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. Based on the feasibility of the state student loan program recommendations developed by the Washington student achievement council, in consultation with the Washington state investment board, and the office of the state treasurer, the legislature intends to finance the Washington state student loan program with a one-time $150,000,000 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.
"Institutions of higher education" includes institutions of higher education authorized to participate in state financial aid programs in accordance with chapter 28B.92 RCW.
"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 achievement council, in consultation with the office of the state treasurer and the state investment board shall design a student loan program to assist students who need additional financial support to obtain postsecondary education.
At a minimum, the program design must make recommendations about the following features of a state student loan program and implementation plan:
A low interest rate that is below current federal subsidized student loan interest rates, with one option being a one percent interest rate;
The distribution of loans between graduate students and undergraduate students;
The terms of the loans, including:
Loan limits;
Grace periods, including grace periods for active duty members of the national guard who may lose eligibility when being called up for active duty; and
Minimum postsecondary enrollment standards;
The terms and administration of a repayment program, including:
Repayment options such as standard loan repayment contracts and the length of the repayment contracts;
Income-based repayment plans; and
Terms of loan forgiveness;
The types and characteristics of borrowers permitted to participate in the program including family income, degree and credential types, and other borrower characteristics. The program must prioritize low-income borrowers; and
The design and administration of an appeals process.
In the design of the program, the Washington student achievement council may recommend contracting with one or more state-based financial institutions regulated by either chapter 31.12 or 30A.04 RCW to provide loan origination and may contract with a third-party entity to provide loan servicing for the program. The Washington student achievement council must use an open and competitive bid process in the selection of one or more state-based financial institutions for loan origination and servicing for 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 Washington student achievement council shall contract with an independent actuary to conduct an analysis on the sustainability of the program design, including the ability of the program to operate as self-sustaining if issuing one percent interest rate loans.
The Washington student achievement council shall provide a report on the design, sustainability, and implementation plan for the program to the governor and the higher education committees of the legislature by December 1, 2022, in accordance with RCW 43.01.036.
The Washington student loan program is created to assist students who need additional financial support to obtain postsecondary education. Beginning in the 2024-25 academic year, the office may award student loans under the program to eligible students from the funds available in section 7 of this act.
The program shall be administered by the office. To the extent practicable, the program design must include the recommendations for program design as provided in the report required under section 3 of this act. Student loans shall not be issued unless the program design recommended in section 3 of this act is forecasted by an independent actuary to be self-sustaining and the interest rates for the loans issued under the program do not exceed one percent.
The office is responsible for providing administrative support to execute the duties and responsibilities provided in this chapter. The duties and responsibilities include:
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.
The office is responsible for establishing and administering an appeals process that resolves appeals from borrowers within ninety days of receipt.
The office shall contract with one or more state-based financial institutions regulated by either chapter 31.12 RCW or chapter 30A.04 RCW to provide loan origination and may contract with a third-party entity to provide loan servicing for 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 Washington 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, moneys in the account may be spent only after appropriation.