Low-income California college students are stuck in unjust debt

As remote learning, quarantines, and sick families are not enough, millions of financially disadvantaged college students in California now face an additional challenge: their debt to community colleges and public universities is staggering.

As the number of low-income students increased in the middle of the school year during the pandemic, their financial aid awards became “institutional debts” and payments to their schools went into effect immediately.

Some California community colleges and Cal State universities wisely canceled these institutional debts. But most, including the University of California campuses, publicly report that students with institutional debt are prevented from re-enrolling until they pay off their unpredictable debt, and some schools have sent out debt collectors after these students.

If this sounds crazy, then so be it. California lawmakers and leaders of public colleges and universities should take action to cancel these debts and address the financial aid policies that have created this problem.

Here’s how it works. Most low-income students receive a federal grant to help pay for college. Federal Pell grants are usually given to students whose family earns $ 30,000 or less per year. In California, after state funding has been paid for tuition, Pell grants are usually disbursed in cash to the student room and board. If a low-income student is forced to drop out of school after one month of classes, the federal government is expected to reimburse the federal government a proportionate amount of the Pell Grant for the time the student has not historically enrolled in college.

Schools usually bill the student for that amount. Students are expected to repay this loan immediately, for example, even if they have already used all of their PEL grant funds for housing for the semester.

These institutional debts can occur in other ways as well. Obsolete library book fines, parking tickets, and room and board prices can all create institutional debt.

Our research with Daly Jimenez at the UC Irvine School of Law found that reverse financial aid awards are the biggest source of institutional debt during a pandemic.

Students in all states have incurred institutional debt, but in California this scale is particularly alarming. We estimate that 750,000 students at community colleges, Cal State universities, and the University of California will have institutionalized student debt of approximately $ 390 million from July 2020 to June 2022. This is about 15% of student enrollment during this period.

Because these loans are indebted to schools, they are not federal student loans and do not come with the flexible repayment options of federal loans. These debts are exempt from the current suspension of federal student loan interest collection and repayment liabilities.

Whatever the basis of institutional student debt, they undermine the state’s goal of promoting college admissions and student success. Preventing students from enrolling in classes if they have non-performing institutional debts means that a student will not be able to resume their interrupted education.

In addition to preventing students from re-enrolling, schools usually send debt collectors to recover unpaid balances. Schools can use a state program to seize students’ future tax refunds, including funds from the state’s anti – poverty California Income Tax Credit and Young Child Tax Credit.

Instead of trying to collect institutional debt, seven-quarters of states and a handful of community colleges canceled these loans and used federal funds disbursed by Congress as pandemic relief. The Peralta Community College District wasted $ 2.8 million in this way. However, like Peralta, most schools that have eliminated institutional debt have done so only in the 2020 and 2021 academic years, before the disruption from the Omicon wave.

California lawmakers must work to cancel all institutional student debts incurred during the Pandemic. One-time funding is required for community colleges, foot states and UCs to pay off institutional debts incurred between July 2020 and June 2022. Legislation should provide compensation to a handful of schools that have already canceled part of this student debt. No punishment for previous actions.

Colleges and universities will benefit. Since only a portion of indebted students can repay their institutional debts, the fact that the state is fully financing the cancellation of these debts means that colleges and universities will receive $ 1 for every $ 1 debt.

This is a $ 390-million, one-time solution. To prevent a recurrence of institutional debt, California lawmakers should lobby the Department of Education to eliminate the policy that requires institutions to repay Pell grants. State lawmakers should ban colleges and universities from preventing re-enrollment of indebted students, from defrauding students of debt collectors, or from withholding tax refunds to recover these debts.

Institutional debt exacerbates the pain of contagion among low-income students. The legislature must now act to remove the unjust burden.

Charlie Eaton is an Assistant Professor of Sociology at UC Mercedes @charlieeatonPhD. Jonathan Glatter is a law professor at UC Berkeley. Laura Hamilton is Professor of Sociology at UC Mercedes.

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