SB 674: California Student Loan Refinancing Program.

(1)Under existing law, the California Educational Facilities Authority Act, the California Educational Facilities Authority is, among other things, authorized to borrow money and issue bonds, notes, and other obligations. The authority is also authorized 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.

Existing law establishes the California Student Loan Refinancing Program under the administration of the authority, 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, as defined. Under the program, the authority is authorized to contract with any financial institution, as defined, for the purpose of allowing the financial institution to participate in the program. Existing law requires the authority to establish a loss reserve account, consisting of moneys deposited by the authority, as specified, for each financial institution with which the authority enters into a contract. Existing law specifies the conditions under which a qualified loan, as defined, may be enrolled in the program in order to obtain the protection against loss provided by its loss reserve account. Existing law limits qualified borrowers under the program to those who, among other things, have completed a bachelors degree, have employment in a public service program or by a nonprofit organization located in California, and are able to repay, as determined by the authority.

This bill would expand the definition of qualified borrower for this program by including individuals who have completed an associates, graduate, or professional degree, or degree, received a certificate, diploma, or degree from a trade, career, or technical school, or attended a public or private nonprofit college, university, or trade, career, or technical school in the United States without receipt of a certificate, diploma, or degree from that institution; by eliminating the requirement that they be able to repay, repay; and by revising the employment requirement to no longer require employment in a public service program or by a nonprofit organization, and would restrict the definition of qualified borrower by requiring employment for no less than 6 continuous months with one employer located in California, by requiring that the individuals loans be in deferment, forbearance, or repayment status, by requiring that the individuals loans not be in delinquent or default status, and by requiring the individual to comply with any other requirement determined by the authority. The bill would expand the definition of qualified loan for this program by including a loan issued by a private lending institution for the costs of attendance at any public or private nonprofit trade, career, or technical school in the United States in the definition of private student loan. The bill would require a qualified loan under the program to carry a contractual interest rate at least ¹/₄ of 1 percentage point lower than the loan being refinanced, and would prohibit the maximum principal amount of a qualified loan from exceeding $25,000. The bill would rename the loss reserve account the first loss protection account and would narrow the definition by prohibiting the contributions by the state for each qualified loan from exceeding 10% of the amount of the qualified loan, as determined by the authority, and would limit covering losses on a qualified loan from the first loss protection account from exceeding 10%, as determined by the authority. Because the bill would authorize the authority to raise and expend funds for new purposes, the bill would make an appropriation. The bill would specify terms required to be included in a contract between the authority and a financial institution for the purpose of allowing the financial institution to participate in the program. The bill would establish the California Student Loan Refinancing Program Fund in the State Treasury, and would provide that moneys in the fund are available to the authority for the administration of the program, upon appropriation by the Legislature. The bill would limit the authorization of the authority to levy an administrative fee for each qualified loan within a first loss protection account, to not exceed 5% of the total amount of the qualified loan. The bill would limit costs for which a financial institution may be reimbursed from its first loss protection account to an amount not to exceed 10% of the amount of the qualified loan, as determined by the authority, and to only those purposes specified in existing law. The bill would require a financial institution, in any case in which the payment of a claim under these provisions has been made to the financial institution, to assign to the authority any right or title to, or interest in, any collateral, security, or other right of recovery in connection with a qualified loan made under the program. The bill would authorize the authority to enter into agreements with qualified entities, in addition to financial institutions and other agencies of the state, to provide necessary assistance in carrying out the program, including origination and servicing of qualified loans.

(2)The Administrative Procedure Act governs the procedure for the adoption, amendment, or repeal of regulations by state agencies and for the review of those regulatory actions by the Office of Administrative Law. Existing law authorizes the authority to adopt emergency regulations pursuant to that act.

This bill would instead exempt regulations adopted by the authorize the authority to adopt regulations to implement the program from in accordance with the Administrative Procedure Act.

(3)This bill also would transfer $25,000,000 from the General Fund to the California Student Loan Refinancing Program Fund and would appropriate those moneys to the authority for purposes of the program.