BILL ANALYSIS Ó
AB 2377
Page 1
ASSEMBLY THIRD READING
AB 2377 (John A. Pérez)
As Amended May 23, 2014
Majority vote
HIGHER EDUCATION 13-0 APPROPRIATIONS 13-0
-----------------------------------------------------------------
|Ayes:|Williams, Chávez, Bloom, |Ayes:|Gatto, Bocanegra, |
| |Fong, Fox, Jones-Sawyer, | |Bradford, |
| |Levine, Linder, Medina, | |Ian Calderon, Campos, |
| |Olsen, Quirk-Silva, | |Eggman, Gomez, Holden, |
| |Weber, Wilk | |Linder, Pan, Quirk, |
| | | |Ridley-Thomas, Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
-----------------------------------------------------------------
SUMMARY : Establishes the California Student Loan Refinancing
Program (Program) to provide student loan refinancing options to
qualified borrowers. Specifically, this bill :
1)Establishes the Program, to be administered by the California
Educational Facilities Authority (CEFA) to help eligible
students and graduates refinance loan debt at favorable rates,
to create a revolving fund so that additional refinancing may
occur to help more students and graduates, and through the
creation of a loan loss reserve that can be leveraged by
private lenders in the private student loan market.
2)Authorizes CEFA to contract with qualified financial
institutions and requires CEFA to establish a loss reserve
account for each financial institution with which CEFA
contracts. Provides that 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, cannot exceed $75,000.
3)Provides that a financial institution that seeks to enroll a
qualified borrower must provide specified disclosures to the
borrower and follow required protocol for notifying CEFA of
the provision of the qualified loan. Requires a borrower to
pay an administration fee, as determined by CEFA.
4)Requires CEFA to establish a process, as specified, for
AB 2377
Page 2
qualified financial institutions to submit claims for
reimbursement for losses incurred as a result of qualified
loan defaults.
5)Requires annual reporting to the Governor and the Legislature
regarding the program's financial condition and its results.
6)Authorizes CEFA to facilitate a secondary market for a
qualified loan under the program by providing security for
that loan. Approved actions include assigning loss reserve
accounts to other entities transferring a qualified loan from
a financial institution to a securitization trust, and
assisting underwriters in marketing a qualified loan to the
secondary market.
7)Authorizes CEFA to adopt emergency regulations for
implementation of the Program.
EXISTING LAW establishes CEFA, housed in the State Treasurer's
Office, for the purpose of issuing revenue bonds to: (1) assist
postsecondary education institutions in the expansion and
construction of educational facilities; (2) provide public and
private institutions with additional means to assist students in
financing cost of attendance; (3) to develop housing on or near
institutions; and, to make grants to private institutions to
assist students in preparing for higher education. CEFA is
authorized to issue tax-exempt bonds, and therefore may provide
more favorable financing than might otherwise be obtainable.
The law specifically provides that bonds issued by CEFA shall
not be a debt, liability, or claim on the faith and credit or
the taxing power of the State of California or any of its
political subdivisions. The full faith and credit of the
participating institution is normally pledged to the payment of
the bonds. The CEFA consists of: 1) the Director of Finance,
2) the Controller, 3) the Treasurer, who serves as chairperson,
and 4) two members appointed by the Governor for four year
terms, as specified.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, the loan loss reserve would need an initial infusion
of $5 million to $10 million in state funds. (Of this amount, up
to several million may be available from the balance of funds in
a loan program at CEFA that is winding down.) CEFA's
administrative costs would be covered by transaction fees to
AB 2377
Page 3
program participants.
COMMENTS : In the 1980s, the California State Treasurer
administered the California Student Loan Authority (CSLA); a
student loan program to purchase federally reinsured educational
loans from eligible lending institutions by issuing tax-exempt
revenue bonds, thereby expanding student access to such low-cost
federally reinsured loans. In 1995, the California Student Loan
Authority merged with CEFA, the functions were expanded under
CEFA to include direct student lending from proceeds of
tax-exempt revenue bonds issued by CEFA. After the CSLA & CEFA
merger, CEFA developed two fixed rate student loan programs for
higher education: Cal Loan Bond Program (needs-based); and,
Cal-Edge Bond Program (credit-based).
According to information provided by the Treasurer's Office, the
minimum loan amount was $2,500 and the maximum loan amount was
$50,000 (undergrad) and $75,000 (graduate). Most loans were
between $5,000 to $10,000. Some individuals took out multiple
loans. The last loan made was about 10 years ago. In October of
2013: outstanding bond amounts totaled $5.1 million; 1,404
loans were outstanding, totaling $12.1 million; 875 loans were
in default, totaling $10.9 million; and, average interest rates
ranged from 7.5% to 8.4%. Earlier this year, CEFA made the
decision to sell the remaining debt and begin to wind-down the
program.
According to the author, "While the Legislature has continued to
fight for college affordability on the front end, very little
has been done to assist the students that have already incurred
loan debt. College graduates must begin the process of
servicing their student loan debt very shortly after they
graduate; however, depending on the type of loans they have,
their options for reducing debt repayment or creating other
repayment pathways tied to their employment circumstances are
limited." The author notes that student loan refinancing can
have a huge impact on a borrower, potentially saving thousands
in interest over the life of the loan(s). This bill provides
CEFA authority for loan consolidation, interest rate buy-down,
debt restructuring, establishing a loan loss reserve account,
and alignment with various federal student loan alternative
repayment programs.
AB 2377
Page 4
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960
FN: 0003801