Initial Recommendations Include Calls for California Colleges to End Use of Enrollment Holds That Keep Students From Completing Their College Education, Halt Use of State Tax Refund Offset and Increase Transparency
September 28, 2026 | WASHINGTON, D.C. — Late last week, the Little Hoover Commission met to discuss their draft report entitled Student Debt to California Public Institutions of Higher Education, describing the untold chapter of the student debt crisis: school-based, institutional debt and providing policy recommendations to state lawmakers on how they can protect students. The report comes following a historic hearing—requested by Assemblymember Blanca Pacheco and the Campaign for California Borrower Rights coalition— and convened earlier this year entitled “Student Institutional Debt in California.” The hearing also marked the first time the independent citizens-legislative commission has investigated the growth of institutional debt.
The draft report is available beginning on page 67 of the Commission’s meeting agenda here: https://lhc.ca.gov/wp-content/uploads/Commissioner-Information-9-24-26-1.pdf.
The report was written by Commission staff following a public hearing on March 26, 2026, at which experts, including representatives of the Campaign for California Borrower Rights coalition, academic researchers and legislative champion Assemblymember Pacheco, sounded the alarm on the need to address the more than $390 million in institutional debt owed to California public colleges and universities and the need to strengthen consumer protections and increase transparency.
In response to the Commission’s meeting and unveiling of their draft recommendations, the Campaign for California Borrower Rights makes the following statement:
“We commend the Little Hoover Commission for their steadfast commitment to investigate the growing institutional debt that is blocking too many California students from completing their college education and the harmful debt collection practices that are pushing struggling students further into the red. We also applaud the Commission and their staff for unveiling a strong set of initial recommendations that would increase transparency, strengthen consumer protections and put an end to many of the most harmful collection tactics used by California colleges. We strongly urge the Commission to finalize their report and recommendations as soon as possible so that legislators can take much-needed action. We appreciate the Little Hoover Commission for helping to get harmful institutional debt out of the shadows and for calling on legislators to better protect students.”
During the discussion of the draft report, Commissioners noted that the three segments of public higher education institutions have no consistent policies on debt collections and that the penalties institutions deployed were counterproductive to their main mission of educating students. The Commission highlighted, regarding data submitted by the University of California, that the threshold amount for a registration hold varied widely from up to $2,000 at UC Merced to as little as $10 at UC San Francisco. Commissioners spoke to the apparent lack of disregard for the impact of such campus policies on students, who as one Commissioner noted do leave their campus for valid reasons.
The draft report largely incorporated policy proposals components of AB 850 (2025), the Institutional Debt Transparency Act, and AB 1160 (2023), the Protecting Students from Creditor Colleges Act, two pieces of legislation sponsored by the Campaign for California Borrower Rights coalition and authored by Assemblymember Pacheco, including: requiring public colleges and universities to annually report data about debt owed to their institutions; prohibiting administrative holds as a means of debt collection; limiting the use of third-party debt collectors; and ending schools’ use of the Franchise Tax Board to offset Californians’ benefits to collect debts.
Background
Across California, students who owe institutional debt—debts owed directly to their college or university—face harmful and aggressive collections practices by their schools, including enrollment and degree holds that prevent students from re-enrolling in their coursework and receiving their hard-earned diplomas. Students can also see their tax refund and critical benefits offset by the Franchise Tax Board’s Interagency Intercept Collection Program and be referred to for-profit, third-party debt collectors that can report past due institutional debt on a student’s credit report, damaging their credit scores and making it harder to secure employment and housing.
Even where the Legislature has already taken action to protect Californian students from abusive institutional debt collection tactics, schools have failed to comply. A recent investigation revealed that over 40 public colleges and universities across California continued to include transcript withholding policies—a practice outlawed by the legislature back in 2019—on their websites.
Institutional debt is debt a student owes directly to an institution of higher education due to unpaid tuition or other financial obligations. The majority of this debt is incurred when students with federal aid have to unexpectedly withdraw before the end of a term, and their institution is required to return their aid money. Schools then charge the student for the amount of the returned aid, converting it into debt owed to the school directly. Across the nation, it is estimated that 6.6 million individuals owe a collective $15 billion in institutional debt. This is a multi-billion-dollar underregulated debt market that must be addressed by policymakers before it is too late.
As a result of the public health and economic tool of the COVID-19 pandemic, institutional debts have ballooned, leading to more than 750,000 low-income students owing more than $390 million in student debt to California public colleges and universities. These debts almost exclusively harm low-income students and those from racially marginalized communities because federal student aid—in particular, Pell Grants—is awarded based on need.
The Campaign for California Borrower Rights coalition has been working in partnership with Assemblywoman Pacheco on legislation to strengthen protections for students with institutional debt and increase transparency into the growth of this debt and the practices schools use to collect it. Thus far, AB 1160 (2023) and AB 850 (2025) have been held on the suspense file by the Senate and Assembly Appropriations Committee.
These forms of debt collection are drastically more harmful to the student than it is effective for the school. Academic research found that the proposals included in AB 1160 would have been revenue positive for colleges and universities across the state; re-enrolling just 33% of students currently barred from re-enrollment due to outstanding institutional debts would have been able to bring in $215 million in tuition and fees annually. The analysis also showed that by re-enrolling students, universities could earn 500% more than what schools currently bring in through third-party debt collectors.
Further Reading
The Los Angeles Times coverage of the recent investigation into current transcript withholding policies by California public colleges and universities: Why California colleges can no longer withhold transcripts over unpaid fees
A study of California students’ institutional debt accrual during the early years of the COVID-19 pandemic: Creditor Colleges: Canceling Debts that Surges During COVID-19 for Low-Income Students
A nationwide study found that nearly 6.6 million individuals owe schools $15 billion in institutional debts: Solving Stranded Credits: Assessing the Scope and Effects of Transcript Withholding on Students, States, and Institutions
A policy brief by California academics estimates that state consumer protections for students who owe institutional debts could be revenue positive for institutions: Policy Brief
Virginia legislature study of institutional debts at Virginia public colleges and universities reveals that debts are disproportionately owed by Black students, Hispanic students, and low-income students: Report on Student Debt Collection Practices and Policies at Public Institutions of Higher Education (2022 Appropriation Act, Item 128.C)
Press release when AB 1313 was signed into law and transcript withholding prohibited: Attorney General Becerra and Assemblymember Rivas Bill to Prohibit Colleges from Withholding Transcripts as Debt Collection Tactic Signed into Law
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