BILL ANALYSIS �
AB 1456
Page 1
ASSEMBLY THIRD READING
AB 1456 (Jones-Sawyer)
As Amended April 8, 2014
Majority vote
HIGHER EDUCATION 8-1 APPROPRIATIONS 12-0
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|Ayes:|Williams, Bloom, Fong, |Ayes:|Gatto, Bocanegra, |
| |Jones-Sawyer, Levine, | |Bradford, |
| |Quirk-Silva, Weber, Wilk | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Holden, |
| | | |Pan, Quirk, |
| | | |Ridley-Thomas, Weber |
|-----+--------------------------+-----+--------------------------|
|Nays:|Olsen | | |
| | | | |
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SUMMARY : Requires the California Student Aid Commission (CSAC)
and the Legislative Analyst's Office to conduct a study of the
effects of enacting legislation to establish a "Pay it Forward,
Pay it Back Pilot Program" (Pilot Program).
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.
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EXISTING LAW establishes a policy governing student fees at the
California Community Colleges 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 : According to the Assembly Appropriations
Committee, one-time General Fund costs of around $100,000 for a
research position at CSAC to assist in the study. The
Legislative Analyst's Office (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. 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 :
Background. The Pay it Forward (PIF) model, 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 law 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
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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.
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
ultimately be more favorable than under the current tuition
structure.
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
University 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
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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 University partially bailed out those students
still repaying on loans.
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960
FN: 0003611