BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Senator Carol Liu, Chair
2015 - 2016 Regular
Bill No: SB 791
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|Author: |Hertzberg |
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|Version: |February 27, 2015 Hearing Date: |
| | April 8, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Olgalilia Ramirez |
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Subject: Student financial aid: Golden State Scholarshare
Trust Act
SUMMARY
This bill requires the Scholarshare Investment Board (Board)
to enter into an agreement with a card issuer for the purposes
of accumulating awards that are automatically deposited into
the designated Scholarshare trust account.
BACKGROUND
Existing law establishes the Golden State ScholarShare Trust
Program, administered by the State Treasurer's Office, offers
California families a tax-advantaged college tuition savings
plan that allows them to invest and save for a college
education with state tax-deferred and federal tax-free
benefits. Under this program, a participant opens an account
on behalf of a designated named beneficiary. The money
contributed by the participant to the account is placed in a
trust, and invested in special investment portfolios designed
to meet the needs of differently aged beneficiaries, and
different kinds of investors. The program offers federal and
California income tax-free treatment for qualified withdrawals
from a ScholarShare account. A qualified withdrawal is one
that is used to pay for qualified higher education expenses at
any eligible postsecondary educational institution throughout
SB 791 (Hertzberg) Page 2 of ?
the U.S. (and even some outside the U.S.) including many
vocational schools. (Education Code § 69980 et. seq.)
To oversee the trust program, existing law, establishes the
Scholarshare Investment Board, comprised of seven members
including the Treasurer, the Director of Finance, executive
director of the State Board of Education and representative
from postsecondary institutions, as specified. Among other
things, the Board is required to aggressively market the trust
program and develop strategies designed to educate California
residents about the benefits of saving for higher education
and information to help them decide the level of Scholarshare
participation and savings strategies that may be appropriate
for them. Under its current powers the Board is also
authorized to enter into an agreement with participants
including an individual, trust estate, partnership
association, company or corporation and several other entities
on behalf of beneficiaries. (EC § 69980 et. seq.)
ANALYSIS
This bill:
1. Requires, the Board to enter into an agreement with a
card issuer, as defined in Section 1747.02 of the Civil
Code, for the purposes of, but not limited to, allowing
credit card users to accumulate reasonable awards or
points leading to an award, that are automatically
deposited into the designated Scholarshare trust account.
2. Requires the agreement to provide for the accumulation of
awards by using a credit card as defined in Section
1747.02 of the Civil Code.
STAFF COMMENTS
1. Need for the bill: According to the author many families
fail to make regular contributions to their 529 college
saving accounts. At the same time, students with as
little as $500 or less in a college savings account are
more likely to enroll and graduate from college. There
are many options available for contributing to a college
SB 791 (Hertzberg) Page 3 of ?
savings account including automatic payroll deduction and
electronic transfer from a designated bank account. This
bill creates a new method for automating contributions
through cash rewards associated with credit card
transactions.
2. Similar programs. There are currently six states with
programs similar to that proposed in this bill including
Illinois, Alabama, Delaware, Massachusetts, New Hampshire
and Arizona. The Bright Directions program in Illinois,
and CollegeCounts in Alabama, both managed by Union Bank
and Trust Company, offer a 529 savings Visa card. Card
holders can earn a 1.529% reward on purchases that
accrues and is automatically contributed into the linked
account. Like most credit card programs, consumers need
to apply and receive approval before the card is issued.
Arizona, Delaware, Massachusetts and New Hampshire,
through Fidelity Investment program, offer a slightly
higher reward rate at 2% which, according to the Arizona
website, translates into $50 for every $2,500 spent.
Depending upon the consumers' spending habits and the
life of the account, the program may produce meaningful
savings.
Of the six states that offer a credit card rewards
program in their State 529 plan, none are statutorily
mandated.
3. Is this the right approach? Under its current duties and
powers, the Board already has the authority to enter into
an agreement with a card issuer and did in fact offer a
program similar to that described in the bill under its
previous investment management entity, Fidelity
Investments. The Board has since contracted with a new
management company and according to the Executive
Director, the credit card program has not been reinstated
due to a lack of consumer demand. Although there is
growing awareness of 529 savings plans, participation in
them is relatively low within California, as well as
throughout the country. If the intent is to motivate
contributions into these accounts, is requiring the Board
to take specific action the right approach? Or should
discretion as to how to motivate greater participation be
SB 791 (Hertzberg) Page 4 of ?
left to the Board?
This bill proposes a convenient method for encouraging
families to grow their college saving accounts. At the
same, requiring the Board to enter into an agreement may
have unintended effects of positioning the Board at a
competitive disadvantage for negotiating a favorable
program on behalf of beneficiaries. For this reason,
Staff recommends the bill be amended to:
A. Require that the Board consider entering into
an agreement with a card issuer.
B. Report on their decision and rationale at a
regular meeting of the Board by January 1, 2017.
C. Delete the requirement that the Board enter
into an agreement with a card issuer.
SUPPORT
California Communities United Institute
California State University
Faculty Association of California Community Colleges (FACCC)
OPPOSITION
None received.
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