The legislature finds that college students continue to borrow in order to fund their higher education, despite an increase in access to state financial aid. In Washington state, estimates for the number of borrowers carrying student loan debt are around 800,000 with an average balance around $33,500, resulting in a total outstanding balance of $29.4 billion. Student loan debt outpaces other sources of consumer debt, such as credit card and vehicle debt. While research shows that earning a postsecondary credential positively impacts a person's earning potential, high student loan debt erodes much of this benefit.
The legislature recognizes that people with student loan debt are less likely to get married and start a family, establish small businesses, and buy homes. High student loan debt negatively impacts a person's credit score and their debt-to-income ratio, which impacts their ability to qualify for a mortgage. However, student loan debt does not impact all borrowers the same.
Student loan borrowers who struggle the most are typically lower income, first generation, and students of color. Data from the national center for education statistics of a 12-year longitudinal study based on students who began their education in the 2003-04 academic year found the following for students who defaulted: Almost 90 percent had received a Pell grant at one point; 70 percent were first generation college students; 40 percent were in the bottom quarter of income distribution; and 30 percent were African American.
The legislature recognizes though that student loans are beneficial for students who have no other way to pay for college or have expenses beyond tuition and fees. Student loans can open up postsecondary education opportunities for many and help boost the state's economy by increasing the number of qualified graduates to fulfill workforce shortages. However, the legislature finds that high interest rates that accumulate while the student is in college negatively impact the student's ability to prosper financially and contribute to the state's economy after graduation. The legislature also recognizes that there is very little financial aid available to assist students pursuing graduate studies, despite the state's high demand for qualified professionals in fields with workforce shortages such as behavioral health, nursing, software development, teaching, and more. Therefore, the legislature intends to support students pursuing higher education by establishing a state student loan program that is more affordable than direct federal student loans and private loans. The legislature intends to offer student loans to state residents with financial need who are pursuing undergraduate and high-demand graduate studies at a subsidized, one percent interest rate. The legislature intends for the Washington state student loan program to align with the Washington college grant program, recognizing that student loans are secondary forms of financial aid that often cover expenses beyond tuition. The legislature intends to finance the Washington state student loan program with a one-time $500,000,000 appropriation to cover annual student loan originations and expenses until repayments are substantial enough to support the program on an ongoing basis.
The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
"Borrower" means an eligible student who has received a student loan under the Washington student loan program.
"Eligible expenses" means reasonable expenses associated with the costs of acquiring a postsecondary education such as tuition, fees, books, equipment, room and board, and other expenses as determined by the office.
"Eligible graduate program" means an advanced academic degree in a specialized field of study that has a workforce shortage or is considered high demand, as determined by the office.
"Eligible student" means a student who:
Meets the definition of "resident student" under RCW 28B.15.012(2) (a) through (e);
Has a median family income of 100 percent or less of the state median family income;
Is enrolled in an institution of higher education in an eligible undergraduate or graduate program on at least a half-time basis; and
Has completed an annual application for financial aid as approved by the office.
"Eligible undergraduate program" means a postsecondary education program that leads to a certificate, associate's degree, or bachelor's degree.
"Gift aid" means federal, state, institutional, or private financial aid provided for educational purposes with no obligation of repayment. "Gift aid" does not include student loans or work-study programs.
"Institution's of higher education" has the same meaning as in RCW 28B.10.016.
"Office" means the office of student financial assistance established under chapter 28B.76 RCW.
"Program" means the Washington student loan program.
"Student loan" means a loan that is approved by the office and awarded to an eligible student to pay for eligible expenses.
The Washington student loan program is created to assist students who need additional financial support to obtain postsecondary education.
The Washington student loan program shall be administered by the office. In administering the program, the office shall:
Ensure institutions of higher education have a policy for awarding student loans under the program that prioritizes funding for eligible students who have greater unmet financial need, are lowest income, are first generation college students, and who have received loans under the program in prior years;
Issue low-interest student loans;
Define the terms of repayment;
Collect and manage repayments from borrowers;
Establish an appeals process;
Exercise discretion to revise repayment obligations in certain cases, such as economic hardship or disability;
Publicize the program; and
Adopt necessary rules.
Beginning with the 2024-25 academic year, the office may award student loans under the program to eligible students from the funds available in the Washington student loan account created in section 7 of this act.
The office shall set the interest rate for student loans issued under the program at one percent to begin accruing after a grace period of six months after the borrower is no longer enrolled on at least a half-time basis at an institution of higher education. The office shall not charge any fees associated with the lending of student loans to borrowers.
A loan may not exceed the eligible student's cost of attendance as determined by the institution of higher education, less all gift aid received. An eligible student who qualifies, and is selected for a student loan under the program, shall be awarded the student loan before other loans, such as federal and private student loans.
For undergraduate students, the annual loan limit shall be $3,000 and the maximum total loan limit shall be $12,000. For graduate students, the annual loan limit shall be $5,000 and the maximum total loan limit shall be $10,000. A student who receives loans for an eligible undergraduate program under the program may also receive loans for an eligible graduate program.
The office shall establish repayment terms for student loans issued under the program and determine which repayment plan is the default option out of the following two repayment options:
A standard loan repayment plan with a repayment period of 10 years; and
An income-based repayment plan that shall require monthly payments of no more than 10 percent of a borrower's discretionary income over a repayment period of no more than 20 years. After the repayment period of 20 years, the office shall forgive any remaining balance.
The office shall establish loan terms and rules for borrowers, including the process and details of deferment, forbearance, delinquency, default, and collections.
The office shall establish an appeals process for borrowers who believe there is an unresolved error in the servicing of their loan. The office shall provide borrowers with a description of the appeals process once a borrower enters the repayment period for their student loan.
The office shall discharge any student loans issued under the program in the event of a borrower's total and permanent disability or death.
The office may contract with third-party entities to provide all aspects of operation for student loans issued under the program. A third-party entity providing loan servicing shall comply with all of the requirements for student education loan servicers under chapter 31.04 RCW.
The office shall collect data on the program in collaboration with the institutions of higher education. The data must include, but is not limited to:
The number of eligible students who were awarded a student loan;
The number of borrowers;
The average borrowed annual and total balances;
Borrower demographics;
The institutions of higher education and educational fields of borrowers; and
Repayment statistics, including:
The number of borrowers in active repayment, deferment, delinquency, forbearance, and default;
The average time it took for borrowers to enter delinquency and default;
Demographic and educational data of borrowers enrolled in the income-based repayment plan option;
Demographic and educational data of borrowers in different repayment statuses, including delinquency and default; and
Information about what happened to borrowers who defaulted.
Beginning December 1, 2026, and in compliance with RCW 43.01.036, the office must submit an annual report on the data collected under subsection (1) of this section and any other relevant information regarding the program to the higher education committees of the legislature.
The Washington student loan account is created in the custody of the state treasurer. All receipts from the Washington student loan program must be deposited in the account. Expenditures from the account may be used only for administration and the issuance of new student loans. Only the executive director of the student achievement council or the executive director's designee may authorize expenditures from the account. The account is subject to the allotment procedures under chapter 43.88 RCW, but an appropriation is not required for expenditures.
The office shall not exceed $65,000,000 in expenditures from the account for the origination of student loans on an annual basis, of which no more than 20 percent must be dedicated to student loans for borrowers in eligible graduate programs.