BILL ANALYSIS Ó
AB 721
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
721 (Medina) - As Amended April 13, 2015
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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:
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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
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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
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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
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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
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