Existing law establishes the Student Aid Commission as the primary state agency for the administration of state-authorized student financial aid programs available to students attending all segments of postsecondary education. Under existing law, the commission, among other things, administers the Cal Grant Program, the Student Opportunity and Access Program, the Assumption Program of Loans for Education, the Graduate Assumption Program of Loans for Education, the Public Interest Attorney Loan Repayment Program, and the California State Work-Study Program.

This bill would establish the California Kickstart My Future Loan Forgiveness Program, under the administration of the commission, to provide student loan forgiveness awards for the purpose of alleviating the burden of federal student loan debt for recent graduates meeting specified requirements. The bill would, subject to an available and sufficient appropriation, authorize an eligible applicant to receive a student loan forgiveness award equal to 100% of his or her monthly federal income-driven repayment plan payments for 24 months of repayment under the federal program. The bill would require a recipient, who no longer meets the specified requirements at the time any payment is made under this program, to refund those payments to the state, and would authorize the Franchise Tax Board to recover the payments owed.

Existing law establishes the Student Aid Commission as the primary state agency for the administration of state-authorized student financial aid programs available to students attending all segments of postsecondary education. Under existing law, the commission, among other things, administers the Cal Grant Program, the Student Opportunity and Access Program, the Assumption Program of Loans for Education, the Graduate Assumption Program of Loans for Education, the Public Interest Attorney Loan Repayment Program, and the California State Work-Study Program.

This bill would establish the California Kickstart My Future Loan Forgiveness Program, under the administration of the commission, to provide student loan forgiveness awards for the purpose of alleviating the burden of federal student loan debt for recent graduates meeting specified requirements. The bill would, subject to an available and sufficient appropriation, authorize an eligible applicant to receive a student loan forgiveness award equal to 100% of his or her monthly federal income-driven repayment plan payments for 24 months of repayment under the federal program. The bill would require a recipient, who no longer meets the specified requirements at the time any payment is made under this program, to refund those payments to the state, and would authorize the Franchise Tax Board to recover the payments owed.

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 1767 (Cervantes) - California Kickstart My Future Loan Forgiveness Program

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

This bill establishes a grant aid program for eligible college graduates who have federal student loan debt to be administered by the California Student Aid Commission (CSAC).

Fiscal Impact:

• While a precise amount for the bill’s grand aid program would depend on each segment’s graduation rate, the number of students who incur debt, and their monthly income, the General Fund cost could be in the mid to high hundreds of millions of dollars each year. This estimate assumes there are currently about 560,000 Californians who use federal income-driven repayments plans, and that half of these students qualify for the full 24 months of repayment. This estimate further assumes that they would receive an average monthly grant of somewhere between $200 and $250.
• The CSAC indicates a substantial increase in administrative workload to establish the new program. Ongoing costs are estimated to be approximately $4.2 million to fund 34 new positions and an additional $850,000 in one-time programming and IT related expenses. CSAC also anticipates significant costs to obtain new facilities to accommodate the new positions.

Background:

Existing federal law provides for student loans through the William D. Ford Federal Direct Loan Program, administered by the Federal Student Aid Office within the United States Department of Education (USDE). These include: subsidized Stafford Loans which are needs-based loans that cover the difference between a student's resources and the cost of attending a college or university; unsubsidized Stafford Loans which are not based on financial need and generally cover the difference between the subsidized Stafford Loan and the total cost of attending college; and the Parent Loans for Undergraduate Students (PLUS) which are available to credit-worthy parents of dependent students and are not needs-based.

Existing federal law also provides for the Federal Perkins Loan Program. This program is a school-based loan program for undergraduates and graduate students with exceptional financial need. Under this program, the school is the lender.

Proposed Law:

This bill establishes the California Kickstart My Future Loan Forgiveness Program under the administration of CSAC for purposes of providing grant aid to eligible college graduates to alleviate federal student loan debt. CSAC would be required to develop an application process and authorizes adoption of rules and regulations for the implementation of the program consistent with the provisions of the bill.

This bill requires that an applicant meet specified requirements, including California residency or eligibility for a AB 540 nonresident tuition waiver, graduation from a college or university with its headquarters located in California in or after the 2017-18 academic year, participation in a federal income-driven repayment plan whose payment amount is generally 10 percent of discretionary income, and income of less than $50,000.

This bill provides that subject to an appropriation, an applicant shall be eligible for a student loan forgiveness award equal to 100 percent of his or her monthly federal income-driven repayment plan payments for 24 months of repayment under the federal program.

This bill requires that the award be deferred for a recipient who has been granted a deferment or forbearance under the federal income-driven repayment plan and makes, upon the completion of the deferment or forbearance period, the recipient eligible to receive an award for the time remaining within the prescribed 24 month window.

This bill also requires a recipient who no longer meets the requirements for an award to refund those payments to the state.

Related Legislation:

SB 674 (Allen, 2017) proposed to modify the California Student Loan Refinancing Program and establish the California Student Loan Refinancing Fund for purposes of administering the program with the goal of helping eligible college graduates refinance student loan debt at favorable rates. This bill was held on the Suspense File in this Committee.

SB 1417 (Galgiani, 2016) would have required the California State University, and requested the University of California, to develop and implement a $2,500 loan forgiveness grant for students who are California residents, and for students eligible for resident tuition under the provisions of AB 540, if they complete their degree within four years. This bill was held on the Suspense File in this Committee.

Staff Comments:

AB 2377 (Perez, Chapter 816, Statutes of 2014), established the California Student Loan Refinancing program (CSLRP) for college graduates who live in California, have completed a Bachelor’s degrees, are employed in public service or nonprofit organizations, and have the ability to repay the refinanced loans. The risk of default is transferred from the lender to the CSLRP and underwritten by the resources in the loan loss reserve account. The program has never been funded and remains non-operational.

Unlike CSLRP, rather than refinancing loan debt, the provisions of this bill establish a state benefit in the form of grant aid for college graduates participating in a federal income-based loan repayment plan. The award is an unspecified amount that is equal to the monthly total due for repayment of a federal loan for up to two years.

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SENATE COMMITTEE ON EDUCATION

Senator Benjamin Allen, Chair

2017 - 2018 Regular

Bill No: Hearing Date: June 20, 2018

Subject: .

SUMMARY

This bill establishes, under the administration of the California Student Aid Commission (CSAC), a grant aid program for eligible college graduates who have federal student loan debt.

BACKGROUND

Existing law:

1. Existing federal law provides for student loans through the William D. Ford Federal Direct Loan Program, administered by the Federal Student Aid Office within the United States Department of Education (USDE). These include:
   1. Subsidized Stafford Loans: These are needs-based loans that cover the difference between a student's resources and the cost of attending a college or university, the amount of loan is dependent on the level of need, dependent status, and year in college. The federal government pays the interest while the student is attending the college or university and subsidizes the interest throughout the life of the loan.
   2. Unsubsidized Stafford Loans: Not based on financial need, these loans generally cover the difference between the subsidized Stafford Loan and the total cost of attending college. Loans are made by private lending institutions and repayment is guaranteed by the federal government. The federal government sets the interest rates and fees.
   3. PLUS (Parent Loans for Undergraduate Students) are available to credit-worthy parents of dependent students. These are not needs-based and are federally guaranteed. In addition, these types of loans have been expanded for graduate or professional degree students. The borrower is responsible for paying the interest on PLUS loans during all periods, starting from the date the loan is first disbursed.
2. Existing federal law also provides for the Federal Perkins Loan Program. The Federal Perkins Loan Program is a school-based loan program for undergraduates and graduate students with exceptional financial need. Under this program, the school is the lender.
3. Establishes the California Student Aid Commission (CSAC) is the primary state agency for the administration of state-authorized student financial aid programs available to students attending all segments of postsecondary education. These programs include grant, work study, and loan programs supported by the state and the federal government. (Education Code § 66010.6.(b))
4. Authorizes the Cal Grant program, administered by the CSAC, to provide grants to financially needy students to attend a college or university. The Cal Grant programs include both the entitlement and the competitive Cal Grant awards. The program consists of the Cal Grant A, Cal Grant B, and Cal Grant C programs and eligibility is based upon financial need, GPA, California residency and other criteria. (EC § 69430 - 69433)
5. Establishes California Educational Facilities Authority (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:
   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 an entrance to higher education.
6. Establishes the California Student Loan Refinancing Program under the administration CEFA, with the goal of helping eligible college graduates refinance student loan debt at favorable rates by creating a revolving fund so that additional refinancing may occur to help more qualified borrowers, as defined, through the creation of a loss reserve account. Under the program, CEFA is authorized to contract with any financial institution for the purpose of participation in the program.
7. Grants the CEFA various powers relative to student loans including the authority to hold or invest in student loans, create pools of student loans, and sell bonds bearing interest on a taxable or tax-exempt basis or other interests backed by the pools of student loans. (Education Code § 94100-94163)

ANALYSIS

This bill:

1. Establishes the California Kickstart My Future Loan Forgiveness Program under the administration of the Student Aid Commission (CSAC) for purposes of providing grant aid to eligible college graduates to alleviate federal student loan debt.
2. Requires the CSAC to develop an application process and authorizes adoption of rules and regulations for the implementation of the program consistent with the provisions of the bill.
3. Requires, in order to be eligible for the program, that an applicant meet all of the following requirements:
   1. Be a California resident or meet the requirements of the AB 540

nonresident tuition waiver.

• 1. Have graduated and obtained an undergraduate degree from a college or

university with its headquarters located in California in or after the 2017-18 academic year.

• 1. Applied for the program within two years of obtaining an undergraduate

degree from a California college or university, as specified.

• 1. Be a participant in federal income-driven repayment plan whose payment

amount is generally 10 percent of discretionary income.

• 1. Have income of less than $50,000.
  2. Work in California, if employed.
  3. Is not in default in the repayment of any state or federal student loan.
  4. Has not failed to comply with the terms of any service or repayment

condition imposed by an award made under a state financial aid program, as specified.

1. Makes, subject to an available and sufficient appropriation, an applicant eligible for a student loan forgiveness award equal to 100 percent of his or her monthly federal income-driven repayment plan payments for 24 months of repayment under the federal program.
2. Requires the granted award be deferred for a recipient who has been granted a deferment or forbearance under the federal income-driven repayment plan.
3. Makes, upon the completion of the deferment or forbearance period, the recipient eligible to receive an award for the time remaining within the prescribed 24 month window.
4. Requires a recipient who no longer meets the requirements for an award to refund those payments to the state.
5. Authorizes the Franchise Tax Board to recover payments owed in 8) above in accordance with rules and regulations adopted by the California Student Aid Commission.
6. Defines various terms for the purposes of the bill.

STAFF COMMENTS

1. Need for the bill. According to the author, “student loan companies often provide recent graduates with a six-month grace period before their loan payments are required to begin. This grace period is generally an insufficient amount of time for many recent graduates, who are often faced with difficulties adjust and entering the workforce. Concerned with making loan payments, many recent graduates could be forced to take job opportunities outside of their area of study, hampering their ability to pursue career goals or major life events such as purchasing a home, marriage, or childbirth.

The Institute for College Access and Success found that the average percentage students in debt for a California graduate at public and private non-profit colleges is 54 percent, with a total debt average of $22,191 per graduate, AB 1767 will extend the six-month grace period to a federal income-driven repayment plan of 24 months, based on eligibility.”

1. Related TICAS Report. According to The Institute for College Access and Success (TICAS) and its Project on Student Debt, 68 percent of seniors who graduated from public and nonprofit colleges in 2015 had student loan debt, with an average nationally of $30,100 per borrower. TICAS reports that the share of graduates with debt rose modestly over the last decade (from 65 percent to 69 percent). TICAS also reports that average debt in California is $22,191 at public and private non-profit colleges and that about 54 percent of students graduate with debt, ranking California 48th and 42nd nationally, respectively. California falls below the national average in student loan debt.
2. Status of the California Student Loan Refinancing Program. AB 2377 (Perez, Chapter 816, Statutes of 2014), established the California Student Loan Refinancing program (CSLRP) for college graduates who live in California, have completed a Bachelor’s degrees, are employed in public service or nonprofit organizations, and have the ability to repay the refinanced loans. The risk of default is transferred from the lender to the CSLRP and underwritten by the resources in the loan loss reserve account. The program has never been funded and remains non-operational.

Unlike CSLRP, rather than refinancing loan debt, the provisions of this bill establishes a state benefit in the form of grant aid for college graduates participating in a federal income-based loan repayment plan. The award is an unspecified amount that is equal to the monthly total due for repayment of a federal loan for up to two-years.

1. Federal income-driven repayment plans can be as low as $0 per month. According to information posted on the United State Department of Education, most federal student loans are eligible for at least one income-driven repayment plan. If a student’s income is low enough, the payment could be as low as $0 per month. Under the federal loan program, an income-driven repayment plan sets a monthly student loan payment at an amount that is intended to be affordable based on income and family size. The federal program offers four income-based repayment plans and most loans are discharged after 20 years or 25 years depending on the plan.

Given that a federal income-driven repayment plan modifies the amount owed by the loan recipient to ensure monthly payments are manageable and ultimately forgiven, should the state provide an additional benefit?

1. Things to consider. The state’s financial aid program, Cal Grant, provides college access for low-income Californians by covering tuition and some non-tuition costs. However, there are gaps in the program that leave some needy students without aid which may derail or prolong graduation. For example, while the Budget Act of 2015 increased the number of annual competitive Cal Grants to 25,750, this number still falls far short of meeting demand. While helping graduates that have borne the cost of their higher education through public loans is reasonable, the committee may wish to consider whether the policy should focus on expansion of aid programs for undergraduates working toward degree attainment prior to establishing other forms of aid.

Additionally, the California Student Aid Commission has expressed concerns regarding its ability to administer a new program of this magnitude before completion of its Grant Delivery System Modernization Project. It may be prudent to delay implementation of the program until the new Grant Delivery System Modernization Project is fully operational.

1. Prior and Related legislation

SB 674 (Allen, 2017) modifies the California Student Loan Refinancing Program, establishes the California Student Loan Refinancing Fund for purposes of administering the program with the goal of helping eligible college graduates refinance student loan debt at favorable rates and makes an appropriation to that fund. SB 674 was placed in the Senate Appropriations Committee suspense file.

SB 1417 (Galgiani, 2016) requires the California State University, and requests the University of California, to develop and implement a $2500 loan forgiveness grant for students who are California residents, and for students eligible for resident tuition under the provisions of AB 540, if they complete their degree within four years. This bill was held in the Senate Appropriations Committee.

SUPPORT

Insurance Commission, Dave Jones

OPPOSITION

None received

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ASSEMBLY THIRD READING

ATR Bill Id:AB 1767

Author:(Cervantes)

As Amended Ver:February 22, 2018

Majority vote

SUMMARY: Establishes the California Kickstart My Future Loan Forgiveness Program.

EXISTING LAW:

1. Establishes the California Student Aid Commission (CSAC) for the purpose of administering specified student financial aid programs (Education Code (EC) Section 69510, et seq.).
2. Establishes the California Educational Facilities Authority (CEFA) to administer programs that provide tax-exempt, low-cost financing to private, non-profit higher educational facilities. Outlines the following purposes of the CEFA: a) to provide private institutions of higher education within the state an additional means by which to finance and refinance existing higher education facilities; b) to provide private and public institutions of higher education with an additional means to assist students in financing their costs of attendance; c) to develop student, faculty and staff housing on or near institutions of higher education; and, d) to make grants to private institutions of higher education to assist students in preparation for an entrance to higher education.
3. Establishes the California Student Loan Refinancing Program (CSLRP) under the administration of CEFA, with the goal of helping eligible college graduates refinance student loan debt at favorable rates by creating a revolving fund so that additional refinancing may occur to help more qualified borrowers, as defined, through the creation of a loss reserve account. Under the program, CEFA is authorized to contract with any financial institution for the purpose participation in the program.
4. Grants the CEFA various powers relative to student loans, including the authority to hold or invest in student loans, create pools of student loans, and sell bonds bearing interest on a taxable or tax-exempt basis or other interests backed by pools of student loans (EC Sections 94100-94163).

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Potential General Fund (GF) costs in the high hundreds of millions of dollars in the first year and low billions of dollars in future years. Costs would depend on the number of program recipients and their monthly income. (Currently, about 560,000 Californians use federal income-driven repayment plans. Were half of these students to qualify for the full 24 months of the program and receive an average monthly grant payment of $250, the program would cost about $1.5 billion for 24 months.)
2. $500,000 (GF) in ongoing annual costs to CSAC.
3. Unknown costs to the Franchise Tax Board to recover payments.

COMMENTS: Current loan debt averages of recent college graduates. According to The Institute for College Access and Success (TICAS) September 2017 report, "Student Debt and the Class of 2016", average student debt at graduation in 2016 ranged from $20,000 in Utah to $36,350 in New Hampshire, and new graduates' likelihood of having debt ranged from 43% in Utah to 77% in West Virginia. Average debt varies even more across colleges, from a low of $4,600 to a high of $59,100, and the share of students graduating with loans ranges from six to 98%.

Additionally, the TICAS report finds that the burden of student debt is not just about overall debt levels, but also about the types of loans students take out. Federal student loans come with crucial consumer protections and repayment options not guaranteed by private, nonfederal loans. Importantly, income-driven repayment plans have been widely available for federal student loan borrowers since 2009. These plans cap payments based on the borrower's income and family size and forgive remaining debt, if there is any, after 20 or 25 years of payments.

Thirdly, the TICAS report reveals that reliance on nonfederal debt – from banks and lenders, states, or colleges themselves – is concentrated in particular states and types of colleges. Of the 100 colleges where graduates borrow most in private loans, 85 are nonprofit four-year colleges, and 34 are located in Pennsylvania. Four out of five 2016 graduates with state loan debt attended schools in just four states – Texas, Minnesota, Massachusetts, and New Jersey – that awarded only 14% of bachelor's degrees. Although some may expect state loans to have better terms than those from private banks and lenders, their terms frequently have more in common with other private loans than with federal loans.

To note, the TICAS report finds that the average debt in California is $22,744 at public and private non-profit colleges and that about 53% of students graduate with debt, ranking California 48th and 37th lowest nationally, respectively.

Need for this measure. According to the author, "Student loan companies often provide recent graduates with a six-month grace period before their loan payments are required to begin." The author contends that a six-month grace period is an insufficient amount of time for many recent graduates. The author states, "Concerned with making loan payments, many recent graduates could be forced to take job opportunities outside of their area of study, hampering their ability to pursue career goals or major life events such as purchasing a home, marriage or childbirth."

Student loan defaults. The United States Department of Education announced in September 2017, that the share of people not making payments on their federal student loans within three years of leaving college has risen, reversing five years of reported declines in new defaults.

About 11.5% of borrowers who began repayment October 1, 2013, defaulted by September 30, 2016, up from 11.3% the year before. More than five million people from 6,173 institutions of higher learning began repaying their student loans in October 2013. Of those, approximately 580,000 defaulted.

To note, the Federal Reserve System places total outstanding student loans at $1.44 trillion, which includes federal and private loans, but excludes other loans used to finance higher education.

Federal income-driven repayment plans. If a federal student loan payment is high compared to a graduate's income, one may decide to repay the loan(s) under an income-driven repayment plan. Most federal student loans are eligible for at least one such plan.

An income-driven repayment plan sets a monthly student loan payment at an amount that is meant to be affordable based on income and family size. The chart below lists the four types of these plans and each amount associated:

Get on Your Feet Loan Forgiveness Program. The loan forgiveness program, called "Get on Your Feet" established by the New York State administration, aims to assist recent college graduates in paying their loans, based on eligibility. Recent graduates are eligible if they meet certain requirements, including, but limited to, the following: a) be a legal resident of the state and have resided in the state for 12 continuous months; b) be a U. S. citizen or eligible non-citizen; c) have graduated from a New York State high school or received a state high school equivalency diploma; d) have earned an undergraduate degree from a college or university located in the state on or after December 2014; and, e) be enrolled in a federal income based repayment plan at 10% discretionary income.

Policy considerations. Committee staff understands that CSAC has been trying to track down and compile data on graduates that presumably would meet the eligibility requirements as outlined in this measure. However, to date, Committee staff understands that confusion exists as to how exactly to ascertain the data on potentially eligible graduates.

Related legislation. AB 379 (Gomez) of 2017, which was held on suspense in the Assembly Appropriations Committee, is virtually identical to this measure.

SB 674 (Allen) of 2017, which was held on suspense in the Senate Appropriations Committee, in part, modified CSLRP and established the California Student Loan Refinancing Fund for purposes of administering the program and made an appropriation to that fund.

Analysis Prepared by: Jeanice Warden / HIGHER ED. / (916) 319-3960 FN: 0003177

Date of Hearing: April 4, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 1767

Author:(Cervantes) – As Amended Ver:February 22, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY: This bill creates the California Kickstart My Future Loan Forgiveness program, which would cover federal loan payments for recent resident graduates of California universities who participate in a federal income-driven repayment plan, have incomes less than $50,000, and meet other criteria. Specifically, this bill:

1. Provides forgiveness awards equal to 100% of recipients’ monthly federal income-driven repayment plan payment for 24 months. Federal repayment plans typically require recipients to contribute 10% of their discretionary monthly income toward their loan repayment.
2. Authorizes the California Student Aid Commission (CSAC) to administer the program, develop an application process, and adopt rules and regulations.
3. Authorizes the California Franchise Tax Board (FTB) to recover payments in cases where recipients no longer meet program requirements.

FISCAL EFFECT:

1. Potential General Fund costs in the high hundreds of millions of dollars in the first year and low billions of dollars in future years. Costs would depend on the number of program recipients and their monthly income. (Currently, about 560,000 Californians use federal income-driven repayment plans. Were half of these students to qualify for the full 24 months of the program and receive an average monthly grant payment of $250, the program would cost about $1.5 billion for 24 months.)
2. $500,000 General Fund in ongoing annual costs to CSAC.
3. Unknown costs to the FTB to recover payments.

COMMENTS:

1. Purpose. This bill is intended to alleviate federal student loan debt for recent graduates. Because graduates would not make federal loan payments for two years, they could use or save this portion of their incomes for other purposes.
2. Staff Comments. Federal income-based repayment programs are designed to provide graduates with manageable payments which are based on their income and family size.

Analysis Prepared by: Natasha Collins / APPR. / (916) 319-2081

Date of Hearing: March 13, 2018

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 1767 (

Author:Cervantes) – As Amended Ver:February 22, 2018

SUBJECT: California Kickstart My Future Loan Forgiveness Program.

SUMMARY: Establishes the California Kickstart My Future Loan Forgiveness Program. Specifically, this bill:

1. Authorizes the California Student Aid Commission (CSAC) to administer the California Kickstart My Future Loan Forgiveness Program, as established in this measure.
2. Specifies the program is to provide grants to eligible applicants in order to assist in alleviating the burden of federal student loan debt for recent California college graduates.
3. Requires CSAC to develop an application process for the program and authorizes CSAC to adopt rules and regulations for the implementation of the program.
4. Specifies that subject to an available and sufficient appropriation, an eligible applicant shall be eligible for a student loan forgiveness award equal to 100 percent of his or her monthly federal income-driven repayment plan payments for 24 months of repayment under the federal program.
5. Requires that an award shall be deferred for a recipient who has been granted a deferment or forbearance under the federal income-driven repayment plan; and, specifies that upon completion of the deferment or forbearance period, the recipient shall be eligible to receive an award for the remaining time period, as specified.
6. Requires, as condition of eligibility, an applicant meet all of the following requirements:
   1. Be a California resident, as specified;
   2. Have graduated and obtained an undergraduate degree from a college or university with its headquarters located in California in or after the 2017-18 academic year;
   3. Applied to the program within two years of obtaining a degree;
   4. Be a participant in a federal income-driven repayment plan whose payment amount is generally 10 percent of discretionary income;
   5. Have income of less than $50,000;
   6. Work in California, if employed;
   7. Is not in default in the repayment of any state or federal loan; and,
   8. Has not failed to comply with the terms of any service or repayment condition by an award made, as specified.
7. Requires a recipient who no longer meets program requirements at the time any payment is made to refund those payments to the state.
8. Authorizes the California Franchise Tax Board (FTB) to recover payments owed in accordance with rules and regulations adopted by CSAC.
9. Defines the following terms for purposes of this measure:
   1. "Commission" means the CSAC;
   2. "Eligible applicant" means one who meets the requirements as specified;
   3. "Income" means the total adjusted gross income of the applicant and the applicant's spouse, if applicable; and,
   4. "Program" means the California Kickstart My Future Loan Forgiveness Program.

EXISTING LAW:

1. Establishes the CSAC for the purpose of administering specified student financial aid programs (Education Code (EC) Section 69510, et seq.).
2. Establishes the California Educational Facilities Authority (CEFA) to administer programs that provide tax-exempt, low-cost financing to private, non-profit higher educational facilities. Outlines the following purposes of the CEFA: a) to provide private institutions of higher education within the state an additional means by which to finance and refinance existing higher education facilities; b) to provide private and public institutions of higher education with an additional means to assist students in financing their costs of attendance; c) to develop student, faculty and staff housing on or near institutions of higher education; and, d) to make grants to private institutions of higher education to assist students in preparation for an entrance to higher education.
3. Establishes the California Student Loan Refinancing Program (CSLRP) under the administration of CEFA, with the goal of helping eligible college graduates refinance student loan debt at favorable rates by creating a revolving fund so that additional refinancing may occur to help more qualified borrowers, as defined, through the creation of a loss reserve account. Under the program, CEFA is authorized to contract with any financial institution for the purpose participation in the program.
4. Grants the CEFA various powers relative to student loans, including the authority to hold or invest in student loans, create pools of student loans, and sell bonds bearing interest on a taxable or tax-exempt basis or other interests backed by pools of student loans (EC Sections 94100-94163).

FISCAL EFFECT: According to the Assembly Appropriations Committee, based on a 2017 measure virtually identical to this measure:

1. Approximately $840 million General Fund (GF) for one year of grants or up to $1.6 billion GF for two years. While this bill makes funding subject to an available and sufficient appropriation, according to the United States Department of Education approximately 560,000 Californians are using federal loan repayment programs. Assuming only 280,000 participants qualify for the full 24 months of the program given their graduation, income and employment status, and receive an average monthly grant payment of $250, this program could cost $1.6 billion for 24 months.
2. $500,000 GF in on-going administrative costs to CSAC. To administer a program of this size, CSAC would require additional staff to develop regulations and rules, a new application system, verify eligibility, and process grants.
3. Unknown costs to the FTB. As the number of recipients who may no longer meet the requirements of the program, the costs to FTB are unknown.

COMMENTS: Current loan debt averages of recent college graduates. According to The Institute for College Access and Success (TICAS) September 2017 report, "Student Debt and the Class of 2016", average student debt at graduation in 2016 ranged from $20,000 in Utah to $36,350 in New Hampshire, and new graduates’ likelihood of having debt ranged from 43 percent in Utah to 77 percent in West Virginia. Average debt varies even more across colleges, from a low of $4,600 to a high of $59,100, and the share of students graduating with loans ranges from six to 98 percent.

Additionally, the TICAS report finds that the burden of student debt is not just about overall debt levels, but also about the types of loans students take out. Federal student loans come with crucial consumer protections and repayment options not guaranteed by private, nonfederal loans. Importantly, income-driven repayment plans have been widely available for federal student loan borrowers since 2009. These plans cap payments based on the borrower’s income and family size and forgive remaining debt, if there is any, after 20 or 25 years of payments.

Thirdly, the TICAS report reveals that reliance on nonfederal debt – from banks and lenders, states, or colleges themselves – is concentrated in particular states and types of colleges. Of the 100 colleges where graduates borrow most in private loans, 85 are nonprofit four-year colleges, and 34 are located in Pennsylvania. Four out of five 2016 graduates with state loan debt attended schools in just four states – Texas, Minnesota, Massachusetts, and New Jersey – that awarded only 14 percent of bachelor’s degrees. Although some may expect state loans to have better terms than those from private banks and lenders, their terms frequently have more in common with other private loans than with federal loans.

To note, the TICAS report finds that the average debt in California is $22,744 at public and private non-profit colleges and that about 53 percent of students graduate with debt, ranking California 48^th and 37^th lowest nationally, respectively.

Need for this measure. According to the author, "Student loan companies often provide recent graduates with a six-month grace period before their loan payments are required to begin." The author contends that a six-month grace period is an insufficient amount of time for many recent graduates. The author states, "Concerned with making loan payments, many recent graduates could be forced to take job opportunities outside of their area of study, hampering their ability to pursue career goals or major life events such as purchasing a home, marriage or childbirth."

Student loan defaults. The U. S. Department of Education announced in September 2017, that the share of people not making payments on their federal student loans within three years of leaving college has risen, reversing five years of reported declines in new defaults.

About 11.5 percent of borrowers who began repayment October 1, 2013, defaulted by September 30, 2016, up from 11.3 percent the year before. More than five million people from 6,173 institutions of higher learning began repaying their student loans in October 2013. Of those, approximately 580,000 defaulted.

To note, the Federal Reserve System places total outstanding student loans at $1.44 trillion, which includes federal and private loans, but excludes other loans used to finance higher education.

Federal income-driven repayment plans. If a federal student loan payment is high compared to a graduate's income, one may decide to repay the loan(s) under an income-driven repayment plan. Most federal student loans are eligible for at least one such plan.

An income-driven repayment plan sets a monthly student loan payment at an amount that is meant to be affordable based on income and family size. The chart below lists the four types of these plans and each amount associated:

Get on Your Feet Loan Forgiveness Program. The loan forgiveness program, called "Get on Your Feet" established by the New York State administration, aims to assist recent college graduates in paying their loans, based on eligibility. Recent graduates are eligible if they meet certain requirements, including, but limited to, the following: a) be a legal resident of the state and have resided in the state for 12 continuous months; b) be a U. S. citizen or eligible non-citizen; c) have graduated from a New York State high school or received a state high school equivalency diploma; d) have earned an undergraduate degree from a college or university located in the state on or after December 2014; and, e) be enrolled in a federal income based repayment plan at 10 percent discretionary income.

Policy considerations. Committee staff understands that CSAC has been trying to track down and compile data on graduates that presumably would meet the eligibility requirements as outlined in this measure. However, to date, Committee staff understands that confusion exists as to how exactly to ascertain the data on potentially eligible graduates.

Moving forward, Committee staff recommends that the author continue to work with CSAC in determining the appropriate scope of potential eligible borrowers and how best to ascertain said data.

Additionally, Committee staff understands that CSAC continues to move forward with its new Grant Delivery System Modernization Project; this new delivery system, which will not be operational for approximately another two years, will allow CSAC access to other agencies and pertinent student data, such as that which would be needed for this program. While the need may exist for the state to assist recent graduates in paying their loans, as noted above, it is presently unclear as to how CSAC will obtain relevant data.

The Committee may wish to determine whether it should align the establishment of new programs to be administered by CSAC, with CSAC's ability to implement such programs when its new Grant Delivery System Modernization Project is fully operational.

Related legislation. AB 379 (Gomez) of 2017, which was held on suspense in the Assembly Appropriations Committee, is virtually identical to this measure.

SB 674 (Allen) of 2017, which was held on suspense in the Senate Appropriations Committee, in part, modified CSLRP and established the California Student Loan Refinancing Fund for purposes of administering the program and made an appropriation to that fund.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Jeanice Warden / HIGHER ED. / (916) 319-3960