Funding for Certain Outreach Activities Has Not Yet Been Justified. In particular, limited justification has been provided for the financial literacy outreach funding. The administration indicates this initiative would allow SIB to produce informational materials, translate those materials into various languages, update the program website, and provide other financial literacy activities to participants and their families. However, the proposed funding level is not linked with the cost of these activities. Instead, the administration determined the proposed funding level based on the combined one?time cost of the other two initiatives (participant notifications and paign). In addition, while the proposed funding is ongoing, several of the proposed activities (including producing initial informational materials and updating the website) would be one time.
Approve Two Positions and Associated Funding. Given the workload increases associated with the recent expansion of the CalKIDS program, we recommend approving the two positions proposed in the Governor’s budget and the associated funding.
Modify Outreach Proposals. Rather than funding separate initiatives for financial literacy outreach, participant notification, and marketing, we recommend creating one combined initiative. Within that initiative, we recommend providing at least the proposed $4 million one time and $400,000 ongoing for participant notification, as participants and their families need a basic level of awareness of their CalKIDS accounts for the program to have its intended effect. The Legislature could also consider including the proposed $1 million one?time General Fund for a short?term awareness. However, we recommend withholding action on the proposed $5 million ongoing for financial literacy outreach and requesting the administration develop a more detailed proposal. Such a proposal would identify the specific financial literacy outreach activities that would occur, the estimated cost of those activities, the duration of those costs (one time vs. ongoing), and any opportunities to coordinate or consolidate these outreach activities with the related participant notification and marketing activities.
Department of Financial Protection and Innovation
We first provide background on student loans, as well as DFPI’s role in assisting student loan borrowers. We then describe the Governor’s proposal to launch a related outreach initiative and provide a few issues for legislative consideration.
Many Californians Have Student Loan Debt. In California, 3.9 million individuals owe a combined $145 billion in federal student loan debt. (The federal government issues the vast majority of student loans, with the remainder coming from private lenders including financial institutions.) Although the federal government suspended repayment on student loans at the onset of the pandemic in . There are several repayment options for federal student loans-including four income?driven repayment plans in which a borrower’s monthly payment is capped at a certain percentage (between 10 percent and 20 percent) of their discretionary income, and any loan balance that remains after a set repayment period (between 20 and 25 years) is forgiven.
Borrowers Unable to Repay Loans Risk Going Into Default. If a borrower does not make payments for a certain time period (typically nine months for federal student loans), the loan goes into default. Borrowers who default on their loans can face various consequences, including collection fees, wage garnishing, reduced credit scores, and loss of access to additional student financial aid. The U.S. Department of Education reports that 7.3 percent of borrowers nationally who entered repayment on their federal student loans in 2017?18 defaulted within three years. (This rate may be artificially low, as the three?year window includes six months during which repayments were paused under the pandemic. The three?year default rate for the 2016?17 cohort was 9.7 percent.) The default rate in California is somewhat lower than the national average. Based on U.S. Department of Education data, we estimate that the three?year default rate was approximately 6 percent among borrowers in the 2017?18 cohort who attended California institutions.