BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Carol Liu, Chair
2013-2014 Regular Session
BILL NO: SB 1210
AUTHOR: Lara
AMENDED: March 24, 2014
FISCAL COMM: Yes HEARING DATE: April 9, 2014
URGENCY: No CONSULTANT:Kathleen Chavira
SUBJECT : California Student Education Access Loan Program
(SEAL).
SUMMARY
This bill establishes the California Student Education Access
Loan Program (SEAL) for purposes of extending loans to students
who meet the requirements established by AB 540 and have
financial need, and authorizes any campus of the University of
California (UC) and the California State University (CSU) to
participate, as specified. The bill also declares the
Legislature's intent that funds be appropriated to
participating institutions annually for the program, requires
that participating institutions annually contribute
discretionary funds of at least 25 percent of the funds in
their SEAL accounts, and entitles each participating
institution to an administrative cost allowance equal to 5
percent of the loan funds it awards each year.
BACKGROUND
Current law provides that, beginning January 1, 2013, AB 540
students are eligible to apply for, and participate in, any
student financial aid program administered by the State of
California to the full extent permitted by federal law. The
California Student Aid Commission (CSAC) is required to
establish procedures and forms that enable AB 540 students to
apply for, and participate in, all student financial aid
programs administered by the State of California to the full
extent permitted by federal law. Current law prohibits AB 540
students from being eligible for Competitive Cal Grant A and B
Awards unless specified conditions are met. (EC � 69508.5)
Current law provides that a student attending the California
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State University (CSU), the California Community Colleges
(CCC), or the University of California (UC) who is exempt from
paying nonresident tuition under the provisions of AB 540 is
eligible to receive a scholarship derived from nonstate funds
received, for the purpose of scholarships, by the segment at
which he or she is a student. (EC � 66021.7)
Current law requires the Trustees of the CSU and the Board of
Governors of the CCC, and request the UC Regents, to establish
procedures and forms that enable AB 540 students to apply for,
and participate in, all student aid programs administered by
these segments to the full extent permitted by federal law.
(EC � 66021.6)
ANALYSIS
This bill :
1) Establishes the SEAL program, a voluntary campus-based
student loan program to provide loans to UC and CSU
students, who meet specified requirements, beginning in
the 2015-16 academic year.
2) Establishes the following requirements for student
participation in the SEAL program:
a) Requires that the student be exempt
from paying nonresident tuition under the provisions
established by AB 540 (Firebaugh, Chapter 814,
Statutes of 2001).
b) Requires that the student has applied
for financial aid using the CSAC developed Dream Act
Application.
c) Requires that the student be enrolled
at least half-time in good standing in an
instructional program at a participating institution.
d) Requires that the student be
determined to have financial need by the
participating institution, maintain satisfactory
academic progress, not be incarcerated, and not be in
default on federal, state or other student loans
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issued by the UC or the CSU.
e) Requires that the student be enrolled
in a program eligible to participate in the Cal Grant
program.
3) Establishes a certification process for determining that
the requirements outlined in (2) are met. More
specifically it:
a) Requires that the CSAC or the
participating institutions require that the student
affirm in writing that they meet these requirements.
b) Requires a student seeking an award to
authorize the CSAC to access any information
pertinent to certifying that the student meets these
requirements.
c) Requires the CSAC, in collaboration
with the participating institution to certify that
the student satisfies these requirements prior to a
participating institution issuing an award to a
student.
4) Establishes the responsibilities of a UC or CSU campus
(participating institution) that chooses to participate in
the loan program. Specifically, a participating
institution is required to:
a) Determine a student's eligibility for
a loan.
b) Award loan funds to students.
c) Provide entrance and exit loan
counseling comparable to that required by federal
student loan programs.
d) Service the loans, collect loan
repayments and perform all due diligence required by
the Fair Credit Reporting Act.
e) Establish mechanisms for recording
annual and aggregate amounts borrowed, in order to
ensure compliance with the borrowing limits
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established for the program.
5) Establishes the features of the loan program. It:
a) Prohibits the loan amount from
exceeding the student's financial need.
b) Caps the annual amount of a loan at
$4,000 and the aggregate amount from the program at a
single institution at $20,000.
c) Sets the interest rate at 2 percent
above the then-current interest rate for
undergraduate loans under the William D. Ford Federal
Direct Loan Program.
d) Sets the repayment term at 10 years,
to begin six months after a student graduates or
ceases to maintain at least half-time enrollment in a
baccalaureate degree or undergraduate certificate
program.
e) Prohibits the accrual of interest on
the loan while a student is enrolled at least
half-time in a baccalaureate degree or undergraduate
certificate program or during the six months outlined
in (d).
f) Requires the participating institution
to determine eligibility for deferment or forbearance
in accordance with the standards of the Federal
Direct Loan Program.
g) Requires the use of a promissory note
approved by the Treasurer.
6) Provides for the funding of the loan program.
Specifically it:
a) Declares the Legislature's intent that
budget act funding for the purposes of the loan
program be appropriated annually to participating
institutions.
b) Requires that the Budget Act allocate
funding based upon the number of eligible students
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attending the institution who applied for student
financial aid the prior academic year.
c) Requires each participating
institution to deposit appropriated funds into a
revolving fund established by each institution for
the purposes of awarding loans and receiving loan
repayments.
d) Requires a participating institution
to match funds provided by the state by annually
contributing discretionary funds equal to at least 25
percent of all funds available for loan distribution
for that academic year.
e) Prohibits the receipt of state funds
by an institution if it results in the institution's
contribution to the fund being less than 25 percent
of the total funds available.
f) Requires that, if an institution
terminates participation in the program, outstanding
SEAL loans be assigned to the State, and that
remaining funds be returned to the state EXCEPT for
the discretionary funds provided by the institution.
g) Requires that the UC and CSU annually
report the dollar amount of each loan awarded and the
number of students awarded a loan.
7) Entitles each participating institution to an annual
administrative cost allowance, to offset costs of
administering the SEAL program, equal to 5 percent of the
institution's total loan funds awarded each year, and
requires that the institution be responsible for
administrative costs in excess of the allowance.
8) Provides for immunity to the UC and the CSU from the
awarding of any monetary damages, loans, or other
retroactive relief in the event of any lawsuits as a
result of implementing the student loan program.
9) Defines various terms for purposes of the bill.
STAFF COMMENTS
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1) Need for the bill . According to the author, the state has
demonstrated a willingness to invest in undocumented
students by enabling them to pay in-state tuition at the
state's public higher education institutions, and
qualifying them for Cal Grants and institutional aid.
However, these undocumented students, while eligible for
state aid, are still unable to access federal student
loans. As a result, they have a "gap" in their financial
aid packages of $3,000-$6,000 annually. Unless these
students fill the gap that exists beyond the student
contribution already required of them by working
additional hours for pay, taking extraordinary steps to
reduce their expenses, or finding other outside resources,
they risk having to withdraw from college. According to
the UC, because they already administer campus based
federal student loans, this program could be administered
at the campuses at minimal additional cost.
2) How would it work ? This bill would establish a revolving
loan fund, patterned after the Federal Direct Loan
Program, to be voluntarily implemented by campuses of the
UC and CSU. Both the State and the campus would
contribute to the loan fund. Once multiple cohorts of
borrowers enter repayment, the revenue from those
repayments is expected to equal the annual loan volume.
According to the author, the annual State and
institutional contributions should decline as the program
becomes self-sustaining at the particular campuses.
3) What's the demand ? According to the UC, about 1,300 DREAM
Act eligible students enrolled at the UC could potentially
borrow an average of $5000 per student, resulting in a
total cost of about $6.5 million in the first year. CSU
believes that about 850 DREAM Act eligible students
enrolled at the CSU would borrow an average of $3,000 per
student, for a total cost of about $2.6 million in the
first year of the program. The state general fund portion
of these estimates would be about $6.9 million and double
each year, until the program becomes self-sustaining.
4) Like the federal loan program, but not ? The stated intent
of this bill is to establish a campus-based loan program,
modeled on the existing Federal Direct Loan Program, to
meet the needs of AB 540 students unable to access federal
financial aid. However, some elements of the program
proposed by this bill are distinct from the federal
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program:
a) Loan deferrals . According to the author and
sponsor, similar to the federal loan program, it is
the intent to allow students entering graduate study
to defer loans while in graduate school or otherwise
enrolled as a student in a degree or certificate
program. As currently drafted the bill would only
allow deferral of interest and repayment while the
student is enrolled in a baccalaureate or
undergraduate degree program.
Staff recommends the bill be amended to authorize
deferral of interest and repayment while a student is
enrolled at least half-time or more in any degree or
certificate program.
Staff notes that the federal program also provides
for deferral of repayment and interest in the event
of unemployment or economic hardship (including Peace
Corp service).
b) Interest rate . This bill is intended to provide
a loan assistance program to AB 540 students
comparable to the low-interest Federal Direct Loan
Program. However, the provisions of the bill
establish an interest rate of 2 percentage points
above the then-current interest rates for the federal
loan program. What is the logic for charging greater
interest on the loans extended to these students than
that extended through the federal loan program?
Absent a reasonable rationale for the higher interest
rate, staff recommends the bill be amended to delete
line 32 on page 6 to ensure that the interest rate is
the same as the then-current interest rate of the
federal program.
c) Default . Current law (EC � 66022(a)) authorizes
the governing boards of the public segments of higher
education to withhold institutional services from
students or former students that are in default on
loans issued under the federal loan program,
ostensibly as a means of ensuring repayment. The
long-term sustainability of the SEAL, a revolving
loan program, relies upon the repayment of the loans
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extended to these students.
Staff recommends the bill be amended to include
institutional authorities and responsibilities, in
the event of default, that parallel those in EC �
66022.
5) Full Partnership ? This bill is sponsored by the
University of California, presumably in an effort to
address a shortfall for AB 540 students. Arguably, its
provisions are intended to insure that the campuses have
an incentive to administer the program responsibly and to
minimize defaults. However, several features of the bill
appear to shift all risk around this program to the State,
with relatively little risk or commitment for the
institutions. For example:
a) Discretionary funding . This bill requires the
participating institution to annually contribute
"discretionary" funds in its SEAL revolving loan
fund. What constitutes "discretionary" funds? Are
state general fund appropriations received by the UC
and CSU "discretionary?" Is the state contribution
envisioned to be part of the annual General Fund (GF)
allocation to the UC? Are campuses expected to
contribute funds other than the state general fund
dollars received? Other provisions of the bill
require that, in the event an institution terminates
participation, that all remaining funds EXCEPT
"discretionary" funds provided by the institution
should be returned to the State. If these are GF
dollars provided by the state, why would the
institution be allowed to retain them?
b) Match requirements . This bill requires that the
state provide 75% of the funding for the loan program
and that campuses provide at least 25% from
"discretionary" funding sources. Why is the State
asked to take a disproportionate share of
responsibility for providing the loan funds? If
meeting the financial aid needs of AB 540 students is
a priority for the UC and CSU, shouldn't the match be
50:50, particularly if "discretionary" funds are
considered to come from the state's annual GF
allocation to the UC? Staff recommends the bill be
amended to establish a 50:50 match between the State
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and the participating institution.
c) Administrative cost allowance . This bill
entitles campuses to a 5 percent administrative cost
allowance to be taken from the fund. Generally, 5%
of costs for administration of a program is
considered a standard allowance for this purpose.
However, the logic for a campus administered loan
program is that financial aid offices already
administer the federal student loan program, and
undertake these same activities for those programs.
Why would the full standard allowance be necessary if
these functions are already being performed by the
campuses? The bill also requires the campuses to
absorb any administrative costs beyond 5 percent, but
is it reasonable that the costs of administering any
program would exceed that threshold? As currently
drafted, the state funds provided for purposes of the
loan program would be used to pay the majority of the
administrative costs. Would it better incentivize
responsible administration of the loan program to
share in the administrative costs equally, or for the
campus to be fully responsible for those costs?
d) Problematic termination provisions . This bill
provides that, in the event an institution terminates
participation in the program, outstanding SEAL loans
are assigned to the State, and remaining funds are to
be returned to the state EXCEPT for the discretionary
funds provided by the institution. The "State" has
no capacity for administering a loan program, loan
repayments, deferrals or defaults. How would the
interest paid on loans and received by the fund be
treated under these provisions? Would these be
considered "discretionary" funds provided by the
campus?
Staff recommends the bill be amended to delete the
provisions on page 7, lines 32 through 36 and
instead:
i) Require that, in the event an
institution terminates participation in the
program, the University of California and the
California State University campuses shall be
responsible for continuing to service the loans,
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collect loan repayments and perform all due
diligence required by the Fair Credit Reporting
Act, until the last cohort of students issued
loans under the SEAL program at the institution
have repaid their loans.
ii) Require that all funds provided by the
State be repaid to the State annually as loan
repayments are collected.
6) Reporting requirements . This bill requires annual
reporting of the amount and number of loans extended under
the program. Greater transparency around the funds in
this program, and its administrative costs would seem
appropriate, given the State's substantial investment and
the decentralized nature of the program. Staff recommends
the bill be amended to additionally require that each
campus annually report the total amount of funding in its
SEAL account, the amount contributed by the state, by the
institution, and from loan repayments, and the annual
administrative costs at the campus.
7) Related federal activity . On June 15, 2012, the Secretary
of Homeland Security announced that certain people who
came to the United States as children and meet several key
guidelines may request consideration of deferred action
for a period of two years, subject to renewal. An
individual who has received deferred action is authorized
to be present in the US, and is considered to be lawfully
present during the period deferred action is in effect.
Deferred action for Childhood Arrivals (DACA) is a
discretionary determination to defer removal action of an
individual as an act of prosecutorial discretion, but does
not confer lawful status upon an individual. An
individual whose case has been deferred is eligible to
receive employment authorization for the period of
deferred action, provided he or she can demonstrate "an
economic necessity for employment."
To be considered for DACA, an individual must be under
the age of 31 as of June 15, 2012; come to the US prior to
their 16th birthday, continuously resided in the US from
June 15, 2007, to the present and be physically present in
the US on June 15, 2012, and at the time of requesting
DACA status; entered without inspection or had lawful
immigration status expire before June 15, 2012; currently
be in school, have graduated or obtained a certificate of
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completion from high school, have obtained a General
Education Development (GED) certificate, or other
equivalent State-authorized exam in the US, be an
honorably discharged veteran of the Coast Guard or Armed
Forces of the US; and not have been convicted of a felony,
significant misdemeanor, three or more other misdemeanors,
or otherwise pose a threat to national security or public
safety.
SUPPORT
American Civil Liberties Union of California
California Dream Network
California Immigrant Policy Center
California State University
Coalition for Humane Immigrant Rights of Los Angeles
Equality California
University of California
OPPOSITION
None received.