(a) Upon the commencement of any cause of action, including an emergency action, by the commission against an educational institution in connection with the Federal Family Education Loan Program or other state student financial aid program, the director of the commission may order that all or any part of state financial aid funds scheduled to be delivered to that institution by the commission, whether payable to that institution or its students, be withheld from the institution and deposited in a separate state account. However, in order to alleviate the financial hardships imposed upon students by withholding the delivery of state financial aid funds to an educational institution, the director of the commission, at any time after the initial withholding, may release state financial aid funds to these students, giving first priority to the release of funds for subsistence payments.

(b) The director shall give notice to the institution and affected students of any action taken pursuant to subdivision (a).

(c) The director, upon the termination of any action taken pursuant to subdivision (a), shall order the disposition of the withheld funds in a manner consistent with the outcome of the cause of action and in the best interest of the affected students. The director may order that the funds be withheld from an institution permanently, in which case those funds shall be returned to the state fund or account from which it originated, for subsequent use by the commission.

(d) “Cause of action” and “emergency action,” for the purposes of this section, mean those actions described in Sections 30302 and 30304 of Title 5 of the California Code of Regulations, and as those sections may subsequently be amended, concerning the limitation, suspension, and termination of eligibility under the Federal Family Education Loan Program.

(Amended by Stats. 1995, Ch. 758, Sec. 63. Effective January 1, 1996.)