Bill Text: CA AB2377 | 2013-2014 | Regular Session | Chaptered
Bill Title: Student loans: California Student Loan Refinancing
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Passed) 2014-09-29 - Chaptered by Secretary of State - Chapter 816, Statutes of 2014. [AB2377 Detail]
Download: California-2013-AB2377-Chaptered.html
BILL NUMBER: AB 2377 CHAPTERED
BILL TEXT
CHAPTER 816
FILED WITH SECRETARY OF STATE SEPTEMBER 29, 2014
APPROVED BY GOVERNOR SEPTEMBER 29, 2014
PASSED THE SENATE AUGUST 25, 2014
PASSED THE ASSEMBLY AUGUST 27, 2014
AMENDED IN SENATE AUGUST 20, 2014
AMENDED IN ASSEMBLY MAY 23, 2014
INTRODUCED BY Assembly Member John A. Pérez
FEBRUARY 21, 2014
An act to add Article 4.1 (commencing with Section 94157) to
Chapter 2 of Part 59 of Division 10 of Title 3 of the Education Code,
relating to student loans, and making an appropriation therefor.
LEGISLATIVE COUNSEL'S DIGEST
AB 2377, John A. Pérez. Student loans: California Student Loan
Refinancing Program.
Under existing law, the California Educational Facilities
Authority Act, the California Educational Facilities Authority is,
among other things, authorized to borrow money and issue bonds,
notes, and other obligations. The authority is also authorized to
hold or invest in student loans, create pools of student loans, and
sell bonds bearing interest on a taxable or tax-exempt basis or other
interests backed by the pools of student loans.
This bill would establish the California Student Loan Refinancing
Program under the administration of the authority, with the goal of
helping eligible college graduates to refinance student loan debt at
favorable rates by creating a revolving fund so that additional
refinancing may occur to help more qualified borrowers, as defined,
through the creation of a loss reserve account, as defined. The bill
would authorize the authority to contract with any financial
institution, as defined, for the purpose of allowing the financial
institution to participate in the program. The bill would require the
authority to establish a loss reserve account, consisting of moneys
deposited by the authority, as specified, for each financial
institution with which the authority enters into a contract. The bill
would specify the conditions under which a qualified loan, as
defined, may be enrolled in the program in order to obtain the
protection against loss provided by its loss reserve account.
The bill would establish eligibility requirements for qualified
borrowers to participate in the program. The bill would require the
authority to submit an annual report to the Governor and the
Legislature describing the program's financial condition and results,
as specified. The bill would authorize the board of the authority to
adopt emergency regulations for the implementation of the program
established by the bill.
Because this bill would authorize the authority to raise and
expend funds for new purposes, the bill would make an appropriation.
Appropriation: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) Over the last decade, tuition within the California higher
education system increased 145 percent at the University of
California and 191 percent at the California State University.
(b) The Middle Class Scholarship Act will lower the costs of
tuition for prospective students; however, more needs to be done to
assist those students who have already graduated and suffered the
worst of the affordability squeeze, causing them to incur more
student loan debt in order to complete their college degrees.
(c) Student loan debt is a drag on our economy, preventing
graduates from entering graduate schools, achieving financial
independence, buying property, and starting businesses.
(d) In the United States today, there is more than $1.2 trillion
in outstanding student loan debt, which works out to an average of
more than $26,000 per graduate. This level of debt translates to more
than $200,000 per graduate in lost savings and home equity, which in
total accounts for $4 trillion in lost national wealth.
(e) As of 2013, California residents had an average of just over
$20,000 in student loan debt upon graduation. Of the approximately
250,000 California residents who received bachelor's degrees both in
and out of the state in 2012, 52 percent had some level of student
loan debt.
(f) Through the California Educational Facilities Authority, the
state has the ability to develop a student loan refinancing and
consolidation program to assist college graduates carrying student
loan debt to meet their payment obligations.
SEC. 2. Article 4.1 (commencing with Section 94157) is added to
Chapter 2 of Part 59 of Division 10 of Title 3 of the Education Code,
to read:
Article 4.1. California Student Loan Refinancing Program
94157. As used in this article, unless the context requires
otherwise, the following terms have the following meanings:
(a) "Executive director" means the Executive Director of the
California Educational Facilities Authority.
(b) "Financial institution" means a bank as defined under
paragraph (4) of subdivision (b) of Section 1201 of the Commercial
Code, including a federal- or state-chartered bank, that has been
approved by the authority to enroll qualified loans in the program
and has agreed to all terms and conditions set forth in this article
and as may be required by the authority. A financial institution
shall have a branch or office, or be otherwise present for
jurisdictional purposes, in California.
(c) "Loss reserve account" means an account in the State Treasury
or in any financial institution that is established and maintained by
the authority for the benefit of a financial institution
participating in the program for the purposes of any of the
following:
(1) Depositing all required fees paid by the financial institution
and the qualified borrower.
(2) Depositing contributions made by the state and, if applicable,
the federal government or other sources.
(3) Covering losses on enrolled qualified loans sustained by the
financial institution by disbursing funds accumulated in the loss
reserve account.
(d) "Private student loan" means a loan issued by a private
lending institution for the costs of attendance at any public or
private nonprofit college or university in the United States,
notwithstanding the definitions in subdivisions (i), (k), and (l) of
Section 94110.
(e) "Program" means the California Student Loan Refinancing
Program created pursuant to this article.
(f) "Qualified borrower" means an individual meeting all of the
following requirements:
(1) Residency in California.
(2) Completion of a bachelor's degree.
(3) Employment in a public service program or by a nonprofit
organization located in California.
(4) Able to repay, as determined by the authority.
(5) Meeting the criteria established by the financial institution
and the authority.
(g) "Qualified loan" means a loan or a portion of a loan made by a
financial institution to a qualified borrower to refinance a private
student loan under the program. A qualified loan made under the
program may be made with the interest rates, fees, and other terms
and conditions agreed upon by the financial institution and the
qualified borrower. Only a loan determined by the authority to be an
educational loan nondischargeable in bankruptcy as set forth in
Section 523 of Title 11 of the United States Code as that section
existed on August 15, 2014, shall be a qualified loan eligible for
financing under this article.
94158. (a) The California Student Loan Refinancing Program is
hereby established under the administration of the authority. The
goal of the program is to help college graduates who meet the
eligibility criteria of the program, who are defined as qualified
borrowers under Section 94157, to refinance student loan debt at
favorable rates. This goal would be achieved through the creation of
a revolving fund so that additional refinancing may occur to help
more qualified borrowers, and through the creation of a loan loss
reserve that can be leveraged by private lenders in the private
student loan market.
(b) The authority may contract with any financial institution for
the purpose of allowing the financial institution to participate in
the program.
(c) A credit union operating pursuant to a certificate issued
under the California Credit Union Law (Division 5 (commencing with
Section 14000) of the Financial Code) may participate in the program
only to the extent participation is in compliance with the California
Credit Union Law. Nothing in this article shall be construed to
limit the authority of the Commissioner of Business Oversight to
regulate credit unions subject to the commissioner's jurisdiction
under the California Credit Union Law.
94159. (a) The authority shall establish a loss reserve account
for each financial institution with which the authority enters into a
contract.
(b) The loss reserve account for a financial institution shall
consist of moneys deposited by the authority and, as applicable,
deposited by the qualified borrowers, the financial institution, or
any other source.
(c) Notwithstanding any other law, the authority may establish and
maintain loss reserve accounts, as provided in subdivision (c) of
Section 94157, with any financial institution under any policies the
authority may adopt.
(d) All moneys in a loss reserve account established pursuant to
this article are the exclusive property of, and solely controlled by,
the authority. Interest or income earned on moneys credited to the
loss reserve account shall be deemed to be part of the loss reserve
account. The authority may withdraw from the loss reserve account
all, or a portion of, the interest or other income that has been
credited to the loss reserve account. Any withdrawal made pursuant to
this subdivision shall be used for the sole purpose of offsetting
costs associated with carrying out the program, including
administrative costs and loss reserve account contributions.
(e) The combined amount to be deposited by the financial
institution into any individual loss reserve account over a
three-year period, in connection with any single qualified borrower,
shall be not more than seventy-five thousand dollars ($75,000).
94160. (a) If a financial institution seeks to enroll a qualified
loan in the program in order to obtain the protection against loss
provided by its loss reserve account, after disclosing relevant
qualified loan financial information to the qualified borrower, it
shall notify the authority in writing on a form prescribed by the
authority, within 15 calendar days after the date on which the
qualified loan is made, of all of the following:
(1) The disbursement of the qualified loan.
(2) The dollar amount of the qualified loan enrolled.
(3) The interest rate applicable to, and the term of, the
qualified loan.
(4) The amount of any administrative fee related to the processing
of an existing loan or the issuance of a new loan.
(b) The executive director may authorize an additional five days
for a financial institution to submit the written notification
described in subdivision (a) to the authority on a loan-by-loan basis
for a reason limited to conditions beyond the reasonable control of
the financial institution.
(c) When making a qualified loan that will be enrolled under the
program, the financial institution shall require the qualified
borrower to whom the qualified loan is made to pay an administration
fee as determined by the authority. The financial institution shall
also pay an administration fee in an amount equal to the fee paid by
the qualified borrower. The financial institution shall deliver the
fees collected under this subdivision to the authority for deposit in
the loss reserve account for the financial institution.
94161. (a) The authority shall establish procedures under which
financial institutions may submit claims for reimbursement for losses
incurred as a result of qualified loan defaults. A financial
institution that charges off all or part of a qualified loan to the
loss reserve account may file a claim for reimbursement with the
authority if all of the following conditions are met:
(1) The claim occurs contemporaneously with the action of the
financial institution to charge off all or part of the qualified
loan.
(2) The charge off on a qualified loan is made in a manner that is
consistent with the financial institution's usual method for making
determinations on personal loans that are not qualified loans.
(3) The financial institution has met all of the conditions
established by the authority to assist the borrower in making
payments prior to filing a claim for reimbursement.
(b) Costs for which a financial institution may be reimbursed from
its loss reserve account include the amount of qualified loan
principal charged off, accrued interest on the principal, reasonable
out-of-pocket expenses incurred in pursuing its collection efforts,
including preservation of collateral, and any other related costs.
Proper documentation of the expenses, to the satisfaction of the
authority, shall be presented at the time of the claim.
(c) If a financial institution files two or more claims
contemporaneously, and there are insufficient funds in the loss
reserve account at that time to cover the entire amount of such
claims, the financial institution may designate the order of priority
in which the claims shall be paid.
(d) A financial institution may seek reimbursement of qualified
loan losses prior to the liquidation of collateral, if any, from
defaulted qualified loans. The financial institution shall repay the
loss reserve account for any moneys received as reimbursement under
this section if the financial institution recovers moneys from the
qualified borrower or from the liquidation of collateral for the
defaulted qualified loan, less any reasonable out-of-pocket expenses
incurred in collection of this amount.
(e) In any case in which the payment of a claim under this section
has fully covered a financial institution's loss on a qualified
loan, the financial institution shall assign to the authority any
right or title to, or interest in, any collateral, security, or other
right of recovery in connection with a qualified loan made under the
program.
94162. Notwithstanding Section 10231.5 of the Government Code,
the authority shall annually submit a report to the Governor and the
Legislature that describes the program's financial condition and its
results. Programmatic results described in the report shall include,
but not necessarily be limited to, the total number of qualified
borrowers served and the dollar amount of qualified loans issued for
all new qualified loans issued since the report for the prior year.
The report required by this section shall be submitted in accordance
with Section 9795 of the Government Code.
94163. The authority may enter into agreements with financial
institutions, or with other agencies of the state, to provide
necessary assistance in carrying out the program, including
origination and servicing of qualified loans.
94164. Notwithstanding the other provisions of this article, the
authority may facilitate the development of a secondary market for a
qualified loan under the program by providing security for that loan,
thereby increasing participation in the program by financial
institutions and improving access to qualified borrowers to refinance
private student loans. For purposes of this section, the actions
that the authority may take include, but are not necessarily limited
to, assigning all or a portion of any loss reserve account to any
other entity in connection with providing security for a qualified
loan, including a trustee of a securitization trust, transferring a
qualified loan from a financial institution to a securitization
trust, and assisting underwriters in marketing a qualified loan to
the secondary market.
94165. The authority may adopt emergency regulations for the
implementation of the program. Any emergency regulations that may be
adopted by the authority under this section shall be adopted in
accordance with the Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code). The adoption of these regulations shall be
deemed to be an emergency and necessary for the immediate
preservation of the public peace, health and safety, or general
welfare.
