BILL ANALYSIS Ó
AJR 20
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ASSEMBLY THIRD READING
AJR 20 (John A. Pérez)
As Introduced May 13, 2013
Majority vote
HIGHER EDUCATION 12-0
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|Ayes:|Williams, Chávez, Fong, | | |
| |Fox, | | |
| |Jones-Sawyer, Levine, | | |
| |Linder, Medina, Olsen, | | |
| |Quirk-Silva, Weber, Wilk | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Requests that Congress and the President of the United
States (U.S.) maintain the Federal Direct Stafford Loans (FDSL)
interest rate at 3.4%. Specifically, this resolution :
1)Requests that Congress and the President of the United States
enact legislation to maintain the interest rate of 3.4% for
FDSL.
2)Makes the following findings and declarations:
a) Last year Congress passed, and President Obama signed,
an extension to maintain the interest rate for FDSL;
b) Unless action is taken by Congress and President Obama,
on July 1, 2013, the interest rate for FDSL will double
from 3.4% to 6.8%;
c) The average student loan borrower graduates with a debt
of $27,000, and the scheduled interest rate increase for
FDSL would cost almost 10 million borrowers an estimated
$1,000 more per year of education over the life of a loan;
d) FDSL have been a critical component for low- and
middle-income students working towards a postsecondary
degree, and over two-thirds of student loan borrowers are
from families with annual incomes under $50,000;
e) The higher interest rate level is the same level that
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graduate students and unsubsidized loan borrowers pay,
which has the potential to limit access to California's
public postsecondary educational institutions by
discouraging students from using loans to aid in paying for
their postsecondary education;
f) Student loan debt affects Americans of all ages,
including the following:
i) Forty-five percent of all American families hold
outstanding student loan debt;
ii) Thirty-six percent of families in households headed
by a person 45 to 54 years of age, inclusive, hold
student loan debt;
iii) Twenty-nine percent of families in households headed
by a person 55 to 64 years of age, inclusive, hold
student loan debt; and,
iv) Thirteen percent of families in households headed by
a person 65 to 73 years of age, inclusive, hold student
loan debt.
g) Student loan debt has a ripple effect on the economy, as
two million more adults 18 to 34 years of age, inclusive,
live in a household headed by their parents;
h) Student loan debt has a significant impact on
retirement, as 62% of workers 30 to 39 years of age
inclusive, 20% of whom hold more than $50,000 in student
loan debt, are projected to have insufficient resources for
retirement;
i) Each new household leads to an estimated $145,000 of
economic growth, suggesting that a delay in household
formation could be slowing broader economic growth;
j) Raising the interest rate of FDSL will make it even more
challenging for college graduates facing an already
difficult post-graduation job market to repay their loans;
aa) The Bipartisan Policy Center estimates that Echo
Boomers, people born between 1981 and 1995, will account
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for 75% to 80% of owner-occupied home acquisitions by the
year 2020, yet the current homeownership rate for Echo
Boomers is among the lowest in decades while the mortgage
interest rates are at historically low levels;
bb) According to the Congressional Budget Office, the
federal government makes $0.36 in profit for every dollar
it lends to all student borrowers, and student loans are
estimated to bring in $34 billion next year alone; and,
cc) Higher education loans should be used to subsidize the
cost of higher education, not to be used as a source of
profit for the federal government.
EXISTING LAW : Several programs for student loans have been
established under federal law through the William D. Ford Direct
Loan Program, which is operated by the U.S. Department of
Education's Federal Student Aid Office. These loan programs
include:
1)Subsidized Stafford Loans: These are needs-based loans that
cover the difference between a student's resources and the
cost of attending a college or university; the amount of loan
is dependent on the level of need, dependent status, and year
in college. The federal government pays the interest while
the student is attending the college or university and
subsidizes the interest throughout the life of the loan.
2)Unsubsidized Stafford Loans: Not based on financial need,
these loans generally cover the difference between the
subsidized Stafford Loan and the total cost of attending
college. Loans are made by private lending institutions and
repayment is guaranteed by the federal government. The
federal government sets the interest rates and fees.
3)PLUS (Parent Loans for Undergraduate Students): Available to
creditworthy parents of dependent students. These are not
needs-based and are federally guaranteed. Additionally, these
types of loans have been expanded for graduate or professional
degree students. The borrower is responsible for paying the
interest on PLUS loans during all periods, starting from the
date the loan is first disbursed.
Before July 1, 2010, Stafford, PLUS, and Consolidation Loans
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were also made by private lenders under the Federal Family
Education Loan Program. As a result of the Health Care and
Education Reconciliation Act of 2010, all new Stafford and PLUS
Loans come directly from the Department of Education under the
Direct Loan Program.
FISCAL EFFECT : Unknown. This resolution is keyed non-fiscal by
the Legislative Counsel.
COMMENTS : Congress last year passed, and President Obama signed
into law an extension to maintain the current interest rate for
FDSL at 3.4% through June 30, 2013. On July 1, 2013, unless
actions are taken, the interest rate for FDSL will double from
3.4% to 6.8%, costing student loan borrowers to pay
significantly more over the life of their loans.
The cost of higher education has increased over the last decade,
forcing students to take out increasingly higher levels of debt
to finance their education. The College Board's Trends in
Student Aid 2011 report notes that over the decade from 2000-01
to 2010-11, undergraduate borrowing increased by 56% per
full-time equivalent student. In California, cuts to public
higher education institutions have had an impact on how students
finance college and where they choose to attend school. In June
2012, the Public Policy Institute of California issued,
Defunding Higher Education, which found that, from 2007-2011,
fees at the University of California (UC) increased by 50% and
by 47% at the California State University (CSU).
In October of 2012, The Institute for College Access and Success
(TICAS) issued, Student Debt and the Class of 2011, which found
that state averages for debt at graduation from four-year
colleges ranged widely in 2011, from $17,250 to $32,450. TICAS
found that two-thirds of college seniors who graduated in 2011
had student loan debt averaging $26,600.
Additionally, TICAS found that the average debt of California
college graduates (from four-year public and private nonprofit
colleges) in 2011 was $18,879 and 51% of California students
graduated with debt. California ranks 46 among the 50 states
and the District of Columbia in average student debt and 41 in
percentage of students graduating with debt. To note, high-debt
states are mainly in the northeast and midwest and low-debt
states are mainly in the west and south.
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FDSL are loans for eligible students to help cover the cost of
higher education at a four-year college or university, community
college, or trade, career, or technical school. The U.S.
Department of Education offers eligible students at
participating schools direct subsidized loans and direct
unsubsidized loans. The goal of FDSL is to make higher
education more accessible to Americans by providing reliable
financial assistance to students that qualify. These loans play
a critical component, in addition to other forms of financial
aid, for low- and middle-income students working towards a
postsecondary degree; over two-thirds of student loan borrowers
are from families with annual incomes under $50,000.
To maximize accessibility to higher education, subsidized FDSL
have a fixed interest rate of 3.4%. The current interest rate
has been the subject of debate at the federal level as it
relates to the impact of the sequestration and new budget
proposals.
According to the author, "A doubling of the student loan
interest rate will only exacerbate the unacceptable trend of
skyrocketing student loan debt. Other proposals seek to
increase the interest rates for Stafford Loans without any
limit, which can further drive students into debt and out of
higher education. Ensuring that FDSL continue to have low
interest rates is crucial to keeping higher education accessible
and affordable for all Americans."
According to the University of California Office of the
President (UCOP), during 2011-12, the most recent year for which
UCOP has full information from all UC campuses, about 78,000
low-income UC undergraduates who demonstrated financial need
borrowed $337,586,878 in subsidized FDSL at an interest rate of
3.4%. Additionally, many UC graduate and professional degree
students and also parents of undergraduates borrowed
unsubsidized FDSL, as well as Graduate PLUS and Parent PLUS
loans. Those borrowers, too, would be affected by a change in
how Congress decides to set federal education loan interest
rates going forward.
According to the CSU Office of the Chancellor, during 2011-12,
the most recent year for which the CSU has full information from
all CSU campuses, approximately 146,000 undergraduate and
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teacher credential CSU students received subsidized FDSL.
According to the California Community College (CCC) Chancellor's
Office, most CCC students do not take out FDSL.
Analysis Prepared by : Jeanice Warden / HIGHER ED. / (916)
319-3960
FN: 0001091