BILL ANALYSIS Ó
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THIRD READING
Bill No: AJR 20
Author: John A. Pérez (D)
Amended: 6/14/13 in Senate
Vote: 21
ASSEMBLY FLOOR : 73-1, 6/6/13 - See last page for vote
SUBJECT : Federal Direct Stafford Loans: interest rates
SOURCE : Author
DIGEST : This resolution requests that Congress and the
President of the United States enact legislation that prevents
the doubling of interest rates for Federal Direct Stafford Loans
(FDSL) and creates a long-term legislative solution to maintain
affordable and reliable federal student loan rates while
preserving funding for other federal education programs and
benefits.
Senate Floor Amendments of 6/14/13 delete the request by the
Legislature to enact legislation to maintain a 3.4% interest
rate for FDSL and instead request enactment of legislation that
prevents the doubling of interest rates and creates a long-term
legislative solution to maintaining affordable interest rates
while preserving funding for other federal educational programs
and benefits.
ANALYSIS : 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
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Education's Federal Student Aid Office. These loan programs
include Subsidized Stafford Loans, Unsubsidized Stafford Loans,
and PLUS (Parent Loans for Undergraduate Students).
This resolution requests that the Congress and the President of
the U.S. enact legislation that prevents the doubling of
interest rates for FDSL and creates a long-term legislative
solution to maintain affordable and reliable federal student
loan rates while preserving funding for other federal education
programs and benefits. Specifically, this resolution makes the
following legislative findings and declarations:
1. Last year Congress passed, and President Obama signed, an
extension to maintain the interest rate for FDSL.
2. 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%.
3. 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.
4. 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.
5. The higher interest rate level is the same level that
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.
6. Student loan debt affects Americans of all ages.
7. 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.
8. Student loan debt has a significant impact on retirement, as
62% of workers 30 to 39 years of age inclusive, 20% of whom
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hold more than $50,000 in student loan debt, are projected to
have insufficient resources for retirement.
9. 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.
10.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.
11.The Bipartisan Policy Center estimates that Echo Boomers
(people born between 1981 and 1995) will account 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.
12.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.
13.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.
Background
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 California State University (CSU) Office of the
Chancellor, during 2011-12, the most recent year for which the
CSU has full information from all CSU campuses, approximately
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146,000 undergraduate and 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.
FISCAL EFFECT : Fiscal Com.: No
SUPPORT : (Verified 6/12/13)
Hispanic Association of Colleges and Universities
University of California
ARGUMENTS IN SUPPORT : 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."
ASSEMBLY FLOOR : 73-1, 6/6/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Beth
Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Grove,
Hagman, Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer,
Levine, Linder, Lowenthal, Maienschein, Mansoor, Medina,
Melendez, Mitchell, Morrell, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez,
Quirk, Quirk-Silva, Rendon, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
Pérez
NOES: Donnelly
NO VOTE RECORDED: Dahle, Gray, Holden, Logue, Salas, Vacancy
MW/JA:k 6/15/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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