Assemblymember Pacheco, Students and the Campaign for California Borrowers’ Rights coalition unveil AB 850 “Increasing Institutional Debt Transparency and Protecting Students Act”
The following press release is a cross-post.
February 20, 2025 | SACRAMENTO, CALIFORNIA — A new Assembly bill introduced today, known as the Increasing Institutional Debt Transparency and Protecting Students Act, AB 850 addresses debts students owe directly to their college or university, so-called “institutional debt.”
The bill aims to:
- Reduce barriers to student access, persistence, and completion by requiring colleges to grant students a one-term grace period allowing them to register or re-enroll in their coursework while they work to repay their outstanding institutional debt.
- Protect students from economic hardship by prohibiting the reporting of institutional debt to credit reporting agencies.
- Require institutions of higher education to adopt and publicly disclose written institutional debt collection policies and ensure such policies are compliant with California consumer protection laws.
- Provide much-needed transparency on the growth and impact of institutional debt as well as the debt collection tactics used by colleges to collect on this debt by requiring consistent data collection and reporting.
“California’s students are being blocked from continuing their education over institutional debts that have ballooned to $390 million statewide,” said Assemblywoman Pacheco (D-Downey), author of the bill. “Unlike other forms of debt, institutional debt lacks basic consumer protections and any financial setback can derail a student’s education. AB 850 changes that by establishing critical reporting and safeguards to ensure that institutional debt doesn’t create permanent roadblocks to education.”
“Every student who is accepted to the University of California deserves to pursue their education without the agonizing toll of institutional debt. AB 850 will provide much-needed protection and relief for students across UCs and the state by clarifying often convoluted policies and processes, which will mitigate the effects of crushing debt on student achievement. This will allow our institutions to actualize the college dreams for thousands of California students and strengthen social mobility for their families,” said Aditi Hariharan, President, UC Student Association
“As a diverse coalition representing Californians affected by debt, the Campaign for California Borrowers’ Rights proudly supports AB 850 (Pacheco). This legislation will protect students from the harmful educational barriers associated with institutional debt and increase transparency on the prevalence of this crisis across our State. We believe that this bill will be a game-changer in the fight against “shadow student debt” and address other educational and financial obstacles that students face that are too often ignored. We urge lawmakers to pass it without delay,” said the Campaign for California Borrower’s Rights.
Background
Across California, more than 3.9 million borrowers owe nearly $148 million in student loan debt. Although state and federal policymakers have taken action to support student loan borrowers, another type of student debt has gone mostly unaddressed: institutional debt.
Institutional debts are debts owed by current or former students directly to an institution of higher education and can range from unpaid meal debt, overdue library charges, parking fees, and unpaid tuition from previous terms. 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. While institutional debts may range in size and scope, they can keep a student locked out of making progress toward their degree and lead to long-term financial harm.
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 and other harmful barriers to degree completion including barring students from re-enrolling in coursework, withholding degrees therefore harming a student’s employment prospects, and even placing students in private collections ruining their credit. Additionally, colleges can even subject current or former students to tax return/benefit offset through the Interagency Intercept Collection (IIC) Program operated by the California Franchise Tax Board.
Because of this, students and advocates are supporting AB 850, which will protect students from the educational harms associated with institutional debt and increase transparency on the growth and prevalence of this debt.
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About the UC Student Association
The University of California Student Association (UCSA) is the official voice of students from across the UC’s system of campuses. UCSA is a student-run, student-led organization with a Board of Directors composed of students elected or appointed by our member student governments. It is our mission to advocate on behalf of current and future students for the accessibility, affordability, and the quality of the University of California system. More information about UCSA is available at ucsa.org.
About the Campaign for California Borrowers’ Rights
The Campaign for California Borrowers’ Rights is a diverse coalition of organizations representing students, workers, consumers, older people, communities of color, veterans, and millions of other Californians affected by the student debt crisis. The Campaign is led by NextGen California, Young Invincibles, Student Debt Crisis Center, Student Borrower Protection Center, and Consumer Reports.
More information about the Campaign is available at https://www.californiaborrowers.org/.