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New Expert Analysis Confirms, “Protecting Students from Creditor Colleges Act” Establishes Critical Protections for Students and Families and Will Help Boost Much-Needed Revenues for Universities Across California

FOR IMMEDIATE RELEASE: December 14, 2023

(Sacramento, CA) – Today, a group of leading student loan experts and academic researchers released a policy brief analyzing the impact of AB 1160, “Protecting Students from Creditor Colleges Act”-- legislation aimed at addressing the educational barriers and economic harms associated with “institutional debt”, which are debts that students owe directly to their schools. In the brief, experts find that, if passed, the legislation will 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.


The analysis was conducted by the leading researchers from the University of California who wrote the groundbreaking report, Creditor Colleges: Canceling Debts that Surged During COVID-19 for Low-Income Students, which found that 750,000 low-income students had accumulated $350 million in institutional debt in the first two years of the pandemic. The report shed light on the growing institutional debt crisis across the state, the harmful ways that colleges and universities go about collecting on this debt, and the urgent need for state action to protect students. 


In response, students and advocates in California released AB 1160, “Protecting Students from Creditor Colleges Act,” alongside Assemblymember Blanca Pacheco (D-Downey). Informed by this groundbreaking research, AB 1160, would prohibit California colleges from engaging in the most punitive practices used to collect on institutional debts and require robust data collection to increase transparency and ensure that policymakers, researchers, and the public can understand the ways that institutional debt is impacting students, college outcomes, and exacerbating economic outcomes.


The newly released expert analysis comes as the Assembly Higher Education Committee prepares to consider AB 1160, which could make California one of the first states to comprehensively address the growing institutional debt crisis. 

Researchers find that by ending the use of re-enrollment and registration holds and bringing the collection of institutional debts in-house, colleges could be positioned to bring in increased revenues without penalizing low-income students. The experts estimate that by achieving a 33% re-enrollment rate of students currently locked out of an education due to institutional debt, colleges and universities could receive $214 million in tuition and fees in one year alone– an amount that is 500% more than the current rate of collections on institutional debt by schools’ for-profit third-party debt collectors. Experts further underscore that the reforms in AB 1160 would better position schools to set up student-centered and less punitive ways to collect on institutional debt that helps students advance in their education and help schools protect their bottom line.

“While we know institutional debts are not new, their significance has increased considerably, impacting more students, particularly low-income students, as outlined in this report. The goal of AB 1160 is to remove harmful debt collection practices on institutional debts to eliminate educational barriers. This, in turn, will positively support enrollment and graduation rates.” said Assemblymember Blanca Pacheco. 


"For low-income students, paying for college too often feels like an impenetrable maze of financial aid forms, bills, hidden fees, and opaque requirements. AB 1160 protects students by removing harmful institutional debt practices that constitute yet another set of arbitrary roadblocks unfairly impacting low-income students and students of color," said UCSA President Alex Niles.


“It is essential to safeguard college students from exploitive third-party for-profit debt collectors and guarantee basic consumer protections for any institutional debt a student may incur. As we witness declining enrollment rates in higher education institutions across the state, AB 1160 serves as a timely and vital measure, ensuring students have the opportunity to continue pursuing their degrees. This legislation aims to prevent students from being barred from seeking to register for courses or re-enrolling in programs due exclusively to outstanding institutional debts. This approach supports the broader objective of promoting accessibility, equity, and success in higher education for all students, which lies at the core of the GI2025 initiative,” said the Cal State Student Association.


As a diverse coalition representing Californians affected by student debt, the Campaign for California Borrowers' Rights proudly supports AB 1160 (Pacheco). This groundbreaking and comprehensive legislation will take decisive action to protect students from the harmful educational barriers and debt collection practices they face simply because they owe an institutional debt, and will increase much-needed transparency on the prevalence of the institutional debt crisis across our State. This bill will play an essential role in helping millions of students get back on track and complete their higher education and will help colleges across our state bring in revenues necessary to support students. We urge lawmakers to pass it without delay," said the Campaign for California Borrower’s Rights.


Background: Across California, nearly 4 million borrowers owe over $149 million in student loan debt. Although state and federal policymakers have taken action to support student loan borrowers, institutional debt has gone mostly unaddressed.


Institutional debts are debts owed by current or former students directly to an institution of higher education. 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 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, converting to debts that students owe directly to their school. Since Pell Grants are awarded based on financial need, these debts almost exclusively afflict low-income students—students who are also more likely to be students from racially marginalized communities.


The pandemic exacerbated this existing problem, as the economic and public health emergency forced record numbers of students to withdraw from their courses. As a result, institutional debts ballooned and more than 750,000 low-income students owe more than $390 million in debt to California public colleges. Although this is an under-studied area of education debt—due to a lack of available data—the few available reports make clear that institutional debt practices disproportionately burden students of color, maintaining the very racial wealth gap that education is meant to close.


Current or former students with outstanding institutional debts can face disastrous consequences. Researchers have found that colleges can place holds on a student’s account barring them from re-enrolling in coursework—placing harmful barriers to degree completion—withholding degrees harming a student’s employment prospects, and even placing students in private collections or subjecting them to offsets of their benefits and tax return through the Interagency Intercept Collection (IIC) Program operated by the California Franchise Tax Board. Each of these forms of debt collection is drastically more harmful to the student than it is effective for the school.



Tyler Bushnell, NextGen California

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