Untitled Texas Attorney General Opinion ( 2009 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
October 27,2009
Mr. Bill Segura, Chancellor Opinion No. GA-0743
Texas State Technical College System
3801 Campus Drive Re: VVhether Texas State Technical College (TSTC)
VVaco, Texas 76705 can legally enter into a student loan program with a
private lender, whereby TSTC and the private lender
share the risk of students defaulting on the loans
(RQ-0803-GA)
Dear Mr. Segura:
On behalf ofthe Texas State Technical College System ("TSTC"), your general counsel has
asked for an opinion regarding a private loan proposal to help fund TSTC students' tuition.! Under
the proposal, a private corporation would "make funding available for private education loans to
students attending" TSTC, and "the holder of the loan and TSTC [would] share in the risk of
defaults."2 The Proposal provides, as a hypothetical example, a situation where a lender agrees to
provide a loan of $10,000.00 for a TSTC student's tuition. Proposal at 2. A percentage of that
money would be distributed outright from the lender to TSTC, and the remainder would be placed
in an escrow account. See id If the borrower did not default, the holder of the loan and TSTC
would divide the amount in escrow between them. Because of this shared escrow account, TSTC
would always be offering these students a reduced tuition. See id However, in the event of a
default, TSTC would return "some or potentially all of the funds received from the lender, resulting
in a course taught for a reduced tuition, potentially reduced all the way to zero.,,3 Based on this
Proposal, your general counsel asks, "can [TSTC] risk share in the loans made by a third party
lender?" General Counsel Letter.
Your general counsel does not provide us with any additional information about the Proposal,
nor does he indicate any specific legal concerns that TSTC has regarding this Proposal. VVe note at
the outset that this office does not approve, review, or comment on the terms of any particular
'Request Letter at 1 (available at http://www.texasattomeygeneral.gov).
2Brazos Proposal for Private Loan Program at 1 (attached to Request Letter) [hereinafter Proposal].
3Letter from Ray Rushing, General Counsel to TSTC, to Nancy Fuller, Chair, Opinion Committee (June 5, 2009)
(on file with the Opinion Committee) [hereinafter General Counsel Letter].
Mr. Bill Segura - Page 2 (GA-0743)
proposed contract in the opinion process. Tex. Att'y Gen. Op. Nos. GA-0078 (2003) at 2, JC-0450
(2002) at 4, JM-0697 (1987) at 6. Therefore, a determination as to whether this particular Proposal
is valid and enforceable is outside the scope of the opinion process. Tex. Att'y Gen. Op. No.
GA-0252 (2004) at 6 (final determination ofwhether a contract comports with statutory requirements
involves questions of fact and contract interpretation and is beyond the purview of an attorney
general opinion). However, we can address general legal principles that may be relevant to whether
this Proposal is permitted under the law. Tex. Att'y Gen. Op. No. GA-0176 (2004) at 2.
We first note that article III, sections 50 and 51 of the Texas Constitution forbid the granting
of public money and the lending of the state's credit to an individual. TEX. CONST. art. III, §§ 50,
51. Section 51 prevents the gratuitous application of public funds to any individual, but a "transfer
of funds for a public purpose, with a clear public benefit received in return, does not amount to a
lending of credit or grant of public funds in violation of article III, section[] 51." Edgewood Indep.
Sch. Dist. v. Meno, 917 S.W.2d 717,740 (Tex. 1995). "Attorneys general long have interpreted
section 51 not to forbid a state agency from expending public funds in a way 'that benefits a private
person or entity if the ... governing body (i) determines that the expenditure serves a public purpose
and (ii) places sufficient controls on the transaction to ensure that the public purpose is carried out.'"
Tex. Att'y Gen. Op. No. JC-0484 (2002) at 4. The public purpose served by the expenditure must
be an authorized public purpose of the political subdivision. Byrd v. City ofDallas, 6 S.W.2d 738,
740 (Tex. 1928); Tex. Att'y Gen. Op. No. JC-0434 (2001) at 13. Section 50 similarly prohibits the
Legislature from giving or lending, or authorizing "the giving or lending, of the credit of the State
in aid of, or to any person, association, or corporation." TEX. CONST. art. III, § 50. Like section 51,
section 50 is not implicated if the gift or loan serves a public purpose of the entity expending the
funds and includes controls to ensure that the public purpose is accomplished. See Tex. Att'y Gen.
Op. Nos. GA-0033 (2003) at 8, JC-0489 (2002) at 6.
Although this office has not addressed proposals exactly like that which you put forth, it has
analyzed other student financial assistance issues in light of the prohibitions established in article
III of the Texas Constitution. See, e.g., Tex. Att'y Gen. Op. No. H-I0I0 (1977) at 1-2; Tex. Att'y
Gen. LA-90 (1975) at 1. For example, in H-l 010 this office reviewed a county and city grant "to a
medical student in exchange for the student's contractual promise that he [would] serve as the
county's health officer," and the grant included an agreement that some ofthe student's debt would
"be discharged in partial consideration for his services." Tex. Att'y Gen. Op. No. H-I0I0 (1977)
at 1. Concluding "that the establishment, staffing and operation of a community medical clinic
constitutes a public purpose," this office determined that the financial assistance program presented
"no constitutional infirmity." Id. at 3-4; see also Tex. Att'y Gen. LA-119 (1977) at 2 (concluding
that a program to guarantee student loans could constitutionally be established).
In regard to the Proposal at issue, even assuming TSTC's participation in the private loan
program serves an authorized public purpose ofTSTC, given the limited facts we have regarding the
Proposal, we are unable to determine whether adequate controls exist to ensure that the public
purpose is met. The TSTC board will have to examine the specific contract at issue and make
findings regarding the existence of a public purpose of TSTC and sufficient controls. The board
must determine in the first instance, subject to judicial review, whether to accept the Proposal. See
Mr. Bill Segura - Page 3 (GA-0743)
Tex. Att'y Gen. Op. No. JM-I091 (1989) at 2 (concluding that a university must determine, in the
first instance, whether a public purpose exists and make a finding regarding the same).
Aside from the constitutional questions raised by this Proposal, of additional concern is that
the Proposal will require TSTC to offer courses "for a reduced tuition." See General Counsel Letter.
Chapter 54 of the Education Code governs the tuition and fees charged by an institution of higher
education. 4 Section 54.051 of that chapter requires "[t]he governing board of ... the Texas State
Technical College System [to collect] from students registering at the institution tuition or
registration fees at the rates prescribed in this section." TEx. EDUC. CODE ANN. § 54.051 (b) (Vernon
2006); see also id § 135.52(a) (Vernon Supp. 2009) ("The board [ofTSTC] shall collect tuition at
the rates provided by law .... "). Specifically, the Legislature requires that the following rates be
charged for tuition at TSTC:
Tuition for a resident student registered at the Texas State
Technical College System is the greater of $50 or an amount set by
the governing board of the system at not less than $16 per semester
credit hour. Tuition for a nonresident student registered at the Texas
State Technical College System is an amount set by the governing
board of the system at not less than $80 per semester credit hour.
Id § 54.051(k) (Vernon 2006).5
The Legislature has authorized the governing board ofTSTC to reduce the amount of tuition
charged to a student to an amount less than the amount otherwise required, but only if certain
requirements are met. Id. § 54.010(a). Specifically, any tuition reduction must be "part of an
institutional policy adopted by [TSTC's board of regents] to: (A) increase the average semester
credit hour course load of students ... ; or (B) improve the retention and graduation rate of students
enrolled." Id. Prior to offering the reduction, the board must "determine[] that the student is: (A)
enrolled in, and making satisfactory progress toward completion of, a degree program offered at the
4For purposes of chapter 54, TSTC is included in the defmition of an institution of higher education. See TEx.
Eoue. CooEANN. §§ 54.001(1) (Vernon 2006) ("'Institution of higher education' has the same meaning as is assigned
to it by Section 61.003 of this code."); 6 1. 003 (9")(Vernon Supp. 2009)("'Publictechnical institute' means ... the Texas
State Technical College System."); 61.003(8) (Vernon Supp. 2009) ('''Institution of higher education' means any public
technical institute ....").
5The 2009 General Appropriations Act prohibits institutions of higher education from receiving certain
appropriations under the act unless it collects tuition in accordance with requirements of chapter 54 of the Education
Code. See General Appropriations Act, 81st Leg., R.S., ch. 1424, art. III, § 16,2009 Tex. Sess. Law Servo 4481,4951,
available at http://www.lbb.state.tx.uslBill_8116]SUlBill-81-6]SU_0909.pdf ("No institution of higher education
shall receive appropriations through formula funding in this Act unless it collects from each student whose semester
credit hours are to be included in formula funding calculations all tuition and all fees in accordance with the installment
tuition and fee payment plan provided for by the Education Code, (Chapter 54, as amended) on or before the end of the
20th class day for each regular semester ....") (last visited Oct. 20, 2009); see also TEX. Eoue. COOE ANN. § 54.004
(Vernon 2006) ("All tuition, local funds, and fees collected by an institution of higher education shall be retained and
expended by the institution and accounted for annually as provided in the general appropriations act.").
Mr. Bill Segura - Page 4 (GA-0743)
institution; and (B) enrolled in at least 15 semester credit hours at the institution during the semester
or term for which the reduction is offered." Id. Furthermore, TSTC is limited in the amount of any
tuition reduction that it offers to students. Id. § 54.01 O(c) ("The amount of tuition reduction offered
to a student under this section for a semester or term may not exceed the amount of tuition that
would have been charged to the student under this chapter for enrollment in three semester credit
hours during that semester or term. "). While we do not have sufficient information to determine how
tuition discounts would occur under the Proposal, to the extent that TSTC would be offering students
reduced tuition, such reductions must comply with these provisions, as we find no other authority
for TSTC to offer reduced tuition rates.
Finally, we note that "[e]ducational programs wholly or partially financed from state funds
are subject to the prior approval or disapproval and continuing review of the coordinating board."
Id § 135.04 (Vernon 2002); see also 19 TEx. ADMIN. CODE § 11.27 (2009) (Tex. State Technical
ColI. Sys., New Program and Course Approval) ("Courses and programs ... partially financed from
state funds are subject to the prior approval" of the Texas Higher Education Coordinating Board.).
To the extent that the Proposal falls under this category, we advise you to seek approval from the
Coordinating Board before agreeing to it.
In the end, the initial determination of whether the Proposal comports with these or any other
limitations under state or federal law is to be made by the TSTC board, subject to judicial and
administrative review. Such a determination is beyond the purview of an attorney general opinion.
See Tex. Att 'y Gen. Op. No. GA-0252 (2004) at 6 Gunior college district's authority to lease campus
land to private foundation involves questions of facts and contract interpretation).
Mr. Bill Segura - Page 5 (GA-0743)
SUMMARY
Article III, sections 50 and 51 of the Texas Constitution forbid
the granting of public money and the lending of the state's credit
solely to an individual, although expenditures which incidentally
benefit private entities are permitted if made for a legitimate public
purpose. Texas State Technical College's discharge of student loans
under the proffered loan proposal would be constitutional only if
made for a legitimate public purpose and if adequate controls existed
to ensure that the public purpose is met.
Section 54.051 ofthe Education Code requires the Texas State
Technical College board to collect set tuition and fees from students
attending the institution. The Legislature has authorized the board to
reduce the amount of tuition charged in certain circumstances, but
only if specific requirements are met. If Texas State Technical
College discounts students' tuition under the proffered loan proposal,
it must ensure that it meets these requirements.
ANDREW WEBER
First Assistant Attorney General
JONATHAN K. FRELS
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee