(a) Pursuant to the authority contained in Section 1 of Article XV of the State Constitution, and subject to subdivision (b), educational institutions of collegiate grade are authorized to make loans or forbearances to finance student educational expenses including tuition, room, and board, and other costs of attendance or living at the institution, at rates not to exceed the higher of:

(1) Ten percent per annum.

(2) Five percent per annum plus the rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act as now in effect or hereafter from time to time amended or, if there is no such single determinable rate of advances, the closest counterpart of this rate as shall be designated by the Commissioner of Financial Institutions of the State of California unless some other person or agency is delegated such authority by the Legislature. The date of determining the applicable rate established by the Federal Reserve bank shall be the 25th day of the month preceding the earlier of the date of execution of the contract to make the loan or forbearance, or the date of making the loan or forbearance.

(b) Where the institution has obtained a loan specifically in order to make loans to finance student educational expenses, the rate of interest shall not exceed the lower of:

(1) The rate determined pursuant to subdivision (a).

(2) One percentage point in excess of the interest rate imposed upon the loan made to the institution, as of the date of execution of the contract to make the student loan to such extent the foregoing creates and authorizes a class of exempt persons pursuant to Section 1 of Article XV of the Constitution.

(c) Solely with respect to loans or forbearances made by educational institutions of collegiate grade to their faculty or staff, secured by real property consisting of a residential dwelling, these institutions are hereby declared to be an exempt class of persons as this term is used in Section 1 of Article XV of the Constitution.

(Amended by Stats. 1996, Ch. 1064, Sec. 618. Effective January 1, 1997. Operative July 1, 1997.)