BILL ANALYSIS Ó
AJR 20
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AJR 20 (John A. Pérez)
As Amended June 14, 2013
Majority vote
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|ASSEMBLY: |73-1 |(June 6, 2013) |SENATE: |35-1 |(June 24, |
| | | | | |2013) |
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Original Committee Reference: HIGHER ED.
SUMMARY : Requests that Congress and the President of the United
States (U.S.) 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 educational programs and benefits.
The Senate amendments strengthen the request of the Legislature
by asking Congress and the President of the United States to not
only act by June 30, 2013, in order to avoid the doubling of the
FDSL, but to also create a long-term legislative solution that
will maintain affordable and reliable federal student loan
rates.
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
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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
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
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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.
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
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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
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: 0001214