A4631

An Act establishing the Student Loan Lottery and supplementing P.L.1970, c.13.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. The Legislature finds and declares that:

Outstanding student loan balances continue to reach new highs year after year. These outstanding balances have an adverse effect on our economy, as high monthly payments impact the credit of students and affect their ability to buy homes, cars and other consumer products and services. In addition to affecting their buying power, these loans affect their ability to save, their career choices after graduation, and in some cases, even their decision to pursue higher education at all.

Tuitions for higher education continue to increase, and many recent graduates still struggle to find adequate employment in today's economy. Moreover, many student loans end up in default, compounding these negative consequences, to the students, lenders, tax payers and the overall economy.

The negative consequences of burdensome student loans are particularly demonstrable in New Jersey. Higher education is an integral part of New Jersey’s economy, contributing today to the State’s recovery from extremely challenging economic times and building its economic and cultural future. Its institutions of higher education play a significant role in contributing to the State’s collective economic well-being and quality of life. Higher education benefits both the individual and the greater society and economy.

New Jersey boasts one of the highest per-capita incomes in the U.S., approximately 28 percent higher than the national average of per capita incomes. Attainment of higher education is a major factor behind personal and family income in New Jersey. According to census data, 36 percent of people in New Jersey age 25 and older had a bachelor’s degree or higher, versus the national average of 29 percent.

Furthermore, New Jersey is the State where the premium on educational attainment is the highest. In 2007, the difference in median earnings between a high school diploma and a bachelor’s degree was approximately $25,000 per year, the third highest gap in the nation. Median earnings for those with graduate and professional degrees are almost two and one half times that of high school graduates and four times that of those who do not finish high school. In brief, educational attainment, especially postsecondary education, matters in New Jersey.

The benefits of higher education go beyond the impact on individual income. Research demonstrates that for each one percent increase in a metropolitan area’s population with a college degree there is a 2.3 percent increase in the region’s per capita gross domestic product.

Unfortunately, the costs of education continue to increase. While colleges are often seen as having the option of raising revenue through tuition and fee increases, it is clear that future tuition increases, in a State which already has among the highest tuition and fees in the nation, will create insurmountable hurdles for many New Jersey families.

In New Jersey, 70 percent of graduating students graduated with student debt in 2013, the fourth highest percentage of any state in the U.S. Further, a large percentage of the population of approximately 8.9 million people in New Jersey has student debt outstanding. Student enrollment has risen historically and is expected to continue to rise.

Notably, students are defaulting on their student debt. Data has shown that 8.6 percent of all student loans in New Jersey were 90 or more days late, the highest of any other type of loan, including mortgages and credit cards. Furthermore, the above delinquency rate for student loans is likely to understate actual delinquency rates because a large share of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. The student loan crisis is ripe for a market-based solution to mitigate adverse effects.

Therefore, it is in the best interest of this State and the residents of this State that New Jersey establish a Student Loan Lottery, wherein past and present students having student loans outstanding and benefactors of these students, may purchase lottery tickets for which the proceeds of any winnings are applied exclusively to pay off or reduce the outstanding balance of the winning student's loan or loans.

2. There is established in the Division of the State Lottery in the Department of the Treasury the Student Loan Lottery. The State Lottery Commission shall adopt rules and regulations pursuant to the “Administrative Procedure Act,” P.L. 1968, c.410 (C.52:14B-1 et seq.), necessary to effectuate the purposes of sections _ through _ of P.L. , c. (C. ) (pending before the Legislature as this bill). Such rules and regulations shall include, but shall not be limited to, the following provisions:

a. A ticket for the Student Loan Lottery may only be purchased by a past or present student, or by a benefactor of a past or present student who is purchasing a ticket for a specifically named student, who has an outstanding student loan balance.

b. Before a student or his benefactor may purchase a ticket, the student must register and supply details of his loan to the lottery, which will seek and receive authentication of the student's loan balances from the loan provider or lender service provider. Only after the loan balance is authenticated is the student or the benefactor eligible to purchase a ticket.

c. There is no limitation to the quantity of tickets purchased by a student, except that the total amount of all tickets purchased by the student cannot exceed 15 percent of his outstanding loan balances. There is no limitation to the quantity of tickets a benefactor may purchase.

d. Notwithstanding any law to the contrary, the Student Loan Lottery tickets may be sold online, on the Internet.

e. Costs for each ticket shall not exceed $3 per ticket.

f. The Student Loan Lottery may create pools with various pay-out amounts for the Student Loan Lottery, which will close when a pre-determined amount of money for that pool has been raised or when a designated period of time has elapsed. Alternatively, the Student Loan Lottery may open a pool without a designated payout amount that closes after a designated period of time. Upon the closure of each pool, a winner is selected by a random- based selection system determined by the State Lottery Commission which will be secured so that no person or entity can control the selection of the winning ticket or has knowledge of the winner beforehand. When each pool is closed, an identical pool can be automatically opened for future ticket purchases.

g. There shall be at least one winner upon closure of every game. If the outstanding loan balance of the winner is less than the amount of the payout, a second winner is chosen to receive the balance of the payout amount, and in similar manner a third or subsequent winner until the entire payout of the pool is made.

h. All of the payouts of all of the pools are required to be paid directly to the lenders or the lender service providers to pay off or reduce the winning student's outstanding loan balances. The winning students or their benefactors receive no portion of the payouts.

i. The payoff to the winner of each pool shall be the total amount in each pool when it closes less an amount equal to 25 percent of the pool total when it closes, for expenses and profit of the Student Loan Lottery developer and its administrators/managers.

j. Before dispensing the payoff, the Student Loan Lottery will request and receive verification from the lender or lender service provider of the exact amount of the outstanding loan balance then due.

k. Upon final determination of the winner and the payout, the winner will be notified and the result posted on the Student Loan Lottery's website and on other public media.

The Student Loan Lottery shall report monthly to the Governor and the Legislature the pools setup and their balances, the pools closed and their respective payouts, and the total amount of student loans paid off with pool payouts, and shall make an annual report, which shall include a full and complete statement of lottery revenues, prize disbursements and other expenses, to the Governor and the Legislature, and including such recommendations for changes in this act as it deems necessary or desirable, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1).

For purposes of P.L. , c. (C. ) (pending before the Legislature as this bill, “Benefactor” means any person or entity who wishes to purchase a lottery ticket for a past or present student having an outstanding student loan balance, and is not restricted to a spouse or family member, and may include corporations, profit and non-profit, trusts and any other legal entities.

3. The State Lottery Commission is hereby directed, to establish and put into operation the Student Loan Lottery as soon as is reasonably possible, such Student Loan Lottery to be operated pursuant to and having the features and provisions as set forth in section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill). In determining how to establish this Student Loan Lottery, the Commission shall give priority of consideration to any provider or developer who may have already designed a system which contains, among other provisions, the features and provisions as set forth in section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill) and who has a Patent or Patent Pending on such a system.

4. Any developer or provider and administrator or manager who contracts with the State of New Jersey or any of its agencies to provide and manage the Student Loan Lottery shall not be required to pay the State or any of its agencies any license or other fees for the right to provide this system and its services to the State.

5. There is hereby created and established in the Department of the Treasury a separate fund, to be known as the “Student Loan Lottery Fund,” to be deposited in such depositories as the State Treasurer may select. Such fund shall consist of all revenues received from the sale of Student Loan Lottery tickets or shares, and all other moneys credited or transferred thereto from any other fund or source pursuant to law.

6. This act shall take effect on the first day of the ninth month next following enactment, except the State Lottery Commission may take any anticipatory administrative action in advance as shall be necessary for the implementation of this act.

STATEMENT

This bill would establish the Student Loan Lottery, a lottery system that would exclusively provide winnings for the payment of outstanding student loans. The Student Loan Lottery would be operated and overseen by the State Lottery Commission within the Division of the State Lottery in the Department of the Treasury, but may include contracting with private developers for operation of the system.

The Student Loan Lottery would provide a market-based solution for rising college expenses and burdensome student loans.