State Treasurer Kathleen Brown announced Tuesday the reintroduction of legislation to create a college loan program for middle- and upper-income families.
The California Alternative Loan Program, if approved by the Legislature, would offer 15-year loans of up to $15,000 a year for undergraduates and $25,000 a year for graduate students at competitive interest rates, now estimated at between 8% and 8.25%, Brown said during a news conference at Cal State Northridge.
About $75 million in loans could be available through the sale of tax-exempt bonds, she said. The loans could be used to pay for private or public schools.
The program, which is being sponsored by state Sen. Patrick Johnston (D-Stockton), was vetoed last year by Gov. Pete Wilson. The governor at the time said expected increases in federal aid to students made the California program unnecessary.
"Well, he was wrong," said Brown, who was joined by Johnston and state Assemblyman Terry B. Friedman (D-Brentwood).
California's college grant program was reduced by more than 15% this year, and federal aid has also decreased because of budget troubles, Brown said.
A Wilson spokesman said the governor has so far not taken a position on the new proposal.
The proposed loan program would supplement existing financial aid, especially benefiting middle-income families being squeezed by the rapidly escalating college costs, which have been rising faster than inflation.
Brown said many California families are in for "sticker shock," estimating that come fall the cost of attending a state university for four years--including room, board, fees and related expenses--will be as high as $57,000.
The federal student loan program has an annual limit of $5,500.
CSUN speech communications student Kameron Parker broke into tears at the news conference, describing how family financial problems could block her dream of becoming a lawyer.
Annual fees to attend CSUN now total about $1,500, with substantial increases being considered this week by trustees of the California State University system.
But Parker might not be eligible for the program. She said her mother is out of work and the loans have the same credit and financial requirements of banks.
The loans, which charge a 4% origination fee, require monthly interest payments while students are in school. After five years, borrowers--whether or not the students have graduated or dropped out--must begin paying interest and principal each month.
CSUN graduate student Mike Webb was skeptical about how good a deal the loans might be.
"You pay only interest while you're in school, but then your payments really balloon after you graduate," Webb said. "When you get out of college, you don't necessarily get a high-paying job."
Under the bill, a $15,000 loan at 8% interest would require monthly payments of $100 a month for five years--if the student remains in school--and increase to $182 for the next 10 years, a Brown aide said.
About 8,250 of the approximately 10,000 CSUN students who apply for financial aid will receive some form of assistance, said Leon King, school financial aid director. About 40% of those students receive loans.
With continuing increases in the cost of state universities, as well as the decline in available grant money, King said that in future years he expects all of CSUN's approximately 28,000 students to routinely apply for some form of financial assistance, mostly loans.