HAPPENING AT 9:30AM PT: Little Hoover Commission Convenes Historic Hearing on Institutional Debt Crisis Across California

Students, Borrower Advocates, and Academic Experts Testify, Urge Commission to Call for Strengthened Protections and Increase Transparency to Address the Growing and Underregulated Institutional Debt Crisis

FOR IMMEDIATE RELEASE

Thursday, March 26, 2026

Contact: Protect Borrowers

Email: press@protectborrowers.org

SACRAMENTO, CA — Today, students, borrower advocates, and academic experts will testify before the Little Hoover Commission’s hearing entitled, “Student Institutional Debt in California.” The historic hearing, convened in response to a request from Assemblymember Blanca Pacheco and the Campaign for California Borrower Rights coalition, marks the first time the independent citizens-legislative commission is investigating the growth of institutional debt and exploring potential policy solutions to better protect students.

The experts, including representatives of the Campaign for California Borrower Rights coalition and legislative champion Assemblymember Pacheco, will sound 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. Witnesses will urge the Commission to support policies that rein in punitive debt collection practices, used by colleges and universities across California, that have been found to reduce college completion and trap students in poverty. The experts are also calling for much-needed transparency into the growing and underregulated institutional debt market by requiring schools to annually report on institutional debt and publicly disclose their debt collection policies and practices.

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.

The hearing will inform the Commission’s eventual report and policy recommendations to the Governor and Legislature. It comes after 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.

To watch the hearing live, click here.

The hearing will feature testimony from expert witnesses including Assemblymember Blanca Pacheco, representing California’s 64th Assembly District and author of AB 850; Aissa Canchola Bañez, Policy Director at Protect Borrowers; Dalié Jiménez, Professor of Law at University of California Irvine School of Law and Director of the Student Loan Law Initiative; Charlie Eaton, Associate Professor of Sociology at University of California, Merced, and Co-Founder of The Higher Education, Race, and the Economy (HERE) Lab; Samantha Seng, Legislative Director & Policy Advisor at NextGen California; and Stephany Cartney, UCLA Alumna and Young Invincibles Youth Advisory Board member.

Written witness testimonies are available here.

Background

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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About Student Debt Crisis Center

Student Debt Crisis Center is a national advocacy organization with nearly 2,000,000 supporters calling for fundamental reforms to student loan policies and an end to the student debt crisis. Learn more here.