BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Carol Liu, Chair
2013-2014 Regular Session
BILL NO: SB 595
AUTHOR: Calderon
AMENDED: April 22, 2013
FISCAL COMM: Yes HEARING DATE: May 1, 2013
URGENCY: No CONSULTANT:Kathleen Chavira
NOTE : This bill has been referred to both the Senate
Education and Senate Rules Committees. A "do pass" motion
should include a referral to the Senate Rules Committee.
SUBJECT : Financial aid disbursement.
SUMMARY
This bill prohibits any campus of the California Community
Colleges (CCC) or the California State University (CSU)
from entering into a contract with any entity that requires
students to open an account with the entity as a condition
of the student receiving a financial aid disbursement, and
requires that they offer a student the option of receiving
his/her financial aid disbursement via direct deposit, as
specified. The bill also requests the University of
California (UC) to comply with these provisions.
BACKGROUND
Federal regulations establish rules for the disbursement of
federal financial aid to students. These rules provide that
schools may disburse Federal Student Aid (FSA) funds
directly to a student or parent by issuing a check or other
instrument, by initiating an electronic funds transfer to a
bank account designated by a student or parent, by
disbursing cash to the student, or by releasing a Federal
Family Education Loan (FFEL) check sent by the lender.
Generally, FSA funds must be disbursed to a student within
14 days.
These rules also authorize a school to establish a policy
requiring its students to provide bank account information,
or open an account at a bank of their choosing as long as
this policy does not delay the disbursement of FSA funds to
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students. In situations where a school opens a bank account
on behalf of the student, the rules require that schools
comply with conditions related to consent, notice, and
costs to open or transact on the account as well as the
availability of means for accessing funds. (34 California
Code of Federal Regulations (CFR) 668 164)
ANALYSIS
This bill :
1) Prohibits any campus of the California Community
Colleges (CCC) or the California State University
(CSU) from entering into a contract with any entity
that requires students to open an account with that
entity as a condition of the student receiving a
financial aid disbursement.
2) Requires each CCC and CSU campus to offer a student
the option of receiving a direct deposit of a
financial aid disbursement into a deposit account of
the student's choosing.
3) Requires the CCC and the CSU to ensure that the
contract with the entity provides for direct deposit
within one day of receipt of disbursement monies.
4) Requests the University of California to comply with
these same provisions/conditions.
5) Identifies mandated costs.
STAFF COMMENTS
1) Need for the bill . According to the author, current
law permits our public segments of higher education to
enter into contracts with entities for the purpose of
disbursing financial aid funds, but these contracts
are not prohibited from mandating that students open
an account with the partnering entity as a
precondition to receiving their financial aid funds.
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In addition, it is the intent of the author to ensure
that a student who opts to use an entity other than a
college/university's partnering depository institution
is not disadvantaged by selecting an alternative means
that result in a prolonged wait for receiving their
financial aid disbursement. According to the author,
direct deposit currently offers the timeliest means by
which a student can receive their financial aid funds.
By requiring the direct deposit be initiated within
24 hours of the receipt of the funds by the entity,
students are ensured of receiving their funds in a
timeframe similar to that for students who choose the
colleges/university's partnering depository
institution.
2) Related issue . According to a recent report by the
U.S. Public Interest Research Group (PIRG), Campus
Debit Card Trap, banks and financial firms are forming
partnership with colleges and university to produce
campus ID cards and to offer student aid disbursements
on debit or prepaid cards. The federal government
requires that schools disburse financial aid refunds
to students free of charge; however, these debit cards
can come with fees for other services that can take
away from
students' aid. As a result students end up bearing
some costs directly, including per-swipe fees,
inactivity fees, overdraft fees, ATM fees and more.
The report contends that debit cards for disbursing
funds may be good for colleges, but argue that
cash-strapped students absorb the costs. The U.S.
Public Interest Research Group (PIRG) study finds that
some debit cards come with fees as high as 50 cents
per swipe in transaction fees, $38.00 per overdraft
and $10.00 for inactivity after six months without
use. The PIRG study also finds that students do not
fully realize what they are signing up for when they
elect to receive their financial aid award via debit
card.
3) Beyond federal law ? The first part of this bill
simply clarifies that, consistent with federal
requirements, students should not be compelled to open
an account with a specified institution in order to
receive their financial aid disbursements. However,
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Federal Student Aid (FSA) rules allow that a student
who is issued a direct payment of a financial aid
disbursement may receive a check, electronic funds
transfer, or be dispensed cash. Should this bill be
amended to reflect federal financial aid disbursement
rules and conditions instead?
4) Mandated costs . Legislative counsel has identified
mandated costs, likely as a result of the provisions
requiring that community colleges offer a student the
option of receiving a direct deposit of financial aid
disbursements. Staff was unable to verify whether
most community colleges already provide students a
direct deposit option. To the extent that some
community colleges already do this, however, these
provisions would result in the state subsidizing costs
for activities that may already have been undertaken.
5) Similar legislation . AB 1162 (Frazier) requires the
California Community Colleges and the California State
University, and requests the UC and the accredited
private nonprofit and for-profit postsecondary
educational institutions, to adopt policies for
negotiating contracts between their institutions and
banks and other financial institutions to disburse a
student's financial aid award and other refunds onto a
debit card line that best serve the needs of the
students, and encourage these policies to include
specified requirements. AB 1162 is currently awaiting
action in the Assembly Appropriations Committee.
SUPPORT
California Bankers Association
CalPIRG
Student Senate for California Community Colleges
OPPOSITION
None received.