ICYMI: Little Hoover Commission Convenes Historic Hearing on California Institutional Debt Crisis Locking Students Out of a Higher Education
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Bipartisan, Independent Citizens-Legislative Commissioners Express Grave Concerns Over Lack of Transparency, Accountability and Consumer Protections in Underregulated Institutional Debt Crisis
FOR IMMEDIATE RELEASE
April 9, 2026
Contact:
Team SDCC
March 26, 2026 | SACRAMENTO, CA — On March 26, 2026 students, borrower advocates, and academic experts testified before the Little Hoover Commission’s hearing entitled, “Student Institutional Debt in California.” The historic hearing was convened in response to a request from Assemblymember Blanca Pacheco and the Campaign for California Borrower Rights coalition and marked the first time the independent citizens-legislative commission is investigating the growth of institutional debt and exploring potential policy solutions to better protect students.
To see a press release from the Commission released after the hearing and to watch a recording of the hearing, click here.
The experts sounded 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 urged the Commission to support policies that rein in punitive debt collection practices that reduce college completion and trap students in poverty. The experts also called 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.
Commissioners expressed significant concern over the lack of data and transparency into this growing debt market and the aggressive collection tactics schools use to collect on this debt that ultimately lock students out of continuing their education. Commissioners also pushed back on representatives of public colleges and universities for opposing efforts to address the institutional debt crisis.
Below are notable statements from Commissioners during the hearing. To view notable moments, see here.
“It is really hard to manage what you don’t measure…” Chairman Nava, in response to the lack of transparency and data collection into institutional debt at public colleges.
“We have all these laws in terms of buying a car…truth and disclosure for buying solar panels… on rates, terms and agreement…it’s interesting that we don’t have that…for students…” Commissioner Hernandez in response to the lack of mandated transparency and disclosure to students that may need to repay schools for grant aid that is returned to the state or federal government.
“We should be talking about preventing students from becoming debtors, not how to better collect debt from them...” Commissioner Beier, in response to the approaches policymakers have taken thus far to protect students from institutional debt.
“I have a business and occasionally we have to employ debt collectors, and I think they are 0% successful, it doesn’t work for us…” Vice Chair Cannella regarding the success of utilizing debt collectors in order to collect institutional debts.
“But they don’t [have data]...because if they did it would be immoral to try to collect money from people who are suffering grievous hardship due to illness or family economic circumstances and that is not what schools are supposed to do” Commissioner Beier in response to the lack of data collected by schools on the reasons behind students drop out of school and accrue institutional debt.
"Institutional debt and the fear of more debt and a delayed graduation forced me to make a choice no student should ever make - my family or my future…” Stephanie Cartney, UCLA Alumna in response to the way that institutional debt and the collections tactics used by her college hindered her progress towards graduation.
The hearing featured 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. 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 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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