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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