BILL ANALYSIS Ó
AB 2377
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2377 (John A. Pérez)
As Amended August 20, 2014
Majority vote
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|ASSEMBLY: |74-2 |(May 28, 2014) |SENATE: |29-5 |(August 25, |
| | | | | |2014) |
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Original Committee Reference: HIGHER ED.
SUMMARY : Establishes the California Student Loan Refinancing
Program (Program) to provide student loan refinancing options to
qualified borrowers.
The Senate amendments provide that only a loan determined by the
California Educational Facilities Authority (CEFA) to be an
educational loan non-dischargeable in bankruptcy shall be a
qualified loan eligible for financing under this bill.
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 State Controller, 3) the State Treasurer, who serves as
chairperson, and 4) two members appointed by the Governor for
four year terms, as specified.
FISCAL EFFECT : According to the Senate Appropriations
Committee:
1)Significant one-time costs (General Fund) to the State
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Treasurer's Office to establish and staff the new program.
Costs may be recoverable over time through participant fees,
to the extent that the program is successful.
2)Substantial initial costs to establish a loan loss reserve
fund; based on estimates, $10 million would be sufficient to
serve 6,000 borrowers. To the extent that the program is
successful, its growth could be self-sustaining over time.
3)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.
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 and
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 State 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,
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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.
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960
FN: 0005403