Bill Text: CA AB2377 | 2013-2014 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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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-Amended.html

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BILL NUMBER: AB 2377	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 23, 2014

INTRODUCED BY   Assembly Member John A. Pérez

                        FEBRUARY 21, 2014

   An act to add Article  7.5 (commencing with Section 94200)
  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, as amended, 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  within   under the administration of
 the authority,  and provide for its administration by
the Treasurer's office,  with the  goals 
 goal  of helping eligible  students and 
 college  graduates to refinance  student  loan
debt at favorable rates  and   by  creating
a revolving fund so that additional refinancing may occur to help
more  students and graduates   qualified
borrowers, as defined, through the creation of a loss reserve
account, as defined . The bill would authorize the authority to
 issue bonds for purposes of providing student loan
refinancing options, including loan consolidation, interest rate
buy-down, debt restructuring, establishing a loan  
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,  and alignment with various federal student
loan alternative repayment programs. The   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
 students and graduates.   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  develop and adopt regulations and procedures
  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.

   Vote: majority. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no.


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)  Recently, the Legislature, through the  
The  Middle Class Scholarship Act  , has pursued
efforts to   will  lower the costs of tuition for
prospective  students, but little has been done for those
  students; however, more needs to be done to assist
those students  who have already graduated and suffered the
worst of the affordability squeeze,  and have had 
 causing them  to incur more student loan debt in order to
 achieve   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, or otherwise reinvesting in the state  
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.  These debts lead 
 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  have  
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)  In the 1980s, the California State Treasurer
administered a $75 million student loan program that provided
borrowers with access to low-interest loans through the issuance of
tax-exempt revenue bonds. In 1995,   Through  the
California Educational Facilities  Authority (CEFA) took over
administration of the loan program.   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   . 

   (g) The CEFA retains the bond authority for this program, and has
the authority to use proceeds from the sale of bonds for, among other
things, "the refinancing of existing debt." 
  SEC. 2.  Article  7.5   4.1  (commencing
with Section  94200)   94157)  is added to
Chapter 2 of Part 59 of Division 10 of Title 3 of the Education Code,
to read:

      Article  7.5.   4.1.   California
Student Loan Refinancing Program


   94200.  (a) The California Student Loan Refinancing Program is
hereby established, to be administered by the Treasurer's office with
policy guidance from the authority. The goals of the program are to
help eligible students and graduates to refinance loan debt at
favorable rates and to create a revolving fund so that additional
refinancing may occur to help more students and graduates.
   (b) The program may use the authority's power to issue bonds
pursuant to Article 4 (commencing with Section 94140) for purposes of
providing student loan refinancing options that shall include, but
are not necessarily limited to, loan consolidation, interest rate
buy-down, debt restructuring, establishing a loan loss reserve
account, and alignment with various federal student loan alternative
repayment programs.  
   94201.  Eligibility for the program shall be limited to persons
meeting all of the following requirements:
   (a) Residency in California.
   (b) Completion of a bachelor's degree.
   (c) Employment in a public service program or by a nonprofit
organization.
   (d) Ability to repay, as determined by the authority.
   (e) Any additional qualification imposed by the Treasurer.
 
   94202.  The board of the authority is authorized to develop and
adopt regulations and procedures for the implementation of this
article, including program administration requirements and provisions
to ensure the solvency of the financing.  
   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. 
   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.