Amended in Assembly May 23, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2377

Introduced by Assembly Member John A. Pérez

February 21, 2014

An act to add Article begin delete 7.5 (commencing with Section 94200) end delete begin insert 4.1 (commencing with Section 94157) end insert to Chapter 2 of Part 59 of Division 10 of Title 3 of the Education Code, relating to student loans, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

AB 2377, as amended, John A. Pérez. Student loans: California Student Loan Refinancing Program.

Under existing law, the California Educational Facilities Authority Act, the California Educational Facilities Authority is, among other things, authorized to borrow money and issue bonds, notes, and other obligations. The authority is also authorized to hold or invest in student loans, create pools of student loans, and sell bonds bearing interest on a taxable or tax-exempt basis or other interests backed by the pools of student loans.

This bill would establish the California Student Loan Refinancing Program begin delete within end delete begin insert under the administration of end insert the authority, begin delete and provide for its administration by the Treasurer’s office, end delete with the begin delete goals end delete begin insert goal end insert of helping eligible begin delete students and end delete begin insert college end insert graduates to refinance begin insert student end insert loan debt at favorable rates begin delete and end delete begin insert by end insert creating a revolving fund so that additional refinancing may occur to help more begin delete students and graduates end delete begin insert qualified borrowers, as defined, through the creation of a loss reserve account, as defined end insert . The bill would authorize the authority to begin delete issue bonds for purposes of providing student loan refinancing options, including loan consolidation, interest rate buy-down, debt restructuring, establishing a loan end delete begin insert contract with any financial institution, as defined, for the purpose of allowing the financial institution to participate in the program. The bill would require the authority to establish a end insert loss reserve account, begin delete and alignment with various federal student loan alternative repayment programs. The end delete begin insert consisting of moneys deposited by the authority, as specified, for each financial institution with which the authority enters into a contract. The bill would specify the conditions under which a qualified loan, as defined, may be enrolled in the program in order to obtain the protection against loss provided by its loss reserve account. end insert

begin insert The end insert bill would establish eligibility requirements for begin delete students and graduates. end delete begin insert qualified borrowers to participate in the program end insert begin insert . The bill would require the authority to submit an annual report to the Governor and the Legislature describing the program’s financial condition and results, as specified. end insert The bill would authorize the board of the authority to begin delete develop and adopt regulations and procedures end delete begin insert adopt emergency regulations end insert for the implementation of the program established by the bill.

Because this bill would authorize the authority to raise and expend funds for new purposes, the bill would make an appropriation.

Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) Over the last decade, tuition within the California higher
education system increased 145 percent at the University of
California and 191 percent at the California State University.

(b)  begin delete Recently, the Legislature, through the end delete begin insert The end insert Middle Class
Scholarship Act begin delete , has pursued efforts to end delete begin insert will end insert lower the costs of
tuition for prospective begin delete students, but little has been done for those end delete
begin insert students; however, more needs to be done to assist those students end insert
who have already graduated and suffered the worst of the
affordability squeeze, begin delete and have had end delete begin insert causing them end insert to incur more
student loan debt in order to begin delete achieve end delete begin insert complete end insert their college degrees.

(c) Student loan debt is a drag on our economy, preventing
graduates from entering graduate schools, achieving financial
independence, buying property, begin insert and end insert starting begin delete businesses, or
otherwise reinvesting in the state end delete begin insert businesses end insert .

(d) In the United States today, there is more than $1.2 trillion
in outstanding student loan debt, which works out to an average
of more than $26,000 per graduate. begin delete These debts lead end delete begin insert This level of
debt translates end insert to more than $200,000 per graduate in lost savings
and home equity, which in total accounts for $4 trillion in lost
national wealth.

(e) As of 2013, California residents begin delete have end delete begin insert had end insert an average of just
over $20,000 in student loan debt upon graduation. Of the
approximately 250,000 California residents who received
bachelor’s degrees both in and out of the state in 2012, 52 percent
had some level of student loan debt.

(f)  begin delete In the 1980s, the California State Treasurer administered a
$75 million student loan program that provided borrowers with
access to low-interest loans through the issuance of tax-exempt
revenue bonds. In 1995, end delete begin insert Through end insert the California Educational
Facilities begin delete Authority (CEFA) took over administration of the loan
program. end delete begin insert Authority, the state has the ability to develop a student
loan refinancing and consolidation program to assist college
graduates carrying student loan debt to meet their payment
obligations end insert begin insert . end insert

begin delete

(g) The CEFA retains the bond authority for this program, and
has the authority to use proceeds from the sale of bonds for, among
other things, “the refinancing of existing debt.”

end delete

SEC. 2.  

Article begin delete 7.5 end delete begin insert 4.1 end insert (commencing with Section begin delete 94200) end delete
begin insert 94157) end insert is added to Chapter 2 of Part 59 of Division 10 of Title 3
of the Education Code, to read:

 

Article begin delete 7.5. end delete begin insert 4.1. end insert   California Student Loan Refinancing Program

 

begin delete

94200.  

(a) The California Student Loan Refinancing Program
is hereby established, to be administered by the Treasurer’s office
with policy guidance from the authority. The goals of the program
are to help eligible students and graduates to refinance loan debt
at favorable rates and to create a revolving fund so that additional
refinancing may occur to help more students and graduates.

(b) The program may use the authority’s power to issue bonds
pursuant to Article 4 (commencing with Section 94140) for
purposes of providing student loan refinancing options that shall
include, but are not necessarily limited to, loan consolidation,
interest rate buy-down, debt restructuring, establishing a loan loss
reserve account, and alignment with various federal student loan
alternative repayment programs.

94201.  

Eligibility for the program shall be limited to persons
meeting all of the following requirements:

(a) Residency in California.

(b) Completion of a bachelor’s degree.

(c) Employment in a public service program or by a nonprofit
organization.

(d) Ability to repay, as determined by the authority.

(e) Any additional qualification imposed by the Treasurer.

94202.  

The board of the authority is authorized to develop and
adopt regulations and procedures for the implementation of this
article, including program administration requirements and
provisions to ensure the solvency of the financing.

end delete begin insert

begin insert 94157. end insert   

As used in this article, unless the context requires
otherwise, the following terms have the following meanings:

(a) “Executive director” means the Executive Director of the
California Educational Facilities Authority.

(b) “Financial institution” means a bank as defined under
paragraph (4) of subdivision (b) of Section 1201 of the Commercial
Code, including a federal- or state-chartered bank, that has been
approved by the authority to enroll qualified loans in the program
and has agreed to all terms and conditions set forth in this article
and as may be required by the authority. A financial institution
shall have a branch or office, or be otherwise present for
jurisdictional purposes, in California.

(c) “Loss reserve account” means an account in the State
Treasury or in any financial institution that is established and
maintained by the authority for the benefit of a financial institution
participating in the program for the purposes of any of the
following:

(1) Depositing all required fees paid by the financial institution
and the qualified borrower.

(2) Depositing contributions made by the state and, if applicable,
the federal government or other sources.

(3) Covering losses on enrolled qualified loans sustained by the
financial institution by disbursing funds accumulated in the loss
reserve account.

(d) “Private student loan” means a loan issued by a private
lending institution for the costs of attendance at any public or
private nonprofit college or university in the United States,
notwithstanding the definitions in subdivisions (i), (k), and (l) of
Section 94110.

(e) “Program” means the California Student Loan Refinancing
Program created pursuant to this article.

(f) “Qualified borrower” means an individual meeting all of
the following requirements:

(1) Residency in California.

(2) Completion of a bachelor’s degree.

(3) Employment in a public service program or by a nonprofit
organization located in California.

(4) Able to repay, as determined by the authority.

(5) Meeting the criteria established by the financial institution
and the authority.

(g) “Qualified loan” means a loan or a portion of a loan made
by a financial institution to a qualified borrower to refinance a
private student loan under the program. A qualified loan made
under the program may be made with the interest rates, fees, and
other terms and conditions agreed upon by the financial institution
and the qualified borrower.

end insert begin insert

begin insert 94158. end insert   

(a) The California Student Loan Refinancing Program
is hereby established under the administration of the authority.
The goal of the program is to help college graduates who meet the
eligibility criteria of the program, who are defined as qualified
borrowers under Section 94157, to refinance student loan debt at
favorable rates. This goal would be achieved through the creation
of a revolving fund so that additional refinancing may occur to
help more qualified borrowers, and through the creation of a loan
loss reserve that can be leveraged by private lenders in the private
student loan market.

(b) The authority may contract with any financial institution
for the purpose of allowing the financial institution to participate
in the program.

(c) A credit union operating pursuant to a certificate issued
under the California Credit Union Law (Division 5 (commencing
with Section 14000) of the Financial Code) may participate in the
program only to the extent participation is in compliance with the
California Credit Union Law. Nothing in this article shall be
construed to limit the authority of the Commissioner of Business
Oversight to regulate credit unions subject to the commissioner’s
jurisdiction under the California Credit Union Law.

end insert begin insert

begin insert 94159. end insert   

(a) The authority shall establish a loss reserve account
for each financial institution with which the authority enters into
a contract.

(b) The loss reserve account for a financial institution shall
consist of moneys deposited by the authority and, as applicable,
deposited by the qualified borrowers, the financial institution, or
any other source.

(c) Notwithstanding any other law, the authority may establish
and maintain loss reserve accounts, as provided in subdivision (c)
of Section 94157, with any financial institution under any policies
the authority may adopt.

(d) All moneys in a loss reserve account established pursuant
to this article are the exclusive property of, and solely controlled
by, the authority. Interest or income earned on moneys credited
to the loss reserve account shall be deemed to be part of the loss
reserve account. The authority may withdraw from the loss reserve
account all, or a portion of, the interest or other income that has
been credited to the loss reserve account. Any withdrawal made
pursuant to this subdivision shall be used for the sole purpose of
offsetting costs associated with carrying out the program, including
administrative costs and loss reserve account contributions.

(e) The combined amount to be deposited by the financial
institution into any individual loss reserve account over a
three-year period, in connection with any single qualified
borrower, shall be not more than seventy-five thousand dollars
($75,000).

end insert begin insert

begin insert 94160. end insert   

(a) If a financial institution seeks to enroll a qualified
loan in the program in order to obtain the protection against loss
provided by its loss reserve account, after disclosing relevant
qualified loan financial information to the qualified borrower, it
shall notify the authority in writing on a form prescribed by the
authority, within 15 calendar days after the date on which the
qualified loan is made, of all of the following:

(1) The disbursement of the qualified loan.

(2) The dollar amount of the qualified loan enrolled.

(3) The interest rate applicable to, and the term of, the qualified
loan.

(4) The amount of any administrative fee related to the
processing of an existing loan or the issuance of a new loan.

(b) The executive director may authorize an additional five days
for a financial institution to submit the written notification
described in subdivision (a) to the authority on a loan-by-loan
basis for a reason limited to conditions beyond the reasonable
control of the financial institution.

(c) When making a qualified loan that will be enrolled under
the program, the financial institution shall require the qualified
borrower to whom the qualified loan is made to pay an
administration fee as determined by the authority. The financial
institution shall also pay an administration fee in an amount equal
to the fee paid by the qualified borrower. The financial institution
shall deliver the fees collected under this subdivision to the
authority for deposit in the loss reserve account for the financial
institution.

end insert begin insert

begin insert 94161. end insert   

(a) The authority shall establish procedures under
which financial institutions may submit claims for reimbursement
for losses incurred as a result of qualified loan defaults. A financial
institution that charges off all or part of a qualified loan to the
loss reserve account may file a claim for reimbursement with the
authority if all of the following conditions are met:

(1) The claim occurs contemporaneously with the action of the
financial institution to charge off all or part of the qualified loan.

(2) The charge off on a qualified loan is made in a manner that
is consistent with the financial institution’s usual method for
making determinations on personal loans that are not qualified
loans.

(3) The financial institution has met all of the conditions
established by the authority to assist the borrower in making
payments prior to filing a claim for reimbursement.

(b) Costs for which a financial institution may be reimbursed
from its loss reserve account include the amount of qualified loan
principal charged off, accrued interest on the principal, reasonable
out-of-pocket expenses incurred in pursuing its collection efforts,
including preservation of collateral, and any other related costs.
Proper documentation of the expenses, to the satisfaction of the
authority, shall be presented at the time of the claim.

(c) If a financial institution files two or more claims
contemporaneously, and there are insufficient funds in the loss
reserve account at that time to cover the entire amount of such
claims, the financial institution may designate the order of priority
in which the claims shall be paid.

(d) A financial institution may seek reimbursement of qualified
loan losses prior to the liquidation of collateral, if any, from
defaulted qualified loans. The financial institution shall repay the
loss reserve account for any moneys received as reimbursement
under this section if the financial institution recovers moneys from
the qualified borrower or from the liquidation of collateral for the
defaulted qualified loan, less any reasonable out-of-pocket
expenses incurred in collection of this amount.

(e) In any case in which the payment of a claim under this
section has fully covered a financial institution’s loss on a qualified
loan, the financial institution shall assign to the authority any right
or title to, or interest in, any collateral, security, or other right of
recovery in connection with a qualified loan made under the
program.

end insert begin insert

begin insert 94162. end insert   

Notwithstanding Section 10231.5 of the Government
Code, the authority shall annually submit a report to the Governor
and the Legislature that describes the program’s financial
condition and its results. Programmatic results described in the
report shall include, but not necessarily be limited to, the total
number of qualified borrowers served and the dollar amount of
qualified loans issued for all new qualified loans issued since the
report for the prior year. The report required by this section shall
be submitted in accordance with Section 9795 of the Government
Code.

end insert begin insert

begin insert 94163. end insert   

The authority may enter into agreements with financial
institutions, or with other agencies of the state, to provide
necessary assistance in carrying out the program, including
origination and servicing of qualified loans.

end insert begin insert

begin insert 94164. end insert   

Notwithstanding the other provisions of this article,
the authority may facilitate the development of a secondary market
for a qualified loan under the program by providing security for
that loan, thereby increasing participation in the program by
financial institutions and improving access to qualified borrowers
to refinance private student loans. For purposes of this section,
the actions that the authority may take include, but are not
necessarily limited to, assigning all or a portion of any loss reserve
account to any other entity in connection with providing security
for a qualified loan, including a trustee of a securitization trust,
transferring a qualified loan from a financial institution to a
securitization trust, and assisting underwriters in marketing a
qualified loan to the secondary market.

end insert begin insert

begin insert 94165. end insert   

The authority may adopt emergency regulations for the
implementation of the program. Any emergency regulations that
may be adopted by the authority under this section shall be adopted
in accordance with the Administrative Procedure Act (Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of
Title 2 of the Government Code). The adoption of these regulations
shall be deemed to be an emergency and necessary for the
immediate preservation of the public peace, health and safety, or
general welfare.

end insert