Bill aims to protect California college students owing ‘institutional debt’

EdSource

Amy DiPierro

February 20, 2025

A bill in the California state Assembly proposes a variety of consumer protections for students who owe debts directly to a college or university related to a mid-semester withdrawal from classes, unpaid meal plans or other outstanding fees.

AB 850 aims to change how the state’s colleges and universities handle institutional debts, the debts students owe to their college or university and incur in their capacity as students. Such debts do not include the costs of attendance for the academic term in which the student is currently enrolled or seeking to enroll.

For example, students receiving federal student aid such as a loan or Pell Grant may incur an institutional debt if they withdraw early from coursework before completing the academic term, according to AB 850. Under those circumstances, the bill explains, their school must return a portion of aid money to the federal government and can then charge that amount to the student.

The bill argues institutional debts hinder students’ education because schools can block students from re-enrolling, withhold their degrees or forward them to private debt collectors.

To avoid those outcomes, AB 850 proposes that schools give students who owe institutional debts a one-time exemption from policies that otherwise would prevent them from enrolling or registering for courses. The idea is that this grace period would give students an opportunity to repay. Colleges and universities would still be able to disenroll students for failing to pay tuition, fees, room, board or other costs of attendance for the current academic term.

Other provisions in the bill describe the circumstances under which schools may use third-party debt collectors to recover institutional debt and require schools to gather and report data about institutional debt.

The bill would apply to higher education institutions that receive state financial assistance or enroll students who receive state financial aid in California.

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