BILL ANALYSIS �
AB 1456
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1456 (Jones-Sawyer) - As Amended: April 8, 2014
Policy Committee: Higher
EducationVote:8-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the Legislative Analyst's Office (LAO), as
the lead agency, and the California Student Aid Commission
(CSAC) to study, as specified, the effects of enacting a Pay it
Forward/Pay it Back Pilot Program as an alternative to existing
student financial aid programs. Specifically, this bill:
1)Requires the study to examine the effects of a program whereby
eligible students would not pay tuition, fees, room or board
and would instead sign a binding contract to, upon graduation,
pay 2% to 4% of his or her annual adjusted gross income to the
institution for a specified number of years.
2)Requires that the study examine a pilot program that would
encompass at least one campus of the University of California
(UC), California State University (CSU), the California
Community Colleges (CCC) and one nonprofit private
postsecondary institution.
3)Requires the study to establish an immediate source of funding
for the first 15 to 20 years of the pilot program, including
establishment of a revolving fund for deposit of repayments,
and to consider the option of using "social impact bonds, "
which are defined as an agreement between a higher education
institution and a nongovernmental entity that pays the
students' costs of attendance in exchange for a security
interest in the students' repayments.
4)Requires CSAC to report the results of the study to the
Legislature by September 30, 2015.
AB 1456
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FISCAL EFFECT
1)One-time General Fund costs of around $100,000 for a research
position at CSAC to assist in the study.
2)The LAO indicates that its costs would be absorbed, but that
this study would displace other work. The LAO noted, however,
that it already has several other legislatively mandated
reports regarding higher education topics that are due in
2015.
3)Cost of implementing any future pilot program is unknown, but
would be major and depend on the number of students at the
pilot campuses that choose Pay it Forward/Pay it Back in lieu
of existing student financial aid and loan programs.
First-year costs would likely be in the tens of millions of
dollars.
COMMENTS
1)Purpose . 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."
2)Background . The Pay it Forward (PIF) model-allowing 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, specifically requiring
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. The State of
Washington is also conducting a study of this model. In
addition to California, at least 19 states have or are
AB 1456
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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.
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.
3)College Affordability and Student Debt in California . In the
past decade, with the significant increases in student fees,
students' share of educational costs have also increased-from
20% to 45% at CSU and to over 50% at UC. 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.
State financial aid programs focus on tuition, however, and
generally do not cover cost of living expenses, which in
California are about 20% higher than national averages. The
average total cost of attendance for a full-time student is
about $29,700 at UC, $20,100 at CSU, and $14,700 at CCC.
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 about $18,300 for UC students and $16,600 for CSU
students. The national average student debt for students who
left school in 2012 was $29,400.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081