Existing law establishes the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, the California State University, under the administration of the Trustees of the California State University, the University of California, under the administration of the Regents of the University of California, independent institutions of higher education, and private postsecondary educational institutions as the segments of postsecondary education in the state.

The Donahoe Higher Education Act requires public higher education entities to adopt regulations to withhold institutional services, including withholding grades and diplomas, upon notice to a student that they are in default on a loan made pursuant to specified federal law.

Notwithstanding any other law, the Educational Debt Collection Practices Act prohibits a school, as defined, from refusing to provide a transcript for a current or former student on the grounds that the student owes a debt, conditioning the provision of a transcript on the payment of a debt, charging a higher fee for obtaining a transcript, providing less favorable treatment of a transcript request because a student owes a debt, or using a transcript issuance as a tool for debt collection, as specified.

This bill would expand the provisions described above to also prohibit a school from refusing to provide a diploma, as defined, for a current or former student on the grounds that the student owes a debt, conditioning the provision of a diploma on the payment of a debt, charging a higher fee for obtaining a diploma, providing less favorable treatment of a diploma request because a student owes a debt, or using a diploma issuance as a tool for debt collection. The bill would make other conforming changes.

This bill would prohibit an institution of higher education, as defined, from taking specified actions, including, among other things, charging a higher tuition or fee on the grounds that the student owes an institutional debt, as defined. The bill would authorize an institution of higher education to prevent a current or former student that owes an institutional debt from enrolling or registering for courses on the basis that the student owes an institutional debt if the institution of higher education complies with specified conditions, including, among other conditions, that the institution grants a one-time exemption from an enrollment or registration hold on a current or former student on the grounds that the student owes an institutional debt, as provided. The bill would require an institution of higher education to establish a written policy defining standards and practices for the collection of institutional debt, as provided, and to provide the written policy to current or former students that owe an institutional debt. The bill would prohibit an institution of higher education from taking specified actions when collecting an institutional debt. The bill would require the Board of Governors of the California Community Colleges and the Trustees of the California State University, and request the office of the President of the University of California, to require each public institution to report, beginning on or before July 1, 2026, using a specified uniform format, and on a biennial basis, specified information regarding the number and dollar amount of institutional debts at each institution. The bill would require, on or before July 1, 2028, that biennial report to include additional specified information. By imposing new duties on community college districts, the bill would constitute a state-mandated local program.

Existing law authorizes the Controller, in their discretion, to offset any amount due to a state agency from a person or entity, against any amount owing to that person or entity, including any tax refund, by any state agency, except as specified.

This bill would prohibit the Controller, for taxable years beginning on and after January 1, 2025, from offsetting any amount due to a public or private postsecondary educational institution, as defined, from a current or former student, that was incurred in their capacity as a student, against any amount owing to that current or former student by a state agency, until 730 days after the amount was incurred.

The bill would make its provisions severable.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law establishes the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, the California State University, under the administration of the Trustees of the California State University, the University of California, under the administration of the Regents of the University of California, independent institutions of higher education, and private postsecondary educational institutions as the segments of postsecondary education in the state.

The Donahoe Higher Education Act requires public higher education entities to adopt regulations to withhold institutional services, including withholding grades and diplomas, upon notice to a student that they are in default on a loan made pursuant to specified federal law.

Notwithstanding any other law, the Educational Debt Collection Practices Act prohibits a school, as defined, from refusing to provide a transcript for a current or former student on the grounds that the student owes a debt, conditioning the provision of a transcript on the payment of a debt, charging a higher fee for obtaining a transcript, providing less favorable treatment of a transcript request because a student owes a debt, or using a transcript issuance as a tool for debt collection, as specified.

This bill would expand the provisions described above to also prohibit a school from refusing to provide a diploma, as defined, for a current or former student on the grounds that the student owes a debt, conditioning the provision of a diploma on the payment of a debt, charging a higher fee for obtaining a diploma, providing less favorable treatment of a diploma request because a student owes a debt, or using a diploma issuance as a tool for debt collection. The bill would make other conforming changes.

This bill would prohibit an institution of higher education, as defined, from taking specified actions, including, among other things, charging a higher tuition or fee on the grounds that the student owes an institutional debt, as defined. The bill would authorize an institution of higher education to prevent a current or former student that owes an institutional debt from enrolling or registering for courses on the basis that the student owes an institutional debt if the institution of higher education complies with specified conditions, including, among other conditions, that the institution grants a one-time exemption from an enrollment or registration hold on a current or former student on the grounds that the student owes an institutional debt, as provided. The bill would require an institution of higher education to establish a written policy defining standards and practices for the collection of institutional debt, as provided, and to provide the written policy to current or former students that owe an institutional debt. The bill would prohibit an institution of higher education from taking specified actions when collecting an institutional debt. The bill would require the Board of Governors of the California Community Colleges and the Trustees of the California State University, and request the office of the President of the University of California, to require each public institution to report, beginning on or before July 1, 2025, 2026, using a specified uniform format, and on a biennial basis, specified information regarding the number and dollar amount of institutional debts at each institution. The bill would require, on or before July 1, 2028, that biennial report to include additional specified information. By imposing new duties on community college districts, the bill would constitute a state-mandated local program.

Existing law authorizes the Controller, in their discretion, to offset any amount due to a state agency from a person or entity, against any amount owing to that person or entity, including any tax refund, by any state agency, except as specified.

This bill would prohibit the Controller, for taxable years beginning on and after January 1, 2025, from offsetting any amount due to a public or private postsecondary educational institution, as defined, from a current or former student, that was incurred in their capacity as a student, against any amount owing to that current or former student by a state agency. agency, until 730 days after the amount was incurred.

The bill would make its provisions severable.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law establishes the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, the California State University, under the administration of the Trustees of the California State University, the University of California, under the administration of the Regents of the University of California, independent institutions of higher education, and private postsecondary educational institutions as the segments of postsecondary education in the state.

The Donahoe Higher Education Act requires public higher education entities to adopt regulations to withhold institutional services, including withholding grades and diplomas, upon notice to a student that they are in default on a loan made pursuant to specified federal law.

Notwithstanding any other law, the Educational Debt Collection Practices Act prohibits a school, as defined, from refusing to provide a transcript for a current or former student on the grounds that the student owes a debt, conditioning the provision of a transcript on the payment of a debt, charging a higher fee for obtaining a transcript, providing less favorable treatment of a transcript request because a student owes a debt, or using a transcript issuance as a tool for debt collection, as specified.

This bill would expand the provisions described above to also prohibit a school from refusing to provide a diploma, as defined, for a current or former student on the grounds that the student owes a debt, conditioning the provision of a diploma on the payment of a debt, charging a higher fee for obtaining a diploma, providing less favorable treatment of a diploma request because a student owes a debt, or using a diploma issuance as a tool for debt collection. The bill would make other conforming changes.

This bill would prohibit an institution of higher education, as defined, from taking specified actions, including, among other things, charging a higher tuition or fee on the grounds that the student owes an institutional debt, as defined. The bill would require authorize an institution of higher education to grant to prevent a current or former student that owes an institutional debt from enrolling or registering for courses on the basis that the student owes an institutional debt if the institution of higher education complies with specified conditions, including, among other conditions, that the institution grants a one-time exemption from an enrollment or registration hold on a current or former student on the grounds that the student owes an institutional debt, as provided. The bill would require an institution of higher education to establish a written policy defining standards and practices for the collection of institutional debt, as provided. provided, and to provide the written policy to current or former students that owe an institutional debt. The bill would prohibit an institution of higher education from taking specified actions when collecting an institutional debt. The bill would require the Board of Governors of the California Community Colleges and the Trustees of the California State University, and request the office of the President of the University of California, to require each public institution to report, beginning on or before July 1, 2025, using a specified uniform format, and on a biennial basis, specified information regarding the number and dollar amount of institutional debts at each institution. By imposing new duties on community college districts, the bill would constitute a state-mandated local program.

Existing law authorizes the Controller, in their discretion, to offset any amount due to a state agency from a person or entity, against any amount owing to that person or entity, including any tax refund, by any state agency, except as specified.

This bill would prohibit the Controller, for taxable years beginning on and after January 1, 2025, from offsetting any amount due to a public or private postsecondary educational institution, as defined, from a current or former student, that was incurred in their capacity as a student, against any amount owing to that current or former student by a state agency.

The bill would make its provisions severable.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law establishes the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, the California State University, under the administration of the Trustees of the California State University, the University of California, under the administration of the Regents of the University of California, independent institutions of higher education, and private postsecondary educational institutions as the segments of postsecondary education in the state.

The Donahoe Higher Education Act requires public higher education entities to adopt regulations to withhold institutional services, including withholding grades and diplomas, upon notice to a student that they are in default on a loan made pursuant to specified federal law.

Notwithstanding any other law, the Educational Debt Collection Practices Act prohibits a school, as defined, from refusing to provide a transcript for a current or former student on the grounds that the student owes a debt, conditioning the provision of a transcript on the payment of a debt, charging a higher fee for obtaining a transcript, providing less favorable treatment of a transcript request because a student owes a debt, or using a transcript issuance as a tool for debt collection, as specified.

This bill would expand the provisions described above to also prohibit a school from refusing to provide a diploma, as defined, for a current or former student on the grounds that the student owes a debt, conditioning the provision of a diploma on the payment of a debt, charging a higher fee for obtaining a diploma, providing less favorable treatment of a diploma request because a student owes a debt, or using a diploma issuance as a tool for debt collection. The bill would make other conforming changes.

This bill would prohibit an institution of higher education, as defined, from taking specified actions, including, among other things, placing an enrollment or registration hold on a current or former students account, charging a higher tuition or fee on the grounds that the student owes an institutional debt, as defined. The bill would require an institution of higher education to grant a one-time exemption from an enrollment or registration hold on a current or former student on the grounds that the student owes an institutional debt, as provided. The bill would require an institution of higher education to establish a written policy defining standards and practices for the collection of institutional debt, as provided. The bill would prohibit an institution of higher education from taking specified actions when collecting an institutional debt. The bill would require the Board of Governors of the California Community Colleges and the Trustees of the California State University, and request the office of the President of the University of California, to require each public institution to report, beginning on or before July 1, 2025, using a specified uniform format, and on a biennial basis, specified information regarding the number and dollar amount of institutional debts at each institution. By imposing new duties on community college districts, the bill would constitute a state-mandated local program.

Existing law authorizes the Controller, in their discretion, to offset any amount due to a state agency from a person or entity, against any amount owing to that person or entity, including any tax refund, by any state agency, except as specified.

This bill would prohibit the Controller, for taxable years beginning on and after January 1, 2025, from offsetting any amount due to a public or private postsecondary educational institution, as defined, from a current or former student, that was incurred in their capacity as a student, against any amount owing to that current or former student by a state agency.

The bill would make its provisions severable.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law establishes the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, the California State University, under the administration of the Trustees of the California State University, the University of California, under the administration of the Regents of the University of California, independent institutions of higher education, and private postsecondary educational institutions as the segments of postsecondary education in the state.

The Donahoe Higher Education Act requires public higher education entities to adopt regulations to withhold institutional services, including withholding grades and diplomas, upon notice to a student that they are in default on a loan made pursuant to specified federal law.

Notwithstanding any other law, the Educational Debt Collection Practices Act prohibits a school, as defined, from refusing to provide a transcript for a current or former student on the grounds that the student owes a debt, conditioning the provision of a transcript on the payment of a debt, charging a higher fee for obtaining a transcript or transcript, providing less favorable treatment of a transcript request because a student owes a debt, or using a transcript issuance as a tool for debt collection, as specified.

This bill would expand the provisions described above to also prohibit a school from refusing to provide a diploma or certificate, diploma, as defined, for a current or former student on the grounds that the student owes a debt, conditioning the provision of a diploma or certificate on the payment of a debt, charging a higher fee for obtaining a diploma or certificate or diploma, providing less favorable treatment of a diploma or certificate request because a student owes a debt, or using a diploma or certificate issuance as a tool for debt collection. The bill would prohibit a school from engaging a third-party debt collection agency to collect an existing or future student debt or selling an existing or future student debt to a third party. The bill would make other conforming changes.

This bill would prohibit an institution of higher education, as defined, from taking specified actions, including, among other things, placing an enrollment or registration hold on a current or former students account, on the grounds that the student owes an institutional debt, as defined. The bill would require an institution of higher education to establish a written policy defining standards and practices for the collection of institutional debt, as provided. The bill would prohibit an institution of higher education from taking specified actions when collecting an institutional debt. The bill would require the governing boards of institutions of higher education, Board of Governors of the California Community Colleges and the Trustees of the California State University, and request the office of the President of the University of California, to require each public institution to report, beginning July 1, 2025, using a specified uniform format, and on an annual a biennial basis, specified information regarding the number and dollar amount of institutional debts at each institution. By imposing new duties on community college districts, the bill would constitute a state-mandated local program.

Existing law authorizes the Controller, in their discretion, to offset any amount due to a state agency from a person or entity, against any amount owing to that person or entity, including any tax refund, by any state agency, except as specified.

This bill would prohibit the Controller, for taxable years beginning on and after January 1, 2024, 2025, from offsetting any amount due to a public or private postsecondary educational institution, as defined, from a current or former student student, that was incurred in their capacity as a student, against any amount owing to that current or former student by a state agency.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law establishes the University of California, the California State University, the California Community Colleges, independent institutions of higher education, and private postsecondary educational institutions as the segments of public and private postsecondary education in this state. Existing law requires public postsecondary educational institutions to adopt regulations to withhold institutional services, including the provision of grades and diplomas, upon notice to students that they are in default of their loans under certain loan programs.

This bill would state the intent of the Legislature to enact subsequent legislation to protect Californias postsecondary students from the myriad of harms posed by the growth and prevalence of institutional loan debt, shed light and track the growth and impact of institutional loan debt across California, and monitor the methods that postsecondary educational institutions use to collect on institutional loan debt.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 1160 (Pacheco) - Protecting Students from Creditor Colleges Act

Bill Summary:

This bill prohibits institutions of higher education from taking specified actions against a student on the grounds that the student owes institutional debt, as defined.

Fiscal Impact:

• The University of California (UC) estimates $30 million in lost collections from the prohibition on diploma withholds each year, and additional General Fund costs of $1.5 million each year in staffing needs at campuses. Further, the UC indicates the following: there would likely be a delay in collections on approximately $110 million in annual debt due to the longer timeline for reporting to collection agencies; the likely risk to approximately $32 million that is collected annually from registration holds; and the likely risk to approximately $40 million in tax offsets that will be at risk with the proposed timeline. The UC also estimates one-time administrative costs of $500,000 to update student data systems to capture registration hold and report data.
• The California State University (CSU) indicates that its campuses are owed over $100 million systemwide each year, which equates to a total of $29.9 million being sent to third-party debt collection each year. Under this bill, the CSU would have to wait 180 days to submit this debt. In addition, the CSU indicates that $7.36 million is being collected each year systemwide through tax offsets which would have a two-year delay under the bill.
• The CSU estimates General Fund administrative workload costs of $20,000 for each campus, or $460,000 systemwide, and additional workload costs of $25,000 to the Chancellor’s Office, to comply with the bill’s biennial reporting requirements.

• The California Community College Chancellor's Office estimates this bill could result in annual Proposition 98 General Fund costs ranging from $21,247 to $27,669 per campus, or $2.4 million to $3.2 million statewide, for campuses to collect and report data on institutional debt. These costs could be higher since this is a new reporting area and would require a level of specificity and coordination at both the local and state level that is not typical for reports. Further, community college districts may incur one-time Proposition 98 General Fund costs of $1,117 to $2,862 per district to revise their policies on withholding institutional services from students or former students who have been notified in writing that they are in default on a loan, and additional one-time costs of $1,706 to $4,037 per college to develop a policy on debt collection. Finally, the Chancellor’s Office estimates this bill could result in an unknown reduction in fee revenues since the bill would allow students to attend a community college without paying the required fees for one semester.
• The Chancellor’s Office estimates General Fund costs of $108,000 each year to create a report and data element on debt, and additional one-time costs of $23,000 to issue guidance to community colleges. The Chancellor’s Office also indicates this bill could result in a loss of revenue of $500,000 to $1.1 million each year since the bill effectively eliminates its Tax Offset program.

Background:

Existing federal law establishes programs for providing financial aid to undergraduate and graduate students, including the William D. Ford Direct Loan Program which allows students to borrow directly from the United States Department of Education. This program includes direct subsidized loans, direct unsubsidized loans, direct PLUS loans, and direct consolidation loans.

Existing law provides that, when a student withdraws from an institution of higher education before completing the enrollment period for which federal financial aid was disbursed to the institution, the institution must return a portion of the aid, as calculated, and the student must repay the institution for the portion of the aid returned, as specified.

Existing state law establishes the Educational Debt Collection Practices Act (EDCPA). Existing law states that the Legislature finds and declares all of the following:

1. Schools and colleges have threatened to withhold transcripts as a debt collection tactic. The practice can cause severe hardship by preventing students from pursuing educational and career opportunities, and it is therefore unfair and contrary to public policy. Moreover, the practice is counterproductive as it may further delay the payment of the debt by creating obstacles to student employment.
2. It is the purpose of the EDCPA to prohibit schools from interfering with student educational and career opportunity by the withholding of transcripts.

Existing law prohibits a school from doing any of the following:

1. Refuse to provide a transcript for a current or former student on the grounds that the student owes a debt.
2. Condition the provision of a transcript on the payment of a debt, other than a fee charged to provide the transcript.
3. Charge a higher fee for obtaining a transcript, or provide less favorable treatment of a transcript request because a student owes a debt.
4. Use a transcript issuance as a tool for debt collection.

Existing law requires the governing board of every community college district, the Trustees of the California State University, the Regents of the University of California, and the Board of Directors of the College of Law, San Francisco, to adopt programs providing for the withholding of institutional services from students or former students who have been notified in writing at the student or former student’s last known address that they are in default, as defined, on a loan or loans under the Federal Family Education Loan Program. It provides that the regulations shall specify the services to be withheld from the student and may include, but are not limited to, either or both of the following: the provision of grades; and the provision of diplomas. It also provides that the regulations may not include the withholding of registration privileges or transcripts.

Proposed Law:

This bill prohibits a school from refusing to provide a diploma on the grounds that the student owes a debt, conditioning the provision of a diploma on the payment of a debt, or charging a higher fee for obtaining a diploma or otherwise providing less favorable treatment to a student who owes a debt.

This bill prohibits a school from adopting regulations that include the withholding of conferring a degree or diploma on a student who has satisfied all academic requirements, or the issuance of documentation of a degree or certificate, during the period when the facts are in dispute regarding a student’s failure to repay a debt.

This bill provides that an institution of higher education shall not charge a higher tuition or fee, fail to confer a degree on a student that has satisfied all academic requirements for their course of study, or otherwise prevent a current or former student from reenrolling, registering, or graduating at the institution of higher education on the grounds that the student owes institutional debt.

This bill permits an institution of higher education to prevent a current or former student who owes an institutional debt from enrolling or registering for courses on the basis that the student owes an institutional debt if the institution of higher education complies with all of the following conditions:

1. The institution of higher education grants a one-time exemption from an enrollment or registration hold on a current or former student on the grounds that the student owes a past-due institutional debt. The exemption shall apply only in the first instance a student seeks to enroll or register for an academic term following nonpayment of the student’s institutional debt that would otherwise trigger an enrollment or registration hold, and a student that has been provided a one-time exemption shall not be prevented from enrolling or registering for an academic term on the basis of the debt, provided that the student does not incur additional institutional debt.
2. The institution of higher education notifies any student that accrues a past-due institutional debt in writing of the one-time exemption and that the accumulation of additional institutional debt or failure to pay or enter into written agreement with the institution regarding the institutional debt by the end of the academic term for which the exemption is used may result in an enrollment or registration hold.
3. The enrollment or registration hold is not placed on the basis of an institutional debt for which a student has entered into, and is in good standing on, a payment plan.

This bill requires an institution of higher education to provide the written policy to students that owe an institutional debt. The bill does not prohibit an institution of higher learning from:

1. Withholding a degree, placing an enrollment or registration hold, or otherwise preventing a student from taking classes for violating any academic code of conduct or school honor code, failing to maintain satisfactory academic progress, or on other similar and permissible bases.
2. Administering a “drop for nonpayment” policy or similar policies that disenroll a student from an academic term due to the student’s failure to pay tuition, fees, room and board, or other nontuition costs associated with the cost of attendance, for that same term, provided that any institutional debt that accrues as a result of that nonpayment shall not be subject to this article.

This bill requires an institution of higher education to establish a written policy defining standards and practices for the collection of institutional debt, which must be consistent with the consumer protections set forth in Title 1.6C of Part 4 of Division 3 of the Civil Code and be made publicly accessible on the institution’s website.

This bill prohibits an institution of higher education from doing the following when collecting on an institutional debt:

1. Engage a third-party debt collector that is not licensed pursuant to the Financial Code.
2. Engage a third-party debt collector before 180 days have passed from the first communication from the institution of higher education requesting payment, and the institution of higher education has made all reasonable efforts, in accordance with its written policy established under 9), to communicate with the former student.
3. Engage a third-party debt collector to collect on an institutional debt without a written agreement with the debt collector that requires the debt collector to comply with the written policy.

This bill requires an institution of higher education to make reasonable efforts, in accordance with its written policy to contact a current or former student to notify them of an institutional debt.

This bill requires an institution of higher education, before assigning an institutional debt to a third-party debt collector, to send a notice to the current or former student that includes specified information, including a written itemization of charges that constitute the institutional debt that is being assigned to collectors and an overview of emergency grant aid and other university resources to support students experiencing financial emergencies, if available.

This bill prohibits an institution of higher education or third-party debt collector from reporting adverse information to a consumer credit reporting agency or commencing civil action against a current or former student for nonpayment of an institutional debt before 180 days after the first communication from the institution to the current or former student requesting payment.

This bill prohibits the Controller, beginning January 1, 2025, from offsetting any amount due to a postsecondary institution from a current or former student that was incurred in their capacity as a student, against any amount owing to that current or former student by a state agency, until 730 days after the amount was incurred. The bill also includes a severability clause.

This bill requires the Board of Governors of the CCCs and the Trustees of the CSU, and requests the President of the UC, to require each public institution to report, beginning July 1, 2026, and on a biennial basis not later than three months after the end of each institution’s fiscal year, as specified.

Staff Comments:

While the majority of student debt is owed to the federal government in the form of student loans, students may also owe money to private banks for credit card debt or private student loans. Further, students may owe money to institutions of higher education that they attend or have attended, known as institutional debt. Most of the institutional debt is incurred when a student who has received federal aid unexpectedly withdraws from courses before the end of a school term and their institution is required to return the student’s aid to the federal government. The institutions then charge the student for the amount of the returned aid. Institutional debt can also stem from unpaid fees, such as parking or library fees. Under current law, an institution may withhold a student’s diploma or place an enrollment or registration hold on a current or former student’s account on the grounds that the student owes an institutional debt, among other actions. Institutions may also engage third-party collectors to collect institutional debt from students. Further, current law allows the State Controller to essentially garnish tax refunds of current or former students who owe institutional debt and return those funds to the institutions. To identify these individuals, the institutions report current or former students owing debt to the Controller and those individuals have their tax refund, if they are entitled to one, reduced by the amount they owe.

This bill would prohibit some of these practices and also place restrictions around the use of third-party debt collectors. This bill also eliminates the ability for institutions of higher education to recoup institutional debt by garnishing tax refunds.

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SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: AB 1160 (Author:Pacheco)

Version: June 24, 2024

Hearing Date: July 2, 2024

Fiscal: Yes

Urgency: No

Consultant: AWM

SUBJECT

Protecting Students from Creditor Colleges Act

DIGEST

This bill prohibits an institution of higher education in the state from taking certain actions against a student on the grounds that the student owes an institutional debt, as defined; limits when and how an institution can refer an institutional debt to third-party collections or report the debt to a consumer credit reporting agency; eliminates an institution’s ability to recoup the debt through garnishing a student’s tax refund; and requires the state’s public universities and colleges to report biannually on matters relating to institutional debt.

EXECUTIVE SUMMARY

“Institutional debt” is a subset of student loan debt that is owed directly to an institution of higher education rather than to a student loan provider. Institutional debt can be minor—an unpaid library late fee—but it can also be significant. When a student withdraws mid-semester, the institution is required to return any federal loan or grant money it received for that student for that semester; the institution then passes the cost of the semester to the student. For many students, institutional debt can become a barrier to re-enrollment, which may perversely hurt their ability to pay off the debt.

Current law prohibits an institution of higher education from withholding a transcript from, or charging a higher fee for a transcript to, a student who owes an institutional debt. This bill significantly expands the scope of regulations and prohibitions relating to institutional debts, including prohibiting an institution of higher education in the state from taking certain actions against a student on the grounds that the student owes an institutional debt; limiting when and how an institution can refer an institutional debt to third-party collections or report the debt to a consumer credit reporting agency; limiting an institution’s ability to recoup the debt through garnishing a student’s tax refund to debts over two years old; and requiring the state’s public universities and colleges to report biannually on matters relating to institutional debt. The bill also requires the public institutions to submit a more detailed report about the nature of institutional debt and the students who have institutional debt, due by July 1, 2028. The author has agreed to remove the 2028 reporting requirement and to clarifying amendments.

This bill is sponsored by NextGen California and is supported by over 20 organizations, including student and faculty associations. This bill is opposed by over 10 organizations, including the California State University and the Board of Directors of the California Community Colleges Board. The Senate Education Committee passed this bill with a vote of 5-1.

PROPOSED CHANGES TO THE LAW

Existing federal law and regulations:

1. Establish federal programs for providing financial aid to undergraduate and graduate students, including the William D. Ford Direct Loan Program, a federal student loan program under which eligible students borrow directly from the United States Department of Education at participating schools; the Program includes direct subsidized loans, direct unsubsidized loans, direct PLUS loans, and direct consolidation loans. (20 U.S.C. tit. 20, ch. 28, §§ 1070 et seq.)
2. Provide that, when a student withdraws from an institution of higher education before completing the enrollment period for which federal financial aid was disbursed to the institution, the institution must return a portion of the aid, as calculated, and the student must repay the institution for the portion of the aid returned, as specified. (34 C.F.R. § 668.22.)

Existing state law:

1. Establishes the Educational Debt Collection Practices Act (the EDCPA). (Civ. Code, div. 3, pt. 4, tit. 1.6c.7, §§ 1788.90 et seq.)
2. States that the Legislature finds and declares all of the following:
   1. Schools and colleges have threatened to withhold transcripts as a debt collection tactic. The practice can cause severe hardship by preventing students from pursuing educational and career opportunities, and it is therefore unfair and contrary to public policy. Moreover, the practice is counterproductive as it may further delay the payment of the debt by creating obstacles to student employment.
   2. It is the purpose of the EDCPA to prohibit schools from interfering with student educational and career opportunity by the withholding of transcripts. (Civ. Code, § 1788.91.)
3. Defines the following terms:
   1. “School” means any public or private postsecondary school, or any public or private entity, responsible for providing transcripts to current or former students of a school.
   2. “Debt” means any money, obligation, claim, or sum due or owing, or alleged to be due or owing, from a student, but does not include the fee, if any, charged to all students for the actual costs of providing the transcripts. (Civ. Code, § 1788.92.)
4. Prohibits a school from doing any of the following:
   1. Refuse to provide a transcript for a current or former student on the grounds that the student owes a debt.
   2. Condition the provision of a transcript on the payment of a debt, other than a fee charged to provide the transcript.
   3. Charge a higher fee for obtaining a transcript, or provide less favorable treatment of a transcript request because a student owes a debt.
   4. Use a transcript issuance as a tool for debt collection. (Civ. Code, § 1788.93.)
5. Establishes the Donahoe Higher Education Act, which regulates public higher education—consisting of the California Community Colleges (CCCs), the California State University (CSU), and the University of California (UC)—and institutions of private higher education established as nonprofit corporations in the State of California. (Ed. Code, tit. 3, div. 5, pt. 40, §§ 66000 et seq.)
6. Requires the governing board of every community college district, the Trustees of the California State University, the Regents of the University of California, and the Board of Directors of the College of Law, San Francisco, to adopt programs providing for the withholding of institutional services from students or former students who have been notified in writing at the student or former student’s last known address that they are in default, as defined, on a loan or loans under the Federal Family Education Loan Program. (Ed. Code, § 66022(a).)
7. Provides that the regulations adopted pursuant to 6) shall specify the services to be withheld from the student and may include, but are not limited to, either or both of the following:
   1. The provision of grades.
   2. The provision of diplomas. (Ed. Code, § 66022(b)(1).)
8. Provides that the regulations adopted pursuant to 6) may not include the withholding of registration privileges or transcripts. (Ed. Code, § 66022(b)(2).)
9. Authorizes the State Controller to offset any amount due a state agency from a person or entity against any amount owing that person or entity by a state agency, including any tax refund. (Gov. Code, § 12419.5.)

This bill:

1. States that the Legislature finds and declares all of the following:
   1. Over the last decade, state and national attention has focused on the harmful impacts of the $1.7 trillion dollar student loan debt crisis. Across California, more than 3,900,000 borrowers owe nearly $148 million in student loan debt. Although state and federal governments have taken action to support student loan borrowers, another type of student debt has gone mostly unaddressed: institutional debt, which are debts owed by current or former students directly to an institution of higher education rather than the government or private lenders, and can range from library fines and parking tickets to certain unpaid fees and tuition carried over from a prior semester.
   2. In addition to hidden or unexpected fines and fees, research suggests that institutional debt often arises when students relying on federal Title IV aid programs, such as Pell Grants, withdraw from an academic program before they are able to complete the program. When a student withdraws early before completing an academic term, a school must repay a portion of that student’s Title IV funds to the federal government using a formula proportional to the amount of class time the student completed, a federal policy known as “Return to Title IV.”
   3. As a result of this federal policy, most institutions across all two-year, four-year public, private nonprofit, and private for-profit schools have created policies that then charge students for the amount of the Title IV aid returned to the federal government as part of their refund policies, which creates a balance on the student’s account. Suddenly students that may have intended to pay off their education over time with loans or grants find themselves owing debts immediately due to their school in the form of an institutional debt.
   4. Available research indicates that institutional debt rates in the state have increased. Over the course of the COVID-19 pandemic, as the economic and public health emergency forced record numbers of students to withdraw from their courses, the growing segment of institutional debts has ballooned, resulting in more than 750,000 low-income students owing more than $350 million in debt to California public colleges.
   5. In 2019, California became the first state in the nation to pass limited protections for students who owe institutional debts, prohibiting schools from holding college transcripts hostage as a tactic to collect on institutional debts from former students.
   6. Despite these reforms, current or former students with outstanding institutional debts still face disastrous consequences. Institutions of higher education have been found to place holds on a student’s account barring them from reenrolling in coursework and placing harmful barriers to degree completion, withholding degrees and certificates, harming a student’s employment prospects, and even placing students in private collections or subjecting them to benefits and tax return offsets through the Interagency Intercept Collection Program operated by the Franchise Tax Board.
   7. Unlike federal student loans and other privately held debts, students with institutional debt lack many basic consumer protections. Furthermore, California policymakers and taxpayers lack transparent data on the prevalence and long-term harms of institutional debt.
   8. While this act aims to mitigate the most harmful educational and economic barriers imposed by institutional debt collection practices, it does not allow students to remain enrolled for an academic term for which they have not paid required tuition and fees. Schools may still require students to pay tuition and fees pursuant to “drop for nonpayment” policies that ensure payment to cover courses for the enrolled term, and may still collect on institutional debts from past terms in a manner that is student centered, prioritizes student success, and prevents further economic hardship.
2. Prohibits a school from refusing to provide a diploma on the grounds that the student owes a debt, conditioning the provision of a diploma on the payment of a debt (other than the fee to provide the diploma), or charging a higher fee for obtaining a diploma or otherwise providing less favorable treatment to a student who owes a debt.
   1. “Diploma” is defined as a certificate or similar paper or electronic document evidencing that a school has conferred a degree, certificate, or similar qualification on a student.
3. Prohibits a school from adopting regulations that include the withholding of conferring a degree or diploma on a student who has satisfied all academic requirements, or the issuance of documentation of a degree or certificate, during the period when the facts are in dispute regarding a student’s failure to repay a debt.
4. Enacts the Protecting Students from Creditor Colleges Act (the Act), with the following relevant definitions:
   1. “Degree” means a credential conferred by an institution in recognition of a student’s satisfaction of all academic requirements associated with a course of study, and includes certificates, associate degrees, baccalaureate degrees, and graduate degrees.
   2. “Institution of higher education” or “institution” means any public or private postsecondary educational institution operating in the state, including its branch campus and satellite locations or distance education, that receives or benefits from state financial assistance, or enrolls students who receive state student financial aid, each institution of public higher education, as defined, any independent institution of higher education, a defined, and any private postsecondary educational institution, as defined, that receives or benefits from state financial assistance, or enrolls students who receive state student financial aid.
   3. “Institutional debt” means any money, obligation, claim, or sum, due or owing, or alleged to be due or owing, whether or not reduced to court judgment, from a student, and that was incurred in their capacity as a student, to an institution of higher education. “Institutional debt” does not include tuition, fees, room and board, or other costs of attendance for an academic term in which the student is actively enrolled or for an academic term in which the student seeks to enroll.
5. Provides that an institution of higher education shall not charge a higher tuition or fee, fail to confer a degree on a student that has satisfied all academic requirements for their course of study, or otherwise prevent a current or former student from reenrolling, registering, or graduating at the institution of higher education on the grounds that the student owes institutional debt.
6. Permits an institution of higher education to prevent a current or former student who owes an institutional debt from enrolling or registering for courses on the basis that the student owes an institutional debt if the institution of higher education complies with all of the following conditions:
   1. The institution of higher education grants a one-time exemption from an enrollment or registration hold on a current or former student on the grounds that the student owes a past-due institutional debt. The exemption shall apply only in the first instance a student seeks to enroll or register for an academic term following nonpayment of the student’s institutional debt that would otherwise trigger an enrollment or registration hold, and a student that has been provided a one-time exemption shall not be prevented from enrolling or registering for an academic term on the basis of the debt.
   2. The institution of higher education notifies any student that accrues a past-due institutional debt in writing of the one-time exemption and that the accumulation of additional institutional debt or failure to pay or enter into written agreement with the institution regarding the institutional debt by the end of the academic term for which the exemption is used may result in an enrollment or registration hold.
   3. The institution of higher education does not place an enrollment or registration hold on the basis that a current or former student owes an institutional debt on any student that has entered into, and is in good standing on, a payment plan for any institutional debt.
7. Requires an institution of higher education to provide the written policy adopted pursuant to 9) to students that owe an institutional debt.
8. Provides that the Act does not prohibit an institution of higher learning from:
   1. Withholding a degree, placing an enrollment or registration hold, or otherwise preventing a student from taking classes for violating any academic code of conduct or school honor code, failing to maintain satisfactory academic progress, or on other similar and permissible bases.
   2. Administering a “drop for nonpayment” policy or similar policies that disenroll a student from an academic term due to the student’s failure to pay tuition, fees, room and board, or other nontuition costs associated with the cost of attendance, for that same term, provided that any institutional debt that accrues as a result of that nonpayment shall not be the basis for any future adverse action against the student pursuant to 6).
9. Requires an institution of higher education to establish a written policy defining standards and practices for the collection of institutional debt, which must be consistent with the consumer protections set forth in Title 1.6C of Part 4 of Division 3 of the Civil Code and be made publicly accessible on the institution’s website.
10. Prohibits an institution of higher education from doing the following when collecting on an institutional debt:
    1. Engage a third-party debt collector that is not licensed pursuant to the Financial Code.
    2. Engage a third-party debt collector before 180 days have passed from the first communication from the institution of higher education requesting payment, and the institution of higher education has made all reasonable efforts, in accordance with its written policy established under 9), to communicate with the former student.
    3. Engage a third-party debt collector to collect on an institutional debt without a written agreement with the debt collector that requires the debt collector to comply with the written policy established under 9).
11. Requires an institution of higher education to make reasonable efforts, in accordance with its written policy established under 9), to contact a current or former student to notify them of an institutional debt.
12. Requires an institution of higher education, before assigning an institutional debt to a third-party debt collector, to send a notice to the current or former student that includes all of the following information:
    1. A written itemization of charges that constitute the institutional debt that is being assigned to collectors.
    2. An overview of emergency grant aid and other university resources to support students experiencing financial emergencies, if available.
    3. The date or dates the student or former student was originally sent a notice about the institutional debt.
    4. The name of the third-party debt collector to which the institutional debt is being assigned.
    5. The consequences of a defaulted institutional debt, including the potential of reporting adverse information on a credit report and the risk of civil action.
    6. How to submit a complaint with the Department of Financial Protection and Innovation (DFPI) and how to request assistance if they are subjected to abusive debt collection practices.
13. Prohibits an institution of higher education or third-party debt collector from reporting adverse information to a consumer credit reporting agency or commencing civil action against a current or former student for nonpayment of an institutional debt before 180 days after the first communication from the institution to the current or former student requesting payment.
14. Requires the Board of Governors of the CCCs and the Trustees of the CSU, and requests the President of the UC, to require each public institution to report, beginning July 1, 2026, and on a biennial basis not later than three months after the end of each institution’s fiscal year, specified information relating to institutional debts, including:
    1. The total number of payment plans at each institution.
    2. A breakdown of the total number and dollar amount of institutional debts by (1) dollar amounts in increments of $500 and (2) the age of the institutional debt in increments of one year.
    3. The total number and dollar amount of institutional debts owed, in whole or in part, as the result of a current or former student’s federal financial aid being returned to the federal government.
    4. A description of any policies related to administrative actions or account holds imposed on current or former students with an outstanding account due to an institutional debt.
    5. The number of students and accounts subject to an administrative hold at each institution.
    6. The total number and dollar amount of institutional debts collected directly by the institution during the prior two fiscal years, without the use of a third-party debt collector or the Franchise Tax Board.
    7. The total number and dollar amount of institutional debt assigned to, sold to, and collected by, third-party debt collectors in the prior two fiscal years.
    8. The number of institution debts subject to collection through the Franchise Tax Board and the total dollar amount collected through the Franchise Tax Board during the prior two fiscal years.
    9. The total number and dollar amount of institution debts that are the result of a loan made by the institution.
15. Requires the biannual report in 14), on or before July 1, 2028, to include the following information:
    1. The racial and gender demographic of the students.
    2. The total number and dollar amount of institutional debts subject to a payment plan at each institution, excluding tuition payment plans, and the payments that have been made pursuant to a payment plan.
    3. The total number and dollar amount of institutional debts owed by Pell Grant-eligible current or former students.
    4. A breakdown of the total number and dollar amount of institutional debts by a declared major and degree type being sought.
    5. A breakdown of the source of institutional debs by underlying expense type, including tuition, room and board, fines, and campus fees.
    6. A total number and dollar amount of institutional debts that are the result of a tuition payment plan offered by the institution.
16. Requires the Commissioner of the DFPI to coordinate with the CCCs, CSUs, and UCs if they elect to comply to develop a uniform format for the data collection in 14) to ensure that the data are reported timely, and requires the data compiled to be reported in a publicly accessible manner.
17. Prohibits the Controller, beginning January 1, 2025, from offsetting any amount due to a postsecondary institution from a current or former student that was incurred in their capacity as a student, against any amount owing to that current or former student by a state agency, until 730 days after the amount was incurred.
18. Includes a severability clause.

COMMENTS

1. Author’s comment

According to the author:

The new research finds that this little-known type of student debt, called “institutional debt,” has exploded in California since the onset of COVID-19, as students withdrew from California public colleges for economic, family, or health reasons. AB 1160 will protect students from the most harmful impacts of this debt and provide much-needed transparency on the growth and impact of this debt across our state. With the current enrollment crisis, it is important that we help students with removing barriers in attaining their higher education goals and understand what else we must do to address the student debt crisis—including institutional debt—across California.

2. Background on the “institutional debt” addressed by this bill

The “institutional debt” at issue in this bill is a subset of, and smaller than, the full load of loan debt that a student may take on through various federal loan or grant programs. As explained by the Senate Education Committee’s analysis of this bill:

[W]hen students who receive federal financial aid (including Pell Grant recipients) withdraw before the end of an academic term, federal aid rules require colleges to return a portion of their federal aid disbursement to the U.S. Department of Education. Consequently, schools absorb the financial loss or treat a portion of a withdrawn student’s Pell disbursal as a debt for collection.

For example, if a student completed five semesters of college and withdrew partway through the sixth semester to take care of a sick parent, the five semesters’ worth of loan payments would be unaffected: the school would have received the loan money from the federal government, and the student would be obliged to repay the loan to the federal government under the terms of the loan. For the sixth, uncompleted semester, however, the school would return the loan money to the federal government and the debt for those returned funds would be passed on to the student (along with any unpaid fees the student had accrued).

As supporters of the bill, such as Consumer Reports and the California Federation of Teachers, explain, these institutional debts are often incurred when a student encounters an unexpected economic or health crisis, or a family emergency. Then, if the school will not permit the student to re-enroll without paying the debt—which could be several thousand dollars and beyond the student’s means to pay—the student will be unable to complete their degree, leaving them with both mounting debt and no college degree.

In 2022, several entities—including NextGen, this bill’s sponsor, and the Student Loan Initiative at the UC Irvine School of Law and the UC Berkeley Center for Consumer law and Economic Justice—released a report on the state of institutional debt in California.^[1] The report estimated that students who were unable to complete their education during the 2020-2021 and 2021-2022 academic years—the height of the COVID-19 pandemic—had accrued $390 million in institutional debt to the UCs, the CSUs, and the CCCs alone.^[2] The report indicates that only a small portion of the outstanding balances is recovered.^[3]

Public and private institutions of higher education employ a number of tactics to collect on institutional debt, including placing the debts with for-profit collection agencies and offsetting students’ tax refunds.^[4] Additionally, as noted above, many schools will prohibit a student with institutional debt from re-enrolling until the debt is paid. The bill’s supporters argue that this practice is actually detrimental to the school, because, by preventing the student from coming back to finish their degree, the school is preventing the student from obtaining a degree that will increase their earning potential and their ability to repay the debt.

3. This bill modifies when, and how, an institution of higher education may penalize a student for, or attempt to collect on, a debt owed to the institution

Current law prohibits an institution of higher education—public or private—from withholding a student’s transcript from a student who owes a debt to the school.^[5] This prohibition, enacted through AB 1313 (Luz Rivas, Ch. 518, Stats. 2019), recognizes that withholding a transcript from a student to force them to repay a debt is counterproductive. AB 1313 was passed in both houses of the Legislature without a single “no” vote, and was passed out 40-0 on the Senate floor.

This bill builds on AB 1313 with more protections surrounding an institution of higher education’s treatment of institutional debt. These measures include:

• Prohibiting a school from refusing to confer a degree on a student, provided that the student otherwise satisfied all the academic requirements in their course of study, because the student owes an institutional debt.
• Requiring a school to grant a student, who otherwise meets the criteria for re-enrollment, a one-time exemption from an enrollment or registration hold placed due to the student’s institutional debt; this would allow the student to enroll or register, continue their education, and graduate.
• Establishing restrictions on when, and under what conditions, a school may engage a third-party debt collector or report adverse information to a consumer credit reporting agency.
• Prohibiting a student’s tax refund from being offset by amounts owed under an institutional debt until the debt is 730 days old.

The bill also requires the CCCs, the CSU, and the UC to report, on a biannual basis, information relating to the institutional debts owed to, and collected by, each institution and each segment. Additionally, as currently in print, the bill requires the CCCs, CSU, and UC to report on information relating to the students who hold institutional debt and a more detailed breakdown of the source of the debt, the methods of debt collection used by the schools, and the amounts of debts collected, by July 1, 2028. In response to feedback from the CCCs, CSU, and UC stating that they are unable to collect the information in the more specific report, the author has agreed to remove this requirement, as well as to minor clarifying amendments, discussed below in Part 4.

The brunt of this bill is within the jurisdiction of the Senate Education Committee, which passed this bill with a vote of 5-1. This Committee has jurisdiction over a more modest provision of the bill, which amends AB 1313’s prohibition on the withholding of transcripts to also prohibit the withholding of diplomas. To be clear, this provision does not address the conferring of diplomas; that issue is addressed within this bill’s additions to the Education Code. This provision merely prevents a school from refusing to provide a paper diploma or certificate, or a copy thereof, to a student on the basis that they owe an institutional debt. Opponents to the bill argue that this provision removes one of their low-stakes tools for recovering debts owed by students.

4. Amendments

As noted above, the author has agreed to amendments to clarify the bill’s provisions. The amendments are set forth below, with additions in bold and underline and deletions in strikethrough, subject to any nonsubstantive changes the Office of Legislative Counsel may make.

Amendment 1

Modify page 8, lines 15-22, to read:

(c) “Institutional debt” means any money, obligation, claim, or sum, due or owing, or alleged to be due or owing, whether or not reduced to court judgment, from a student, and that was incurred in their capacity as a student, to an institution of higher education. “Institutional debt” does not include any tuition, fees, room and board, or other costs of attendance for an academic term in which the student is actively enrolled or for an academic term in which the student seeks to enroll; however, at the end of that academic term, any outstanding amounts would become institutional debt.

Amendment 2

At page 9, at the end of line 5, insert “, provided that the student does not incur additional institutional debt”

Amendment 3

Modify page 9, lines 13-17 as follows:

(3) The institution of higher education does not place an enrollment or registration hold is not placed on the basis that a current or former student owes of an institutional debt for which on any a student that has entered into, and is in good standing on, a payment plan for anythat institutional debt.

(4) This subdivision shall apply only to an educational program that is intended to run for more than two academic terms. “Educational program” has the same meaning as in Section 55000 of Title V of the California Code of Regulations.

Amendment 4

Modify page 9, lines 27-35 as follows:

(e) This article does not prohibit an institution of higher education from administering a “drop for nonpayment” policy or similar policies that disenroll a student from an academic term due to the student’s failure to pay tuition, fees, room and board, or other nontuition costs associated with the cost of attendance, for that same term, provided that any institutional debt that accrues as result of that nonpayment shall not be the basis for any future adverse action against the student, as prohibited on a one-time basis by subdivision (b)be subject to this article.

Amendment 5

Modify page 12, lines 22-24, as follows:

(8) The total number and dollar amount of institutional debts sold or assigned to third-party debt collectors during the prior two fiscal years.

Amendment 6

At page 12, delete lines 35-36.

Amendment 7

At page 13, delete lines 4-20.

5. Arguments in support

According to NextGen California, the bill’s sponsor:

AB 1160 will ensure that students are protected from some of the most harmful educational and economic ramifications of institutional debt that have been found to be more punitive than effective when institutions collect on this debt. Specifically, the bill will prohibit institutions of higher education from withholding a degree simply because the student owes an institutional debt – extending the same critical protection for students that California policymakers have applied to withholding transcripts. The bill also establishes a one-time grace period for students with institutional debt to allow them to register or re-enroll in their coursework, allowing students the chance to make critical progress towards their degree and allowing schools to bring in much-needed tuition and fee revenue for a student that would otherwise be barred from re-enrolling. Over the course of this grace period, students and schools can work to establish a payment plan to ensure that a student can get back on track to repay their institutional debt…

Further, the bill will also provide much-needed transparency on the growth and impact of institutional debt by requiring consistent data collection and reporting on a biennial basis. Although this is an under-studied area of educational debt—due to a lack of available data—the few available reports make clear that institutional debt practices disproportionately burden low-income students and students of color, maintaining and even perpetuating the very racial wealth gap that education is meant to close. AB 1160 will help policymakers and researchers better understand the crisis and determine the reforms needed in the future.

6. Arguments in opposition

According to the California State University:

While we appreciate the author’s attention to the financial wellbeing of our students, this bill would have unintended consequences that could impact the essential functions of the CSU and our universities. Primarily, it would prohibit our universities from receiving repayment of institutional debts through tax offset, which would remove an estimated average $250,000 per year per campus in debt payments. It would create a 180-day waiting period before an institutional debt could be sent to collections. The bill would also create a one-time grace period for each student, in which they could re-enroll or register for classes without having paid their existing institutional debt. While we want all students to be able to continue their educational journey with the CSU, and we currently encourage our students to enter into a payment plan with their university if they are unable to pay any institutional debts upfront, this grace period would likely be difficult to administer for thousands of unique students. The bill also requires a biennial report with sixteen different data points, many of which we do not currently have the ability to collect. As the CSU faces a potential $75 million budget cut and an even larger budget deficit in the coming year, we must maintain access to the existing tools for collecting payments, particularly tuition and fees.

SUPPORT

NextGen California (sponsor)

California Faculty Association

California Competes: Higher Education for a Strong Economy

California Federation of Teachers
California Low-Income Consumer Coalition

Cal State Student Association

CHIRLA

Compton College

Compton Community College District

Consumer Reports

Courage California

Faculty Association of California Community Colleges

GENup

Indivisible CA: StateStrong

John Burton Advocates for Youth

Long Beach City College

Northern California College Promise Coalition

San Francisco Rising

Student Borrower Protection Center

Southern California College Attainment Network

Student Debt Crisis Center

University of California Student Association

Western Center on Law & Poverty

Young Invincibles

OPPOSITION

Association of Independent California Colleges and Universities

Biola University

California Association of Private Postsecondary Schools

California State University

Chief Executive Officers of the California Community Colleges Board

Coalition of Higher Education Assistance Organizations

Community College League of California

Loma Linda University Health

Pacific Union College

University of Phoenix

University of Redlands

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation: AB 1313 (Luz Rivas, Ch. 518, Stats. 2019) established the Educational Debt Collection Practices Act, which is discussed in greater detail in Part 3 of this analysis.

PRIOR VOTES:

Senate Education Committee (Ayes 5, Noes 1)

Assembly Floor (Ayes 61, Noes 8)

Assembly Appropriations Committee (Ayes 12, Noes 3)

Assembly Higher Education Committee (Ayes 8, Noes 2)

**************

1. See Eaton, et al., Creditor Colleges: Canceling Debts that Surged During COVID-19 for Low-Income Students (Mar. 2022), p.2 , available at https://protectborrowers.org/new-report-covid-19-drove-nearly-750000-low-income-students-to-owe-350-million-in-debt-to-california-public-colleges/ (link current as of June 27, 2024). ↑

2. Id. at p. 4. ↑

3. Id. at p. 17. ↑

4. Id. at pp. 14-15. ↑

5. Civ. Code, § 1788.93. ↑

SENATE COMMITTEE ON EDUCATION

Senator Josh Newman, Chair

2023 - 2024 Regular

Bill No: Hearing Date: May 29, 2024

Subject:

NOTE: This bill has been referred to the Committees on Education and Judiciary. A "do pass" motion should include referral to the Committee on Judiciary.

SUMMARY

This bill prohibits institutions of higher education (IHE) from taking certain actions against a student on the grounds that the student owes an institutional debt including withholding their diploma and the ways in which a student can be prevented from enrolling or registering for courses. It further requires various consumer protections related to the collection of institutional debt and requires IHE to collect and report certain data pertaining to institutional debt. Lastly, the bill eliminates the ability for IHE to recoup institutional debt by garnishing the tax refunds by debtors.

BACKGROUND

Existing law:

1) Establishes the University of California (UC) as a public trust to be administered

by the Regents of the UC; and, grants the Regents full powers of organization and government, subject only to such legislative control as may be necessary to insure security of its funds, compliance with the terms of its endowments, statutory requirements around competitive bidding and contracts, sales of property and the purchase of materials, goods and services. (Article IX, Section (9)(a) of the California Constitution)

2) Establishes the Donahoe Higher Education Act, setting forth the mission of the UC, California State University (CSU), and California Community Colleges (CCC). (Education Code (EC) § 66010, et seq.)

3) Confers upon the CSU Trustees the powers, duties, and functions with respect to the management, administration, control of the CSU system and provides that the Trustees are responsible for the rule of government of their appointees and employees. (EC § 66606 and 89500, et seq.)

4) Establishes the CCC under the administration of the Board of Governors of the CCC, as one of the segments of public postsecondary education in this state. The CCC shall be comprised of community college districts. (EC § 70900)

5) Requires the governing board of every community college district, the Trustees of the CSU, and, if appropriate resolutions are adopted, the Regents of UC and the Board of Directors of the College of the Law, San Francisco to adopt regulations providing for the withholding of institutional services from students or former students who have been notified in writing, as specified, that they are in default on a loan or loans under the Federal Family Education Loan Program (FFEL), and requires the Student Aid Commission (Commission) to give notice of the default to all institutions through which the individual acquired the loan or loans. (EC § 66022)

6) Regulates the practice of debt collection and the conduct of debt collectors under the Rosenthal Fair Debt Collection Practices Act by prohibiting deceptive, dishonest, unfair, and unreasonable practices. (Civil Code § 1788, et al.)

7) Prohibits a school, as defined, from refusing to provide a transcript for a current or former student on the grounds that the student owes a debt, conditioning the provision of a transcript on the payment of a debt, charging a higher fee for obtaining a transcript or providing less favorable treatment of a transcript request because a student owes a debt, or using a transcript issuance as a tool for debt collection, as specified. (Civil Code § 1788.90 et al.)

8) Authorizes the Controller, in their discretion, to offset any amount due to a state agency from a person or entity, against any amount owing to that person or entity, including any tax refund, by any state agency, except as specified. (Government Code § 12419.5)

ANALYSIS

This bill:

Student debt and issuance of diplomas

1. Prohibits, in addition to transcripts as provided in current law, a public or private postsecondary school from refusing to provide a diploma as defined, for a student on the grounds that the student owes a debt, conditioning the provision of a diploma on the payment of a debt, charging a higher fee for obtaining a diploma, providing less favorable treatment of a diploma request because a student owes a debt, or using a diploma issue as a tool for debt collection.

Student loan default and withholding of diploma

1. Modifies provisions that authorize the withholding of certain services from a student that have defaulted on a loan under the FFEL program through regulations adopted by each public IHE’s governing body by removing their authority to withhold a degree, diploma or registration privileges except as specified, on a student that has satisfied all academic requirements, or the issuance of documentation of a degree or certificate. (The FFEL program was replaced by the Federal Direct Student Loan Program in 2010)

Student’s state tax refund and redirection of funds prohibition

1. Prohibits the Controller, beginning January 1, 2025, from deducting funds from a student’s state tax refund and redirecting the funds to a postsecondary institution as defined to which the student owes institutional debt.

Institutional debt, registration, and enrollment hold

1. Establishes the Protecting Students from Creditor Colleges Act (Act). Specifically, under the act, it:
   1. Prohibits an IHE from charging a higher tuition or fee, failing to confer a

degree on a student that has satisfied all academic requirements for their course of study, or otherwise preventing a student from reenrolling, registering, or graduating at the IHE on the grounds that the student owes an institutional debt.

• 1. Allows an IHE to prevent a student who owes an institutional debt from

enrolling or registering for courses on the basis that the student owes an institutional debt if the IHE complies with all of the following conditions:

• • 1. The IHE grants a one-time exemption from an enrollment or

registration hold on a student on the grounds that they owe a past-due institutional debt. The bill stipulates that the one-time exemption only applies in the first instance a student seeks to enroll or register for an academic term following nonpayment of their institutional debt that would otherwise trigger an enrollment or registration hold, and that an exempted student cannot be prevented from enrolling and registering as specified.

• • 1. The IHE notifies any student who accrues past-due institutional

debt in writing of the on-time exemption and notifies them that an enrollment or registration hold may occur for the accumulation of additional debt or failure to pay or enter into written agreement with the IHE regarding institutional debt by the end of the academic term for which the exemption applies.

• • 1. The IHE does not place an enrollment or registration hold on the

basis that a student owes an institutional debt on any student that has entered into, and is in good standing on, a payment plan for any institutional debt.

Drop for nonpayment authorization

• 1. States that nothing in the Act prohibits an IHE from doing any of the

following:

• • 1. Withholding a degree, placing an enrollment or registration hold, or

otherwise preventing a student from taking classes for violating any academic code of conduct or school honor code, failing to maintain satisfactory academic progress, or on other similar and permissible bases.

• • 1. Administering a “drop for nonpayment” policy, which disenrolls a

student from an academic term because of their failure to pay that term’s tuition or fees, room and board, or other nontuition costs associated with the cost of attendance, provided that an institutional debt that accrues because of the nonpayment cannot be used as a reason for any future adverse action against the student as stated in the Act.

• 1. Requires that IHE implement any “drop for nonpayment” disenrollments

before disbursing financial aid refunds or electronic transfers and provides that a student cannot otherwise incur any institutional debt for tuition or fees associated with the term when dropped for nonpayment.

Collection for institutional debt, policy, and notification

• 1. Requires an IHE to establish a written policy defining the standards and

procedures for collecting institutional debt from students, ensure that the policy is consistent with consumer protections established in current law, make it publicly accessible on its website and provide it to students that owe an institutional debt.

• 1. Prohibits an IHE from doing any of the following when collecting on an

institutional debt:

• • 1. Engage a third-party debt collector that is not licensed.
    2. Engage a third-party debt collector before 180 days have passed

from the first communication from the IHE requesting payment, and the IHE has made all reasonable efforts to communicate with a student, in accordance with the prescribed written policy established for collecting institutional debt.

• • 1. Engage a third-party debt collector to collect on an institutional debt

without a written agreement with the debt collector that requires the debt collector to comply with the prescribed written policy established for collecting institutional debt.

• 1. Requires that an IHE make all reasonable efforts to contact a student to

notify them of an institutional debt in accordance with the prescribed written policy established for collecting institutional debt.

• 1. Requires, before assigning an institutional debt to a third-party debt

collector, an IHE notify a student that includes information on, among other things, the amount of debt assigned to collections, the name of the third-party debt collector, the consequences of a defaulted institution debt, and how to submit a complaint with the Department of Financial Protection and Innovation.

• 1. Prohibits an IHE or third-party debt collector from reporting adverse

information to a consumer credit reporting agency or commencing civil action against a student for nonpayment of an institutional debt before 180 days after the first communication from the institution to student requesting payment.

Reporting requirements

• 1. Requires that the CCC Board of Governors, and the CSU Trustees, and

requests that the UC’s President, require, beginning July 1, 2025, each public institution to biennially report as prescribed on information related to institutional debt, including, among other things, the amount of institutional debt at each campus, the source of institutional debts, and student demographic information.

• 1. Requires, in coordination with the Commissioner of Financial Protection

and Innovation, the CCC Board of Governors, and the CSU Trustees, and requests UC’s office of the President to, by July 1, 2025, to develop a uniform format for data collection and ensure data reporting is done in a timely manner.

• 1. Requires that the CCC Board of Governors and the CSU Trustees, and

requests that the UC’s office of the President, report in a publicly accessible manner on their websites the data compiled in the biennial report across each campus on an annual basis.

Miscellaneous

1. Defines all of the following terms for purposes of the Protecting Students from Creditor Colleges Act:
   1. “Degree” to mean a credential conferred by an institution on a student in

recognition of the student’s satisfaction of all academic requirements associated with a course of study. “Degree” shall include certificates, associate degrees, baccalaureate degrees, and graduate degrees.

• 1. “Institution of higher education” or “institution” to mean any public

or, private postsecondary educational institution operating in the state, including its branch campuses and satellite locations or distance education, and each institution of “public higher education” as defined in subdivision (a) of Section 66010, any “independent institutions of higher education” as defined in subdivision (b) of Section 66010, and any private postsecondary educational institutions as defined in Section 94858.

• 1. “Institutional debt” to mean any money, obligation, claim, or sum, due or

owing, or alleged to be due or owing, whether or not reduced to court judgment, from a student, and that was incurred in their capacity as a student, to an institution of higher education. “Institutional debt” does not include tuition, fees, room and board, or other costs of attendance for an academic term in which the student is actively enrolled or for an academic term in which the student seeks to enroll.

1. Provides that the provisions of the bill are severable.
2. States various findings and declarations regarding student loan debt and federal financial aid return policies.
3. Makes technical and conforming changes.

STAFF COMMENTS

1. Need for the bill. According to the author, “The new research finds that this little-known type of student debt, called “institutional debt,” has exploded in California since the onset of COVID-19, as students withdrew from California public colleges for economic, family, or health reasons. AB 1160 will protect students from the most harmful impacts of this debt and provide much-needed transparency on the growth and impact of this debt across our state. With the current enrollment crisis, it is important that we help students with removing barriers in attaining their higher education goals and understand what else we must do to address the student debt crisis—including institutional debt—across California.”
2. Related report on the impact of institutional debt to students. The Student Borrower Protection Center released a report in 2023 on canceling debts that surged during COVID-19 for low-income students. The report indicates that an estimated 750,000 students in the 2020-2021 and 2021-2022 academic years from across all three California public IHE accrued a total of $390 million in institutional debt. This estimate is based on data from four UC campuses, three community college districts, and a financial services benchmarking survey. According to the report, when students who receive federal financial aid (including Pell Grant recipients) withdraw before the end of an academic term, federal aid rules require colleges to return a portion of their federal aid disbursement to the U.S. Department of Education. Consequently, schools absorb the financial loss or treat a portion of a withdrawn student’s Pell disbursal as a debt for collection. The report states that students face a number of consequences as schools attempt to recoup those debts, including barring students from re-enrolling in their program, placing their debt with a private debt collector, allowing repayment to increase as fees accrue, reporting the debt as delinquent to a credit reporting bureau, or seizing the student’s state tax return to offset these debts. The report contends that institutional student debts have reached an alarming scale, particularly for low-income students. This bill seeks to address the penalties imposed on students who have institutional debt.
3. Prohibits schools from withholding diplomas. Current law grants public IHE the authority to establish regulations regarding the withholding of institutional services from students who have received notification of default on a federal loan. This bill would prohibit those rules from including the withholding of transcripts, conferring a degree or diploma on a student that has satisfied all academic requirements, or the issuance of documentation of a degree or certificate. The bill also prohibits IHE from withholding a diploma due to owing debt.
4. Enrollment and registration privileges may be withheld under certain conditions. A way for IHE to recover debt owed by students includes barring them from enrolling and registering for courses. The bill’s opponents argue that institutions resort to this strategy after communication attempts have failed, and it provides a means for connecting with the student. This bill does not prohibit but imposes conditions on institutions for the ways in which they can withhold enrollment or registration privileges, including granting students a one-time exemption from having those privileges withheld due to their institutional debt.

1. Ends Chancellor’s Office Tax Offset Program. According to the Assembly appropriations analysis, “Current law allows the Controller to essentially garnish tax refunds of current or former students who owe institutional debt and return those funds to the owed IHE. To identify these individuals, IHE report current or former students owing debt to the Controller and those individuals have their tax refund, if they are entitled to one, reduced by the amount they owe. (This occurs at the federal level with federally-issued student debt, as well.) It is up to an IHE’s discretion whether they will report a student to the Controller and IHE indicate they typically do not report individuals with small debts. IHE indicate this method of collection is more effective and less costly than assigning debt collection to a third-party debt collector.

“In addition, the CCC Chancellor’s Office uses a portion of recouped debt to fund some of its state-level operations. The CCC Chancellor’s Office indicates that in the 2022 fiscal year, a total of $4.5 million was recouped using this method from current or former students owing institutional debt, with about $1.1 million going to the Chancellor’s Office. In the 2023 fiscal year, a total of $2 million was recouped using this method, with about $500,000 going to the Chancellor’s Office. Amounts recouped in the 2023 fiscal year likely fell because many CCCs used COVID-19 aid to help students pay off institutional debt. In addition, current law prohibits the Controller, for taxable years beginning on or after January 1, 2024, from garnishing the tax refunds of an individual who receives the California Earned Income Tax Credit or the Young Child Tax Credit in that taxable year.

This bill eliminates the ability for IHE to recoup institutional debt using this provision of current law. However, the ability to recoup debt using this method likely already will be more constrained than in prior years due to the provision in current law that prohibits the garnishment of certain tax credits beginning January 1, 2024.”

1. What drives student debt balances, and how do colleges recover debts owed? As noted, students carry institutional debt in part due to having to return federal aid disbursals to the U.S. Department of Education when withdrawing from courses mid-term. However, other fees can accrue, such as from tuition, housing, parking, or meal fees. The measures used to collect that debt vary from college to college. According to data from independent colleges and universities, debt recovery ranges from forgiving smaller amounts of debt, placing students on payment plans, holding transcripts or diplomas, and sending students to collections after a period of time has passed. The CCC Chancellors Office, CSU, or UC do not uniformly track institutional debt information systemwide. However, CSU reports that all campuses offer in-house payment plans, prior to sending a debt to collections each campus is required at a minimum to reach out to students three times, and threshold amounts for sending a debt to collections vary by campus. This bill requires public and private higher education institutions to establish a policy defining standards and practices for the collection of institutional debt.
2. Arguments in support. According to the letter of support submitted to the committee from Nextgen California, co-sponsors of the bill “… Institutional debts are debts owed by current or former students directly to a higher education institution. The majority of this debt is incurred when a student unexpectedly withdraws from a course before the end of the term and their school is then required to repay federal student aid–such as a Pell Grant. Given that Pell Grants are awarded based on financial need, any such debts associated with this program almost exclusively affects low income students. During the pandemic, economic and public health issues forced a record number of students to withdraw from their higher education coursework and institutional debt ballooned. As a result, more than 750,000 low-income students owe more than $390 million in debt to California public colleges and universities…”

The letter further states, “late last year, a group of leading student loan experts and academic researchers released a policy brief analyzing the impact of AB1160 and found that if passed, the legislation would provide much-needed protections for students and families, help California increase student re-enrollment and achieve higher education completion goals, and help increase much-needed tuition and fee revenue for colleges and universities across the state. Researchers note that by allowing students with institutional debt to re-enroll in their coursework, institutions could receive $214 million in tuition and fees in one year alone (based on a modest 33% re-enrollment rate). AB 1160 will provide much-needed reforms that will help students get back on track with their education goals while helping schools to protect their bottom line…”

1. Arguments in opposition. The University of California argue, in part, in their opposition letter, “…UC relies upon student tuition and fees to operate effectively. Unpaid student debt, nearly $90 million per year, can significantly impact UC’s financial stability and ultimately impact the quality of education provided to UC students. Given the current budgetary challenges facing the University of California, with a looming $125 million budget cut, losing the ability to utilize accepted debt collection tools will further strain UC’s financial resources.

AB 1160 would prevent the University from contracting with a collection agency until 180 days, or six months, have passed. Research shows that after such a significant window of time has passed, it makes it less likely for the debt to be collected. Additionally, the bill puts no limits on how much debt a person could accumulate and still receive a one-time exemption from a registration hold. While the author’s office has explained that their intent would not be to capture any current or recently-accumulated debt and instead only apply to “past-due institutional debt,” AB 1160 does not contain language that would ensure our campuses would be able to implement the bill in a manner that is clear to both our staff and the students who could benefit from this measure...”

SUPPORT

NextGen California (Sponsor)

American Federation of State, County and Municipal Employees

California Competes: Higher Education for a Strong Economy

California Federation of Teachers

California Low-Income Consumer Coalition

California State Student Association

Coalition for Humane Immigrant Rights

Faculty Association of California's Community Colleges

Generation Up

Northern California College Promise Coalition

Southern California College Attainment Network

Student Debt Crisis Center

uAspire

University of California Student Association

OPPOSITION

Association of Independent California Colleges & Universities

California State University, Office of the Chancellor

Chief Executive Officers of the California Community Colleges Board

Coalition of Higher Education Assistance Organizations

Pacific Union College

PacWest

University of California

University of Phoenix

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1160

Author:(Pacheco)

As Amended Ver:January 22, 2024

Majority vote

SUMMARY

Prohibits an institution of higher education, as defined, from taking specified actions, including, among other things, placing an enrollment or registration hold on a current or former student's account, on the grounds that the student owes an institutional debt, as defined. Requires the governing boards of institutions of higher education, and request the office of the President of the University of California (UC), to require each institution to report, every other year, specified information regarding the number and dollar amount of institutional debts at each institution.

Major Provisions

1. Specifies that, notwithstanding any other provision of law, a school shall not do any of the following:
   1. Refuse to provide a transcript or diploma for a current or former student on the grounds that the student owes a debt;
   2. Condition the provision of a transcript or diploma, on the payment of a debt, other than a fee charged to provide the transcript or diploma;
   3. Charge a higher fee for obtaining a transcript or diploma, provide less favorable treatment of a transcript or diploma request because a student owes a debt; and,
   4. Use transcript or diploma issuance as a tool for debt collection.
2. Requires that regulations created pursuant to providing for the withholding of institutional services from students or former students who have been notified in writing that they are in default on a loan or loans, as specified, will specify the services to be withheld from the student and may include, but are not limited to, the provision of grades.
3. Creates the Protecting Students from Creditor Colleges Act (Act), which specifies that:
   1. Notwithstanding any other law, an institution of higher education will, charge a higher tuition or fee, provide less favorable treatment related to reenrollment or registration for courses, fail to confer a degree to a student who has satisfied all academic requirements for their course of study, or otherwise prevent a current or former student from reenrolling registering, or graduating at the institution of higher education on the grounds that the student owes an institutional debt;
   2. Notwithstanding any other law, an institution of higher education shall grant a one-time exemption from an enrollment or registration hold on a current or former student on the grounds that the student owes an institutional debt. The one-time exemption shall occur in the first instance where a student incurs institutional debt that would otherwise trigger an enrollment or registration hold, following the completion of an academic term. The student shall be notified in writing of the one-time exemption and that the accumulation of future institutional debt may result in an enrollment or registration hold.
      1. Nothing in the Act, as specified, prohibits an institution of higher education from withholding a degree or placing an enrollment or registration hold or otherwise preventing a student from taking classes for violating any academic code of conduct or school honor code, failing to maintain satisfactory academic progress or on other similar and permissible bases; and.
      2. Nothing in the Act. as specified, prohibits an institution of higher education from administering "drop for non-payment" or similar policies that disenroll a student from an academic term due to failure to pay tuition or fees for that same term, provided that any institutional debt that accrues as result of such non-payment may not be the basis for any future adverse action against the student, as prohibited pursuant to paragraph a) of this subdivision.
   3. Institutions of higher education will implement any "drop for non-payment" disenrollments prior to disbursing financial aid refunds or electronic transfers, and students shall not otherwise incur any institutional debt for tuition or fees associated with the term when dropped for non-payment;
   4. Notwithstanding any other law, an institution of higher education will establish a written policy defining standards and practices for the collection of institutional debt, as specified, and will be made publicly accessible on its website;
   5. Notwithstanding any other law, an institution of higher education will not do the following when collecting on an institutional debt:
      1. Engage a third-party debt collector that is not licensed, as specified;
      2. Engage a third-party debt collector before 180 days has passed from the first communication from the institution of higher education requesting payment, and the institution of higher education has made all reasonable efforts, in accordance with its written policy, to communicate with the current or former student; and,
      3. Engage a third-party debt collector to collect on an institutional debt without a written agreement with the debt collector that requires the debt collector to comply with the institution of higher education's written debt collection policy, as specified.
   6. An institution of higher education will make all reasonable efforts, in accordance with its written policy, to contact a current or former student to notify them of an outstanding institutional debt;
   7. Before assigning an institutional debt to a third-party debt collector, an institution of higher education shall send a notice to the current or former student with all the following information, as specified.
   8. No institution of higher education, or third-party debt collector will report adverse information to a consumer credit reporting agency or commence civil action against a student or former student for nonpayment of an institutional debt before 180 days after the first communication from the institution to the current or former student requesting payment;
   9. The Board of Governors (BOG) of the California Community Colleges (CCC) and the Trustees of the California State University (CSU) will, and the office of the President of the UC is requested to, require each public institution to report and each public institution is required to respond, beginning no later than July 1, 2025 and using the uniform format developed as specified, on biennial basis and not later than three months after the end of each public institution's fiscal year, information as specified on the final day of the institution's previous fiscal year. This information will be in a uniform format, as specified, and be posted publically.
4. Specifies that, notwithstanding any other law, for taxable years beginning on or after January 1, 2025, the Controller will not offset any amount due to a postsecondary institution from a current or former student that was incurred in their capacity as a student against any amount owing to that current or former student by a state agency.
5. Specifies that the provisions of this bill are severable, and that if any provision of this bill or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
6. Makes various findings and declarations.
7. Establishes definitions, as specified.

COMMENTS

Background. Long before the pandemic, institutional debt - debts owed by students directly to their schools – have created challenges to student access, persistence, and completion, and wreaks economic havoc on many of the most economically vulnerable students across California. The state first took action to address institutional debts by passing AB 1313 (Luz Rivas), Chapter 518, Statutes of 2019, which prohibited the withholding of transcripts by schools as a method of collecting on these debts.

Over the course of the pandemic and as a result of widespread economic and public health related hardships, a record number of students were forced to withdraw from their courses. As a result, institutional debts increased and more than 750,000 low-income students owe more than $390 million in debt to California public colleges.

Since Pell Grants are awarded based on financial need, these debts almost exclusively impact low-income students - students who are historically more likely to be from racially marginalized communities. Additionally, institutional debt can also include smaller debts, such as overdue library charges, unpaid parking fees, and other administrative fees that can accumulate unknowingly by a student.

According to the Author

According to the author, "New research finds that this little-known type of student debt, called 'institutional debt,' has exploded in California since the onset of COVID-19, as students withdrew from California public colleges for economic, family, or health reasons. AB 1160 will protect students from the most harmful impacts of this debt and provide much-needed transparency on the growth and impact of this debt across our state. With the current enrollment crisis, it is important that we help students with removing barriers in attaining their higher education goals, maximize enrollment opportunities, and understand what else we must do to address the student debt crisis—including institutional debt—across California."

Arguments in Support

The Student Borrower Protection Center, a co-sponsor, addressed the impact that federal Title IV funding returns have on low income students. Writing that "research suggests that institutional debt most commonly arises when students relying on the federal 'Title IV federal aid programs, such as Pell Grants, withdraw from an academic program before they are able to complete. When a student withdraws early from school before completing a semester, a school must repay a portion of that student's Title IV funds to the federal government using a formula proportional to the amount of class time the student completed– a federal government policy known as 'Return to Title IV'. Most institutions – across all two-year, four year, and for-profit schools – created policies that then charge students for the amount of the Title IV aid returned to the federal government as part of their refund policies, which creates a balance on their account."

"These balances may be a few thousand dollars, for which the student should never have been responsible. Suddenly, students intending to pay off their education over time with loans and grants find themselves owing debts immediately due to their school… AB 1160 will help ensure that institutional debt no longer traps students in economic hardship, but instead will help students get back on track towards degree completion and realize the promise of economic mobility."

Arguments in Opposition

The CSU Chancellor's Office has raised concern regarding possible impacts to CSU's operational funding, noting that "as a public state university system, the CSU receives approximately sixty percent of its operating budget from the state and the other forty percent from students' tuition and student fees. AB 1160 therefore puts forty percent of the system's operating budget at risk by removing all reasonable methods to collect outstanding student debts. Students would no longer have any incentive to pay, on time or at all, for the entirety of their enrollment with the university. If just one in ten students were to stop paying their tuition and fees, with no way for the institution to enforce payment, the immediate annual impact would be over $300 million across the CSU system."

FISCAL COMMENTS

1. Unknown, potentially significant ongoing Proposition 98 General Fund or General Fund cost pressures to CCC, CSU, and UC campuses to the degree this bill limits their ability to collect institutional debt or increases the costs of collecting the debt.
2. Ongoing Proposition 98 General Fund and General Fund costs, potentially in the low millions of dollars annually, to CCC, CSU, and UC campuses to collect certain data.
3. Ongoing special fund losses to the CCC Chancellor's Office, potentially in the hundreds of thousands of dollars, because of the bill's prohibition on garnishing of tax refunds of current or former students who owe institutional debt.
4. Ongoing special fund losses to CCC, CSU, and UC, of an unknown but potentially significant amount, because of the bill's prohibition on garnishing of tax refunds of current or former students who owe institutional debt.
5. Ongoing Proposition 98 GF and GF costs to CCC, CSU, and UC to notify a student with institutional debt of future dis-enrollment should debt go unaddressed.

VOTES

ASM HIGHER EDUCATION: 8-2-1

YES: Mike Fong, Arambula, Boerner, Addis, Jackson, Low, Muratsuchi, Quirk-Silva

NO: Ta, Chen

ABS, ABST OR NV: Essayli

ASM APPROPRIATIONS: 12-3-1

YES: Holden, Arambula, Wood, Calderon, Connolly, Mike Fong, Grayson, Haney, Hart, Lowenthal, Pellerin, Villapudua

NO: Sanchez, Dixon, Ta

ABS, ABST OR NV: Megan Dahle

UPDATED

VERSION: January 22, 2024

CONSULTANT: Kevin J. Powers / HIGHER ED. / (916) 319-3960 FN: 0002613

Date of Hearing: January 18, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1160

Author:(Pacheco) – As Amended Ver: January 10, 2024

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

SUMMARY:

This bill prohibits any institution of higher education (IHE) from taking certain actions against students that have incurred institutional debt. The bill also requires various consumer protections related to the collection of institutional debt and requires IHEs to collect and report certain data pertaining to institutional debt. Lastly, the bill eliminates the ability for IHEs to recoup institutional debt by garnishing the tax refunds of debtors.

Specifically, this bill:

1. Prohibits any IHE from taking certain actions, such as refusing to provide a diploma, placing an enrollment or registration hold on a current or former student’s account, or refusing to confer a diploma, against a student who owes institutional debt.
2. Requires every IHE to establish a written policy defining standards and practices for the collection of institutional debt, which is consistent with existing consumer protections.
3. Prohibits an IHE from engaging a non-licensed third-party debt collector to collect institutional debt.
4. Requires an IHE, before assigning debt collection to a third party collector, to send a notice to the student owing debt containing various information and requires an IHE to engage a third-party debt collector only after a certain amount of time has passed since notifying the student.
5. Requires, by July 1, 2025, and every-other-year thereafter, each public IHE campus to collect data related to institutional debt owed. The bill requires public IHEs and the Commissioner of Financial Protection and Innovation to develop a template for the data and requires public IHE central offices to publically report the data compiled from campuses.
6. Prohibits the Controller, beginning January 1, 2025, from deducting funds from a current or former student’s state tax refund and redirecting the funds to an IHE to which the student owes institutional debt.

FISCAL EFFECT:

California Community Colleges (CCC)

1. Unknown, potentially significant ongoing Proposition 98 General Fund cost pressures to CCC campuses to the degree this bill limits their ability to collect institutional debt or increases the costs of collecting the debt. Currently, the CCC Chancellor's Office does not uniformly track institutional debt information systemwide.
2. Ongoing Proposition 98 General Fund costs, potentially in the low millions of dollars annually, to the state’s 115 CCC campuses to collect certain data. According to the CCC Chancellor’s Office, costs could average about $25,000 per campus.
3. Minor, one-time Proposition 98 General Fund costs to CCC campuses to establish a written policy with regard to the collection of student debt.

The state would need to reimburse the costs described in items one through three, above, to CCC campuses, if the Commission on State Mandates determines the bill’s requirements to be a reimbursable state mandate.

1. Ongoing special fund losses to the CCC Chancellor’s Office of an unknown, but significant amount, because of the bill’s prohibition on garnishing of tax refunds of current or former students who owe institutional debt. Of the total amount collected by CCCs, the Chancellor’s Office takes a portion to fund some of its operations, as discussed below in Comment 2. In the 2022 fiscal year, the Chancellor’s Office received about $1.1 million and in the 2023 fiscal year, it received about $500,000. However, this amount will likely be lower due to a provision in current law that prohibits the garnishment of certain tax credits beginning January 1, 2024.
2. Ongoing special fund losses, potentially in the low millions of dollar annually, to CCC campuses because of the bill’s prohibition on garnishing of tax refunds of current or former students who owe institutional debt. However, this amount will likely be lower due to a provision in current law that prohibits the garnishment of certain tax credits beginning January 1, 2024.
3. Ongoing General Fund costs to the CCC Chancellor’s Office of about $100,000 to report data collected from CCC campuses.
4. Minor and absorbable one-time General Fund costs to the CCC Chancellor’s Office to develop a template for data with other entities.

California State University (CSU) and University of California (UC)

1. Unknown, potentially significant ongoing General Fund cost pressures to CSU campuses and to UC campuses, to the degree this bill limits their ability to collect institutional debt or increases the costs of collecting the debt. Both systems indicate they do not uniformly track institutional debt information systemwide.
2. Ongoing General Fund costs, potentially in the mid- to high-hundreds of thousands of dollars, to CSU and UC campuses to collect certain data. This assumes costs in the thousands of dollars per campus annually to collect data. The state has 23 CSU campuses and nine UC campuses.
3. Minor, one-time General Fund costs to CSU and UC campuses to establish a written policy with regard to the collection of student debt.
4. Ongoing special fund losses, potentially in the millions of dollar annually, to CSU and UC campuses because of the bill’s prohibition on garnishing of tax refunds of current or former students who owe institutional debt. However, this amount will likely be lower due to a provision in current law that prohibits the garnishment of certain tax credits beginning January 1, 2024.
5. Ongoing General Fund costs to the CSU Chancellor’s Office and UC Office of the President in the tens of thousands each to report data collected from their respective campuses.
6. Minor and absorbable one-time General Fund costs to the CSU Chancellor’s Office and UC Office of the President to develop a template for data with other entities.

COMMENTS:

1. Purpose. According to the author:

New research finds that this little-known type of student debt, called ‘institutional debt,’ has exploded in California since the onset of COVID-19, as students withdrew from California public colleges for economic, family, or health reasons. AB 1160 will protect students from the most harmful impacts of this debt and provide much-needed transparency on the growth and impact of this debt across our state.

1. Background. The majority of student debt is owed to the federal government in the form of student loan debt. In addition, students may also owe money to private banks for credit card debt or private student loans. Students may also owe money the IHEs (in other words, the universities or colleges) they attend or have attended, known as institutional debt. According to the proponents of this bill, the majority of institutional debt is incurred when a student who has received federal aid unexpectedly withdraws from courses before the end of a school term and their IHE is required to return the student’s aid to the federal government. IHEs then charge the student for the amount of the returned aid. However, institutional debt can also stem from unpaid fees, such as parking or library fees.

While the total amount of institutional debt held at IHEs is unknown, supporters of this bill estimate debt accumulated across IHEs in the 2020-21 and 2021-22 academic years totaled $390 million owed by about 750,000 students.

Under current law, an IHE may withhold a student’s diploma or place an enrollment or registration hold on a current or former student’s account on the grounds that the student owes an institutional debt, among other actions. This bill prohibits these practices.

IHEs sometimes engage third-party collectors to collect institutional debt from students. This bill places restrictions around the use of such collectors.

Current law allows the Controller to essentially garnish tax refunds of current or former students who owe institutional debt and return those funds to the owed IHE. To identify these individuals, IHEs report current or former students owing debt to the Controller and those individuals have their tax refund, if they are entitled to one, reduced by the amount they owe. (This occurs at the federal level with federally-issued student debt, as well.) It is up to an IHE’s discretion whether they will report a student to the Controller and IHEs indicate they typically do not report individuals with small debts. IHEs indicate this method of collection is more effective and less costly than assigning debt collection to a third-party debt collector.

In addition, the CCC Chancellor’s Office uses a portion of recouped debt to fund some of its state-level operations. The CCC Chancellor’s Office indicates that in the 2022 fiscal year, a total of $4.5 million was recouped using this method from current or former students owing institutional debt, with about $1.1 million going to the Chancellor’s Office. In the 2023 fiscal year, a total of $2 million was recouped using this method, with about $500,000 going to the Chancellor’s Office. Amounts recouped in the 2023 fiscal year likely fell because many CCCs used COVID-19 aid to help students pay off institutional debt. In addition, current law prohibits the Controller, for taxable years beginning on or after January 1, 2024, from garnishing the tax refunds of an individual who receives the California Earned Income Tax Credit or the Young Child Tax Credit in that taxable year.

This bill eliminates the ability for IHEs to recoup institutional debt using this provision of current law. However, the ability to recoup debt using this method likely already will be more constrained than in prior years due to the provision in current law that prohibits the garnishment of certain tax credits beginning January 1, 2024.

1. Opposition and Support. This bill is opposed by some IHEs, including CSU and private postsecondary institutions, and supported by student associations, consumer advocates, and others. While this bill prohibits IHEs from barring students from re-enrolling in courses based on intuitional debt owed, among other prohibitions, it does not forgive these debts. Opponents of the bill argue these prohibitions, however, will remove a key tool for recapturing debts owed, and could result only in additional debts owed to the IHE should the student re-enroll and incur more costs they cannot pay. Proponents argue that allowing a student with institutional debt to re-enroll would instead generate additional revenue for IHEs, as those students would likely receive state and federal financial aid to pay tuition and fees to the IHE. In addition, proponents argue students would be more likely to repay their institutional debts were they able to complete their degrees and enter the workforce.

Even if revenue were generated for IHEs through the re-enrollment of students with institutional debt, in some cases these students would receive state financial aid, which would result in state costs.

1. Prior Legislation. AB 1313 (Luz Rivas), Chapter 518, Statutes of 2019, prohibits any public or private postsecondary school from withholding a transcript for a current or former student on the grounds that the student owes institutional debt.

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

Date of Hearing: January 9, 2024

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Mike Fong, Chair

ABPCA Bill Id:AB 1160 (

Author:Pacheco) – As Proposed to be Amended Ver:January 9, 2024

SUBJECT: Protecting Students from Creditor Colleges Act

SUMMARY: Prohibits an institution of higher education, as defined, from taking specified actions, including, among other things, placing an enrollment or registration hold on a current or former student’s account, on the grounds that the student owes an institutional debt, as defined. Requires the governing boards of institutions of higher education, and request the office of the President of the University of California (UC), to require each institution to report, every other year, specified information regarding the number and dollar amount of institutional debts at each institution. Specifically, this bill:

1. Specifies that, notwithstanding any other provision of law, a school shall not do any of the following:
   1. Refuse to provide a transcript or diploma for a current or former student on the grounds that the student owes a debt;
   2. Condition the provision of a transcript or diploma, on the payment of a debt, other than a fee charged to provide the transcript or diploma;
   3. Charge a higher fee for obtaining a transcript or diploma, provide less favorable treatment of a transcript or diploma request because a student owes a debt; and,
   4. Use transcript or diploma issuance as a tool for debt collection.
2. Requires that regulations created pursuant to providing for the withholding of institutional services from students or former students who have been notified in writing that they are in default on a loan or loans, as specified, will specify the services to be withheld from the student and may include, but are not limited to, the provision of grades.
   1. The adopted regulations pursuant to 2) above will not include the withholding of registration privileges, transcripts, conferring a degree or diploma to a student who has satisfied all academic requirements, or the issuance of documentation of such degree or certificate.
3. Creates the Protecting Students from Creditor Colleges Act (Act), which specifies that:
   1. Notwithstanding any other law, an institution of higher education will not place an enrollment or registration hold on a current or former student’s account, charge a higher tuition or fee, provide less favorable treatment related to reenrollment or registration for courses, fail to confer a degree to a student who has satisfied all academic requirements for their course of study, or otherwise prevent a current or former student from reenrolling registering, or graduating at the institution of higher education on the grounds that the student owes an institutional debt;
      1. Nothing in the Act, as specified, prohibits an institution of higher education from withholding a degree or placing an enrollment or registration hold or otherwise preventing a student from taking classes for violating any academic code of conduct or school honor code, failing to maintain satisfactory academic progress or on other similar and permissible bases; and.
      2. Nothing in the Act. as specified, prohibits an institution of higher education from administering “drop for non-payment” or similar policies that disenroll a student from an academic term due to failure to pay tuition or fees for that same term, provided that any institutional debt that accrues as result of such non-payment may not be the basis for any future adverse action against the student, as prohibited pursuant to paragraph (a) of this subdivision.
   2. Institutions of higher education will implement any “drop for non-payment” disenrollments prior to disbursing financial aid refunds or electronic transfers, and students shall not otherwise incur any institutional debt for tuition or fees associated with the term when dropped for non-payment;
   3. Notwithstanding any other law, an institution of higher education will establish a written policy defining standards and practices for the collection of institutional debt, as specified, and will be made publicly accessible on its website;
   4. Notwithstanding any other law, an institution of higher education shall not do the following when collecting on an institutional debt:
      1. Engage a third-party debt collector that is not licensed, as specified;
      2. Engage a third-party debt collector before 180 days has passed from the first communication from the institution of higher education requesting payment, and the institution of higher education has made all reasonable efforts, in accordance with its written policy, to communicate with the current or former student; and,
      3. Engage a third-party debt collector to collect on an institutional debt without a written agreement with the debt collector that requires the debt collector to comply with the institution of higher education’s written debt collection policy, as specified.
   5. An institution of higher education will make all reasonable efforts, in accordance with its written policy, to contact a current or former student to notify them of an outstanding institutional debt;
   6. Before assigning an institutional debt to a third-party debt collector, an institution of higher education shall send a notice to the current or former student with all the following information:
      1. A written itemization of charges that comprise the institutional debt that is being assigned to collections;
      2. The date or dates the student or former student was originally sent a notice about the institutional debt;
      3. The name of the entity to which the institutional debt is being assigned;
      4. The consequences of a defaulted institutional debt, including the potential of reporting adverse information on a credit report and risk of civil action; and,
      5. How to submit a complaint with the Department of Financial Protection and Innovation and how to request assistance if they are subjected to abusive debt collection practices.
   7. No institution of higher education, or third-party debt collector will report adverse information to a consumer credit reporting agency or commence civil action against a student or former student for nonpayment of an institutional debt before 180 days after the first communication from the institution to the current or former student requesting payment;
   8. The Board of Governors (BOG) of the California Community Colleges (CCC) and the Trustees of the California State University (CSU) will, and the office of the President of the UC is requested to, require each public institution to report and each public institution is required to respond, beginning no later than July 1, 2025 and using the uniform format developed as specified, on biennial basis and not later than three months after the end of each public institution’s fiscal year, all of the following information, as of the final day of the institution’s previous fiscal year:
      1. The total number and dollar amount of institutional debts at each institution, including a breakdown of those considered current and past due;
      2. The total number and dollar amount of institutional debts subject to a payment plan at each institution, excluding tuition payment plans, and the payments that have been made pursuant to the plan;
      3. A breakdown of the total number and total dollar amount of institutional debts by each of the following categories:
         1. Dollar amount in increments of five hundred dollars ($500);
         2. The age of the institutional debt in increments of one year; and,
         3. The gender and racial demographic of the students.
      4. The total number and dollar amount of institutional debts owed by Pell Grant-eligible current or former students;
      5. A breakdown of the total number and dollar amount of institutional debts by declared major and degree type being sought;
      6. A breakdown of the source of institutional debts by underlying expense type, including tuition, room and board, fines, and campus fees;
      7. The total number and dollar amount of institutional debts owed, in whole or in part, as the result of a current or former student’s federal financial aid being returned to the federal government;
      8. A description of any policies related to administrative actions or account holds imposed on current or former students with an outstanding account due to an institutional debt;
      9. The number of students and accounts subject to an administrative hold at each institution;
      10. The total number and dollar amount of institutional debts collected directly by the institution during the prior two fiscal years, without use of a third-party collection agency or the Franchise Tax Board;
      11. The total number and dollar amount of institutional debts assigned to third-party collection agencies during the prior two fiscal years;
      12. The total number and dollar amount collected on institutional debts through third-party collection agencies during the prior two fiscal years;
      13. The number of institutional debts subject to collection through the Franchise Tax Board and the total dollar amount collected through the Franchise Tax Board during the prior two fiscal years;
      14. The total number and dollar amount of institutional debts sold to third parties during the prior two fiscal years;
      15. The number and dollar amount of institutional debts that are the result of a loan made by the institution; and,
      16. The number and dollar amount of institutional debts that are the result of a tuition payment plan offered by the institution.
   9. In coordination with the Commissioner of Financial Protection and Innovation, the BOG of the CCC Colleges and the Trustees of the CSU governing boards of institutions of higher education will, and the office of the President of the UC is requested to, no later than July 1, 2025, develop a uniform format for data collection and ensure data reporting is done in a timely manner.
   10. The BOG of the CCC and the Trustees of the CSU will, governing boards of institutions of higher education shall, and the office of the President of the UC is requested to, report in a publicly accessible manner on their Internet websites the data compiled, as specified, across each campus on an annual basis.
4. Specifies that, notwithstanding any other law, for taxable years beginning on or after January 1, 2025, the Controller will not offset any amount due to a postsecondary institution from a current or former student that was incurred in their capacity as a student against any amount owing to that current or former student by a state agency.
5. Establishes that, if the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs must be made as specified.
6. Specifies that the provisions of this bill are severable, and that if any provision of this bill or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
7. Makes various findings and declarations.
8. Establishes the following definitions, as specified:
   1. “School” means any public or private postsecondary school, or any public or private entity, responsible for providing transcripts or diplomas to current or former students of a school;
   2. “Debt” means any money, obligation, claim, or sum, due or owing, or alleged to be due or owing, from a student, but does not include the fee, if any, charged to all students for the actual costs of providing the transcripts, or documentation of a degree;
   3. “Diploma” means a certificate, or similar paper or electronic document, evidencing that a school has conferred a degree, certificate or similar qualification upon a student;
   4. “Postsecondary institution” means any public or private postsecondary educational institution operating in the state, including its branch campuses and satellite locations, or distance education, and includes each California Community College District, the CSU, and, upon agreement by the Regents, the UC;
   5. “Institution of higher education” or “institution” means any public or private postsecondary educational institution operating in the state, including its branch campuses and satellite locations or distance education, and each institution of “public higher education”, any “independent institutions of higher education”, and any private postsecondary educational institutions as specified;
   6. “Institutional debt” means any money, obligation, claim, or sum, due or owing, or alleged to be due or owing, whether or not reduced to court judgment, from a student, that was incurred in their capacity as a student, to an institution of higher education. This does not include tuition, fees, room and board, or other cost of attendance for an academic term in which the student is actively enrolled or seeking enrollment; and,
   7. “Degree” means a credential conferred by an institution to a student in recognition of the student’s satisfaction of all academic requirements associated with a course of study. This term shall include certificates, associate degrees, bachelor’s degrees, and advanced degrees.

EXISTING LAW:

1. Establishes the UC as a public trust to be administered by the Regents of the UC; and, grants the Regents full powers of organization and government, subject only to such legislative control as may be necessary to insure security of its funds, compliance with the terms of its endowments, statutory requirements around competitive bidding and contracts, sales of property and the purchase of materials, goods and services. (Article IX, Section (9)(a) of the California Constitution)
2. Establishes the Donahoe Higher Education Act, setting forth the mission of the UC, CSU, and CCC. (Education Code (EDC) Section 66010, et seq.)
3. Confers upon the CSU Trustees the powers, duties, and functions with respect to the management, administration, control of the CSU system and provides that the Trustees are responsible for the rule of government of their appointees and employees. (EDC Sections 66606 and 89500, et seq.)
4. Establishes the CCC under the administration of the Board of Governors of the CCC, as one of the segments of public postsecondary education in this state. The CCC shall be comprised of community college districts. (EDC Section 70900)
5. Requires the governing board of every community college district, the Trustees of the CSU, and, if appropriate resolutions are adopted, the Regents of UC and the Board of Directors of the College of the Law, San Francisco to adopt regulations providing for the withholding of institutional services from students or former students who have been notified in writing, as specified, that they are in default on a loan or loans under the Federal Family Education Loan Program, and requires the Student Aid Commission (Commission) to give notice of the default to all institutions through which the individual acquired the loan or loans. (EDC Section 66022)
6. Regulates the practice of debt collection and the conduct of debt collectors under the Rosenthal Fair Debt Collection Practices Act by prohibiting deceptive, dishonest, unfair, and unreasonable practices. (Civil Code Section 1788, et al.)
7. Prohibits a school, as defined, from refusing to provide a transcript for a current or former student on the grounds that the student owes a debt, conditioning the provision of a transcript on the payment of a debt, charging a higher fee for obtaining a transcript or providing less favorable treatment of a transcript request because a student owes a debt, or using a transcript issuance as a tool for debt collection, as specified. (Civil Code Section 1788.90 et al.)
8. Authorizes the Controller, in their discretion, to offset any amount due to a state agency from a person or entity, against any amount owing to that person or entity, including any tax refund, by any state agency, except as specified. (Government Code Section 12419.5)

FISCAL EFFECT: Unknown

COMMENTS: Purpose. According to the author, “New research finds that this little-known type of student debt, called ‘institutional debt,’ has exploded in California since the onset of COVID-19, as students withdrew from California public colleges for economic, family, or health reasons. AB 1160 will protect students from the most harmful impacts of this debt and provide much-needed transparency on the growth and impact of this debt across our state. With the current enrollment crisis, it is important that we help students with removing barriers in attaining their higher education goals, maximize enrollment opportunities, and understand what else we must do to address the student debt crisis—including institutional debt—across California.”

Background. Long before the pandemic, institutional debt - debts owed by students directly to their schools – have created challenges to student access, persistence, and completion, and wreaks economic havoc on many of the most economically vulnerable students across California. The state first took action to address institutional debts by passing AB 1313 (Luz Rivas), Chapter 518, Statutes of 2019, which prohibited the withholding of transcripts by schools as a method of collecting on these debts.

According to the 2022 report Creditor Colleges: Canceling Debts that Surged During COVID-19 for Low-Income Students, the majority of institutional debt is incurred when a student unexpectedly withdraws from a course before the end of the term and their school is then required to return federal student aid—such as a Pell Grant and federal student loans—to the federal government. The schools then charge the amount of the returned funds to the student, effectively converting federal aid to debts that students owe directly to their school.

Over the course of the pandemic and as a result of widespread economic and public health related hardships, a record number of students were forced to withdraw from their courses. As a result, institutional debts increased and more than 750,000 low-income students owe more than $390 million in debt to California public colleges.

Although schools can no longer withhold transcripts to collect these debts, they still burden students, preventing a student from re-enrollment and degree completion. Additionally, public schools can offset students’ public benefits and tax refunds as a method of collecting, and all schools can sue students in court to collect.

Since Pell Grants are awarded based on financial need, these debts almost exclusively impact low-income students - students who are historically more likely to be from racially marginalized communities. Additionally, institutional debt can also include smaller debts, such as overdue library charges, unpaid parking fees, and other administrative fees that can accumulate unknowingly by a student.

Arguments in support. The Student Borrower Protection Center, a co-sponsor, addressed the impact that federal Title IV funding returns have on low income students. Writing that “research suggests that institutional debt most commonly arises when students relying on the federal ‘Title IV federal aid programs, such as Pell Grants, withdraw from an academic program before they are able to complete. When a student withdraws early from school before completing a semester, a school must repay a portion of that student’s Title IV funds to the federal government using a formula proportional to the amount of class time the student completed– a federal government policy known as ‘Return to Title IV’. Most institutions – across all two-year, four year, and for-profit schools – created policies that then charge students for the amount of the Title IV aid returned to the federal government as part of their refund policies, which creates a balance on their account.”

“These balances may be a few thousand dollars, for which the student should never have been responsible. Suddenly, students intending to pay off their education over time with loans and grants find themselves owing debts immediately due to their school… AB 1160 will help ensure that institutional debt no longer traps students in economic hardship, but instead will help students get back on track towards degree completion and realize the promise of economic mobility.”

The California State Student Association (CSSA), a co-sponsor, addressed the impact of the COVID-19 pandemic on institutional debt, writing that “institutional debt warrants consumer protection for students. Those burdened with outstanding debt face severe consequences, such as withheld degrees, denied re-enrollment, or being subjected to private collections through for-profit third-party debt collectors. These outcomes can ruin credit scores and hinder employment prospects. Since the pandemic, we have seen a staggering number of students struggling with institutional debt. Presently, over 750,000 low-income students owe more than $390 million to California public colleges. AB 1160 is a critical and timely measure that ensures students can continue pursuing their degrees. The legislation aims to prevent students from being denied course registration or program re-enrollment solely due to outstanding institutional debts. This is particularly important for increasing enrollment numbers, as California faces a statewide enrollment crisis in higher education institutions. Supporting AB 1160 aligns with the broader objective of promoting accessibility, equity, and success in higher education for all students, which lies at the core of the CSU’s Graduation Initiative 2025.”

The UC Student Association (UCSA), a co-sponsor, noted the transparency that would come from AB 1160, writing that “Some institutional debts are incurred without students even realizing, and they may still have consequences such as being dropped from classes and having to re-enroll or re-apply for financial aid. For example, small charges such as a few dollars for a snack at the school coffee shop a student charges to their school account or a late fee for a library book they checked out are counted as institutional debt, and some schools automatically drop students from courses and thus revoke their financial aid if they have any existing institutional debt. This can cause the student to have to scramble after the deadline to enroll in new courses and get their financial aid back. This can also cause delays in degree completion and graduation. AB 1160 will prohibit institutions of higher education from barring a student from re-enrollment or withholding a degree simply because the student owes an institutional debt, thus removing harmful barriers to degree completion and addressing a component of the gap in retention and graduation rates faced by low-income students. AB 1160 also provides much-needed transparency on the growth and impact of institutional debt by requiring consistent data collection and reporting by institutions of higher education.”

Arguments in opposition. The Association of Independent California Colleges and Universities (AICCU) notes that AB 1160 would remove certain mechanisms, like enrollment holds, that campus believe are effective in compelling repayment. AICCU writes that “if this bill were passed, it would strip colleges of the mechanisms they utilize, when necessary, to compel students to make a payment on that debt or to work with their institution on alternative arrangements such as an in-house payment plan. They could request students do these things, but students would be under no obligation to do anything to address their debts owed to the institution. Conceivably, the only option for institutions to compel former students to repay these debts would be to file lawsuits, which would likely be cost-prohibitive and impractical.”

The CSU Chancellor’s Office has raised concern regarding possible impacts to CSU’s operational funding, noting that “as a public state university system, the CSU receives approximately sixty percent of its operating budget from the state and the other forty percent from students’ tuition and student fees. AB 1160 therefore puts forty percent of the system’s operating budget at risk by removing all reasonable methods to collect outstanding student debts. Students would no longer have any incentive to pay, on time or at all, for the entirety of their enrollment with the university. If just one in ten students were to stop paying their tuition and fees, with no way for the institution to enforce payment, the immediate annual impact would be over $300 million across the CSU system.”

AICCU and private for-profit colleges raised concerns about flexible payment options. AICCU wrote that “Institutional staff at our member institution can point to practices and examples of ways they try to work with students to address concerns about costs, changes in family financial situations, and balances owed. They frequently make repeated attempts to communicate with students about unpaid debts before acting. It is common practice for institutions to offer monthly or extended payment plans for tuition and/or housing expenses. However, these staff also indicate that while they can resolve some debt balances through simple communications, in some instances students are unresponsive if or until there are other actions taken that compel the student to respond. If this bill were to become law, many institutions would have to reconsider these flexible payment options and may move to require balances be paid in full prior to the start of the term to mitigate their increased risk of nonpayment by students due to the elimination of mechanisms through which they can effectively recover monies owed.”

The California Association of Private Postsecondary Schools (CAPPS) raised concern with the definition of “institutional debt” and potential incongruity with federal law, writing that “the non-payment incurred from the previous academic term is now a debt owed to the school, but the school must allow these students to continue their education irrespective of how much is owed from the previous term. And while mandated to allow this student to continue, the new fees owed to the school for the current academic term is NOT considered a debt. To bring this full circle, if the student drops out and/or continues to not pay for their education, the bill states in…’students shall not otherwise incur any institutional debt for tuition or fees associated with the term when dropped for non-payment.’ Again, our members are struggling to understand the current problem that warrants allowing students to attend an education while not paying, be treated equally as those who are paying, and then potentially have the school forgo any tuition/fee for a term the student is actively enrolled in. It should also be noted that every student must sign an enrollment agreement and other state and federal disclosures that clearly articulate the financial commitments associated with their education.”

Committee Staff notes that several loan companies wrote to register opposition to language from an earlier draft of amendments than those being proposed to be adopted. Staff understands that, as drafted, the major concerns of debt collectors have been satisfied.

Prior legislation. AB 1313 (Luz Rivas), Chapter 518, Statutes of 2019, establishes the Educational Debt Collection Practices Act and prohibits any public or private postsecondary school from withholding a transcript for a current or former student on the grounds that the student owes debt.

AB 1974 (Gonzalez), Chapter 577, Statutes of 2018, in part prohibited K-12 schools from withholding grades or transcripts from pupils or former pupils because of a debt owed to the school.

REGISTERED SUPPORT / OPPOSITION:

Support

American Federation of State, County and Municipal Employees, AFL-CIO

California Competes

California Low-income Consumer Coalition

California State Student Association

Coalition for Humane Immigrant Rights (CHIRLA)

Compton Community College District

Consumer Federation of California

Consumer Reports

Genup (generation Up)

Housing and Economic Rights Advocates

Improve Your Tomorrow, INC.

John Burton Advocates for Youth

Nextgen California

Public Advocates

Public Counsel

Public Law Center

San Francisco Rising

Southern California College Attainment Network

Student Borrower Protection Center

Student Debt Crisis

Student Debt Crisis Center

Student Senate for California Community Colleges

The Institute for College Access & Success

Uaspire

University of California Student Association

Voices for Progress

Western Center on Law and Poverty

Young Invincibles.

Opposition

Apollo Education Group, INC. & its Subsidiaries University of Phoenix, Insight Schools & College for Financial Business

Association of Independent California Colleges & Universities (AICCU)

California Association of Collectors, INC

California Association of Private Postsecondary Schools

California Institute of The Arts

California State University, Office of The Chancellor

Individual Letters (3)

Individual Letters (6)

Norwood Associates, LLC

Receivables Management Association International

The Master’s University and Seminary

Todd, Bremer & Lawson, INC.

Analysis Prepared by: Kevin J. Powers / HIGHER ED. / (916) 319-3960