumer debt to discharge in bankruptcy
court. Generally, private loans are recommended as a last
resort for students. Data shows, however, that many students
who obtain private loans have unused federal loan moneys
available. According to TICAS, in 2011-12, 47% of private loan
borrowers borrowed less than they could have under the federal
Stafford loan program. This bill would require institutions to
notify students, prior to certifying a private student loan, of
the student's eligibility for federal student loan moneys, and,
if the institution does not participate in federal loans, to
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notify students that the student may be eligible for federal
loans at a participating institution.
The institution would be required to provide the student with
information regarding the Cal Grants and Federal Student Aid
websites.
CCC and federal loans. This bill would require institutions,
including CCCs, to comply with private loan disclosure and
average graduate debt disclosure prior to certifying a student's
eligibility for a private loan. The author notes that a growing
number of CCCs are electing not to participate in federal loan
programs. The author notes that as of July 2014, 22 CCCs chose
not to participate in federal loans. Meaning more than 250,000
CCC students are not provided the opportunity to participate in
the generally more consumer friendly federal loan program.
Representatives of colleges that have elected not to participate
in federal loans cite concerns about cohort default rate
sanctions; however, under federal rules colleges with low loan
participation rates can appeal if they fail to meet cohort
default rate requirements. It appears that many CCCs electing
to not participate in federal loan programs could successfully
appeal federal sanctions. According to the author, colleges
certifying private loans, particularly CCCs that do not provide
their students with the option to participate in federal loan
programs, should be required to disclose this important loan
information to their students.
Reporting requirements. This bill requires institutions to
report to CSAC specified information on average graduate debt;
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however, CSAC is not required to do anything with the reported
data. Also, because the majority of private, for-profit
institutions are not qualified to participate in the Cal Grant
Program, the rationale for reporting data to CSAC is unclear.
The author may wish to remove the requirement to report to CSAC
and instead require all data is made available to the public
upon request and through prominent placement on the
institution's website.
Technical and clarifying amendment. Committee staff suggests
amendments to clarify in section 69800.2 that the institution is
required to check federal loan eligibility before "certifying a
borrower's eligibility for private student loans".
REGISTERED SUPPORT / OPPOSITION:
Support
The Institute for College Access and Success
National Association of Social Workers
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Opposition
University of Phoenix
Analysis Prepared by:Laura Metune / HIGHER ED. / (916) 319-3960