BILL ANALYSIS Ó AB 721 Page 1 Date of Hearing: April 29, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 721 (Medina) - As Amended April 13, 2015 ----------------------------------------------------------------- |Policy |Higher Education |Vote:|12 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill requires postsecondary educational institutions to disclose data on student loan debt and to disclose specified information to students seeking private student loans. Specifically, this bill: AB 721 Page 2 1)Requires all public, private, and independent postsecondary institutions, except the California Community Colleges (CCC), to make available to the public upon request and on their respective websites the following regarding graduates and student loan debt: a) Number of students who started as first-time students at the institution and received a certificate or degree during the academic year. b) The number and percentage of students in (a) who borrowed while enrolled at the institution through any student loan program and the total principal borrowed. c) The number and percentage of students in (a) who borrowed while enrolled at the institution through any federal student loan program and the total principal borrowed. d) The average principal borrowed by the students counted in (b) and in (c). 2)Requires all private, independent, and public institutions, including the CCC, prior to certifying a borrower's eligibility for a private student loan, to comply with (1) and to inform the student of all unused federal student loan moneys available to that student. 3)Requires an institution that does not participate in federal student loan programs to (a) inform the student of such and that the student may be eligible for federal loans at a AB 721 Page 3 participating institution, and (b) provide the student with information regarding the Cal Grant and Federal Student Aid websites. FISCAL EFFECT: 1)Negligible fiscal impact to the University of California (UC) and the California State University (CSU), as both segments already comply with the reporting requirements of this bill. 2)As the community colleges currently are not subject to the reporting requirements, state reimbursable costs, assuming an average cost of $3,000 per campus, would be about $336,000 annually (GF-Prop 98). COMMENTS: 1)Purpose. According to The Institute for College Access and Success (TICAS) report, "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 requires public, private, independent postsecondary AB 721 Page 4 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 conduct 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 data disclosure requirements of this bill are based on the CDS. 2)Private loans vs. federal loans. Private loans typically have variable interest rates and, unlike federal loans, are not eligible for deferment, income-based repayment, or loan forgiveness. 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. This bill requires institutions to notify students, prior to certifying a private student loan, of the student's eligibility for federal student loan moneys, and, if the AB 721 Page 5 institution does not participate in federal loans, to notify students that the student may be eligible for federal loans at a participating institution. 3)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 (22 as of July 2014) are electing not to participate in federal loan programs, thus more than 250,000 students at these campuses 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. 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. Analysis Prepared by:Chuck Nicol / APPR. / (916) 319-2081 AB 721 Page 6