BILL ANALYSIS �
AB 1456
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Date of Hearing: March 18, 2014
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
AB 1456 (Jones-Sawyer) - As Introduced: January 9, 2014
SUBJECT : Higher education: tuition and fees: pilot program.
SUMMARY : Requires the California Student Aid Commission (CSAC),
the Trustees of the California State University (CSU), the Board
of Governors (BOG) of the California Community Colleges (CCC),
and requests the Regents of the University of California (UC) to
conduct a study of the effects of enacting legislation to
establish a "Pay it Forward, Pay it Back Pilot Program" (Pilot
Program). Specifically, this bill :
1)Finds that the rapidly increasing cost of postsecondary
education has grave consequences for students and the state's
economy and declares that the Legislature increase the state's
contribution to higher education funding and seek another
approach to financing the students' share of higher education
costs that will not result in students graduating from public
colleges and universities burdened with debt.
2)Establishes that the Pilot Program would be designed to
replace the current system of charging students upfront for
tuition/fees and room/board for enrollment at public
institutions.
3)Establishes that the Pilot Program would allow a resident
student qualified for admission to enroll without paying
upfront tuition/fees, and instead would sign a binding
contract to, upon graduation, pay a specified percentage of
his or her annual adjusted gross income to the state or the
institution for a specified number of years.
4)Establishes that the Pilot Program could vary by institution
in regards to the student costs and repayment terms and the
portion of cost paid by the state.
5)Requires that the Pilot Program study:
a) Identify at least one campus of one or more of the
public segments to participate;
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b) Specify the number of years and percentage of annual
adjusted gross income for a contract at each participating
institution that would reimburse the nonstate cost of a
student's attendance;
c) Establish an immediate source of funding for the first
15 to 20 years of the Pilot Program including the
establishment of a revolving fund for depositing payments,
and consider the use of social impact bonds as an immediate
funding source.
6)Defines "social impact bond" to mean an agreement between a
nongovernmental entity and a public institution of higher
education under which a student's cost of attendance is paid
for by the nongovernmental entity in exchange for a security
interest in the student's repayments.
7)Requires CSAC to submit a report on the study of the pilot
program to the Assembly Committee on Higher Education and the
Senate Committee on Education on or before September 30, 2015.
8)Makes the provisions of this bill inoperative on June 30, 2016
and repeals the provisions of this bill on January 1, 2017.
EXISTING LAW establishes a policy governing student fees at the
California Community Colleges (CCC) and establishes, effective
summer 2012, a $46 per unit fee. Existing law also provides
that statutes related to UC are applicable only to the extent
that the UC Regents make such provisions applicable and confers
upon the CSU Trustees the powers, duties, and functions with
respect to the management, administration, and control of the
CSU system. UC and CSU fees are established each year through
the Budget Act negotiations, with complementary actions on the
part of the UC Regents and the CSU Trustees to adopt negotiated
fee levels. Existing law establishes the Cal Grant and Middle
Class Scholarship programs to provide financial aid at colleges
and universities, to the extent that students and institutions
are eligible.
FISCAL EFFECT : Unknown
COMMENTS : Background on Affordability in California . According
to California Competes, to pace with demands of employers,
California will need to produce 2.3 million more degree and
certificate-holders than the 3.2 million the state is on track
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to achieve by 2025. The Institute for College Access and
Success notes that a student's ability to pay for college is a
major factor in enrollment and completion of a degree program;
significant unmet need results in students being less likely to
enroll and, once enrolled, low-income students are also less
likely to complete their degree program. Financial aid plays a
vital role in leveling the playing field and increasing access,
retention, and completion rates. As this Committee heard at the
October 7, 2013, oversight hearing on college affordability,
California has made a substantial commitment to college
affordability; still, there is room for improvement:
o There is an implicit policy whereby students and the State are
expected to share educational costs, but the relative
proportions are dependent on the State's fiscal situation. In
the past decade the student share of educational costs has
increased: In 2002-03, tuition at CSU covered 20% of
educational costs, by 2013-14 the student share increased to
45%. At UC, by 2013-14, tuition covered over 50% of average
educational costs.
o California's financial aid programs have grown in tandem with
tuition and fees and as a result many students have been
protected from fee increases. Between Cal Grants and
institutional aid, many lower- and middle-income families pay
no tuition. UC's Blue and Gold Opportunity Plan guarantees
full tuition coverage for students with family incomes up to
$80,000. At CSU, students with family incomes up to about
$75,000 typically pay no tuition. The Middle Class
Scholarship Program will reduce UC and CSU tuition for
families with income up to $150,000.
o State financial aid programs focus on tuition and ignore the
cost of living expenses that families face, and in California
these costs are about 20% higher than national averages. The
Cal Grant B program provides an Access Award for living
expenses of $1,473 annually. As the chart below indicates,
the stipend is not enough to cover living expenses.
-------------------------------------------------
|2013-14 Student |UC |CSU |CCC |
|Budgets | | | |
|-----------------------+--------+-------+--------|
|Tuition and Fees |$13,227 |$6,647 |$1,380 |
|-----------------------+--------+-------+--------|
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|Housing and Food |$10,496 |$9,103 |$7,378 |
|-----------------------+--------+-------+--------|
|Books and Supplies |$1,504 |$1,723 |$1,710 |
|-----------------------+--------+-------+--------|
|Transportation/Other |$4,486 |$2,665 |$4,222 |
|Expenses | | | |
|-----------------------+--------+-------+--------|
|Total Costs |$29,713 |$20,138 |$14,689 |
|-----------------------+--------+-------+--------|
|Tuition/Fees as % of |45% |33% |9% |
|Costs | | | |
-------------------------------------------------
o Relatively few California students report high debt levels.
According to the LAO, in 2010-11, about half of UC and CSU
baccalaureates graduated with no student loan debt. Among
students who borrowed, the average debt upon graduation for UC
students was $18,346 and for CSU students was $16,648. The
national average student debt for students who left school in
2012 was $29,400.
o Recommendations to the Committee included increasing the
amount of the Cal Grant B Access Award, increasing the number
of awards provided in the competitive Cal Grant program, and
focusing aid to students with identified need, among other
recommendations. Several witnesses testified to the
importance of increasing overall state support for
institutions so that institutions could continue to enroll
eligible students and provide adequate access to courses to
ensure on-time graduation.
Purpose of this bill . According to the author "California's
current financial aid system is broken into basically three
parts, loans, grants and scholarships. If a student's parents
cannot pay for college, nor do they qualify for grants or
scholarships and he/she does not want to take out loans then
that person will not be able to attend college. This legislation
is necessary in order to study a fourth type of financial aid,
Pay it Forward Pay it Back. This policy will allow a student to
attend a public college or four year university in California
without paying tuition, room and board. Upon graduating they pay
2%-4% of their gross income to a state or college trust fund for
a specified number of years."
Background on Pay it Forward . The Pay it Forward (PIF) model,
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which would allow students to attend college without upfront
payments by signing a contract to agree to pay a portion of
their income for a designated amount of time after graduation,
appears to have originated from a student-led project at
Portland State University in December 2012. This proposal is
similar to ideas from the Economic Opportunity Institute in
Washington and income-based payment programs in Australia and
the United Kingdom. In July 2013, Oregon became the first state
to pass legislation related to the proposal; the Oregon bill (HB
3472) requires the state's higher education coordinating
commission to study and consider proposing a pilot program. If
the Oregon commission determines a PIF pilot model is feasible,
a proposal is due to the Legislature in 2015. In addition to
California, at least 19 states have or are considering
legislation that appears based on the PIF model. Two measures
were introduced in Congress that would direct the U.S.
Department of Education, the Treasury and the Consumer Financial
Protection Bureau to study the feasibility of the model.
Overall cost of education . Proponents of PIF argue the model
increases access to college by providing an alternative to
up-front payments and loan-financed education that will
ultimately result in predictable, stable and manageable
post-graduation contribution requirements. However, critics
have expressed concern that PIF may result in students paying
more over their lifetime versus other alternative payment
structures. For example, critics note that if PIF covers only
tuition and fees, many students would still need to take out
loans to cover access costs; meaning they would be paying both
PIF and loan payments upon graduation. Further, it is unclear
whether a student that would currently qualify for a grant or
scholarship would, under PIF, be required to make payments
toward those costs. The author's office has indicated an
intention, which is not currently made clear in this bill, for
the Pilot Program to cover tuition and access costs and for
students to continue to access existing grant programs.
Share of cost equation . Critics of PIF have expressed concern
that the model reinforces the concept of higher education as an
individual transaction rather than a public good, and reduces
the burden on states to sustain/increase funding of higher
education. Critics point to the Australian contribution model,
which they argue resulted in cost shifting from government to
the students themselves. Proponents of PIF argue the model is a
social insurance plan in which graduates share of cost will
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ultimately be more favorable than under the current tuition
structure. The author's office has indicated an intention for
the Pilot Program to ensure the student's share of cost is
capped at 2% - 4% of gross income; however this provision is not
included in the scope of the study outlined in the bill. It is
also unclear how, without assurances of General Fund support for
the segments, this limitation would impact overall funding for
higher education and student access.
PIF vs. student loans . Proponents of PIF argue that the
proposal is not a loan, but more closely resembles Social
Security or Medicare. Contributions are not dependent on the
cost of education the student received; rather than borrowing
and then repaying a specific amount of money under specific loan
conditions, students would pay a percentage of their income for
a specific number of years. The Study of the Pilot Program
outlined in this bill would establish guidelines for the terms
of payments. While not identical, the payment shifting and
shared responsibility elements of PIF are somewhat similar to
the Tuition Postponement Option (TPO) provided at Yale in 1971.
Under TPO, about 3,300 alumni agreed to pay 4% of their annual
income for every $1,000 borrowed until the entire cohort's debt
was paid off. The wealthier students bought out of TPO early,
paying 150% of what was borrowed plus interest. Other students
defaulted, leaving lower-income students left covering a greater
burden of debt. In 2001 TPO ended, after Yale partially bailed
out those students still repaying on loans.
REGISTERED SUPPORT / OPPOSITION :
Support
California Communities United Institute
Veterans Caucus of the California Democratic Party
Opposition
California Teachers Association
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960
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