BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 2377
Author: John A. Pérez (D)
Amended: 8/20/14 in Senate
Vote: 21
SENATE EDUCATION COMMITTEE : 5-1, 6/25/14
AYES: Liu, Correa, Hancock, Huff, Monning
NOES: Wyland
NO VOTE RECORDED: Block
SENATE APPROPRIATIONS COMMITTEE : 5-0, 8/14/14
AYES: De León, Hill, Lara, Padilla, Steinberg
NO VOTE RECORDED: Walters, Gaines
ASSEMBLY FLOOR : 74-2, 5/28/14 - See last page for vote
SUBJECT : California Student Loan Refinancing Program
SOURCE : Author
DIGEST : This bill establishes the California Student Loan
Refinancing Program (Program), to be administered by the
California Educational Facilities Authority (CEFA), to assist in
the refinance of private student loan debt at favorable rates,
and establishes eligibility requirements for the Program.
ANALYSIS : Existing law establishes CEFA to administer
programs that provide tax-exempt, low-cost financing to private,
non-profit higher educational facilities. Existing law
specifically outlines the following purposes of the CEFA:
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1.To provide private institutions of higher education within the
state an additional means by which to finance and refinance
existing higher education facilities.
2.To provide private and public institutions of higher education
with an additional means to assist students in financing their
costs of attendance.
3.To develop student, faculty and staff housing on or near
institutions of higher education.
4.To make grants to private institutions of higher education to
assist students in preparation for and entrance to higher
education.
Additionally, existing law grants the CEFA various powers
relative to student loans including the authority to finance or
purchase student loans, hold or invest in student loans, create
pools of student loans, sell interest bearing bond backed by
pools of student loans, and the ability to contract or otherwise
provide for distribution, processing, origination, purchase,
sale, servicing, securing, and collection of student loans,
payment of fees, charges, and administrative expenses therewith.
Existing law also authorizes the funding of reserves required
for purposes of securing CEFA financing for student loan
purposes.
This bill establishes the Program and outlines its operation.
Specifically, this bill:
1.Authorizes the CEFA to contract with any financial
institution, including a credit union, to the extent
participation complies with specified California Credit Union
Law, for purpose of participation in the Program.
2.Requires the CEFA to establish a loss reserve account for each
financial institution with which it contracts.
3.Establishes a CEFA notification process for a financial
institution seeking to enroll a qualified loan in the Program.
4.Requires the CEFA to establish procedures under which a
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financial institution may submit claims for reimbursement for
losses incurred as a result of qualified loan defaults and
outlines the conditions under which a claim for reimbursement
may be filed.
5.Requires the CEFA to annually submit a report describing the
Program's financial condition to the Governor and the
Legislature.
6.Authorizes the CEFA to enter into agreements to provide
assistance in carrying out the Program, including origination
and servicing of qualified loans.
7.Authorizes the CEFA to facilitate the development of a
secondary market for a qualified loan program, and outlines
specific actions that may be taken for this purpose.
8.Authorizes the adoption of emergency regulations for purposes
of implementing this bill's provisions.
9.Defines various terms for purposes of this bill including the
following:
A. A "qualified borrower" is a resident of California who
has completed a bachelor's degree, is employed in a public
service program or by a nonprofit, has the ability to
repay, as determined by CEFA, and that meets other criteria
as established by the CEFA and the financial institution.
B. A "qualified loan" is a loan or portion of a loan made
by the financial institution to a "qualified borrower" to
refinance a private student loan, as specified.
C. A "loan loss reserve" is an account established and
maintained by the CEFA for purposes of depositing fees paid
by financial institutions and qualified borrowers, and
state, federal, or other sources of contribution, for
purposes of covering any losses on enrolled qualified loans
sustained by a participating financial institution.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
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The Program: Significant one-time costs (General Fund) to the
State Treasurer's Office (STO) to establish and staff the new
program. Costs may be recoverable over time through
participant fees, to the extent that the Program is
successful.
Loan Loss Reserve: Substantial initial costs to establish a
loan loss reserve fund. The Program's ability to expand will
partially depend on the amount of cash available to establish
the fund; the STO has indicated that $10 million will be
sufficient to serve 6,000 borrowers. To the extent that the
Program is successful, its growth could be self-sustaining
over time.
Risk: Insuring financial institutions against borrower
default of refinanced student loan debt carries risk. If
borrower default is higher than projected, the CEFA could lose
a portion of the state's initial investment.
SUPPORT : (Verified 8/20/14)
Associated Students of the University of California, Davis
California Teachers Association
Davis College Democrats
Los Angeles Community College District
Los Rios Community College District
South Orange County Community College District
Yosemite Community College District
ARGUMENTS IN SUPPORT : According to the author's office, while
the Legislature has been extensively involved in college
affordability for entering students, very little has been done
to assist students that have already incurred loan debt. For
many students, certain types of student loans can limit their
options for reducing debt repayment or tying repayment to their
employment. It is the intent of this bill to provide
individuals that have borne the cost of their higher education
through private loans the ability to refinance, consolidate,
buy-down interest rates, and restructure debt for these loans,
in alignment with various federal student loan alternative
repayment programs.
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This bill, in essence, creates a kind of "insurance" for
financial institutions that refinance these private student
loans through a credit enhancement feature that provides for
payment of these loans in the event of default. The risk of
default is transferred from the lender to the statutorily
created program, and underwritten by the resources in the loan
loss reserve account established by this bill's provisions.
ASSEMBLY FLOOR : 74-2, 5/28/14
AYES: Achadjian, Alejo, Ammiano, Bigelow, Bloom, Bocanegra,
Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon,
Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Daly,
Dickinson, Eggman, Fong, Fox, Beth Gaines, Garcia, Gatto,
Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall,
Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine,
Linder, Logue, Lowenthal, Maienschein, Medina, Melendez,
Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson,
Perea, John A. Pérez, V. Manuel Pérez, Quirk, Quirk-Silva,
Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting,
Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada,
Atkins
NOES: Allen, Donnelly
NO VOTE RECORDED: Dahle, Frazier, Mansoor, Vacancy
PQ:k 8/20/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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