BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                       AB 573


                                                                      Page  1





          ASSEMBLY THIRD READING


          AB  
          573 (Medina and McCarty)


          As Amended  May 11, 2015


          2/3 vote.  Urgency


           ------------------------------------------------------------------- 
          |Committee       |Votes |Ayes                |Noes                  |
          |                |      |                    |                      |
          |                |      |                    |                      |
          |----------------+------+--------------------+----------------------|
          |Higher          |12-0  |Medina, Baker,      |                      |
          |Education       |      |Bloom, Chávez,      |                      |
          |                |      |Harper, Irwin,      |                      |
          |                |      |Levine, Linder,     |                      |
          |                |      |Low, Santiago,      |                      |
          |                |      |Weber, Williams     |                      |
          |                |      |                    |                      |
          |----------------+------+--------------------+----------------------|
          |Appropriations  |17-0  |Gomez, Bigelow,     |                      |
          |                |      |Bloom, Bonta,       |                      |
          |                |      |Calderon, Chang,    |                      |
          |                |      |Daly, Eggman,       |                      |
          |                |      |Gallagher, Eduardo  |                      |
          |                |      |Garcia, Holden,     |                      |
          |                |      |Jones, Quirk,       |                      |
          |                |      |Rendon, Wagner,     |                      |
          |                |      |Weber, Wood         |                      |
          |                |      |                    |                      |
          |----------------+------+--------------------+----------------------|
          |Higher          |11-0  |Medina, Baker,      |                      |
          |Education       |      |Chávez, Irwin,      |                      |








                                                                       AB 573


                                                                      Page  2





          |                |      |Jones-Sawyer,       |                      |
          |                |      |Levine, Linder,     |                      |
          |                |      |Low, Santiago,      |                      |
          |                |      |Weber, Williams     |                      |
          |                |      |                    |                      |
          |                |      |                    |                      |
           ------------------------------------------------------------------- 


          SUMMARY:  Provides financial and other assistance to students  
          impacted by recent closing of all Heald, Everest, and WyoTech  
          campuses in California, which were owned by Corinthian Colleges,  
          Inc. (CCI).  Specifically, this bill:  


          1)Appropriates $100,000 from the General Fund (GF) to the  
            California Community Colleges (CCC) Chancellor, from GF revenues  
            appropriated for community college districts (Proposition 98 of  
            1988), for the purposes of a CCC district conducting a statewide  
            media campaign to inform students affected by the CCI closure of  
            educational opportunities available at CCCs; and, provides a CCC  
            Board of Governors (BOG) Fee Waiver, until July 1, 2018, to a  
            student who was enrolled at a CCI campus on April 27, 2015, or  
            withdrew within 120 days (or period determined) prior to the CCI  
            closure on April 27, 2015, and did not complete their  
            educational program.  


          2)Provides award recipient students enrolled at a CCI campus that  
            were unable to complete their educational program due to the  
            closure shall not have the award years utilized at a CCI campus  
            included in the limitation on the number of award years of Cal  
            Grant eligibility. 


          3)Provides that a student enrolled at a California campus of a CCI  
            institution, or a California student enrolled in an online  
            program offered by an out-of-state CCI campus, who meets all  
            other eligibility requirements, and was enrolled as of April 27,  








                                                                       AB 573


                                                                      Page  3





            2015, or withdrew within 120 days of that date (or period  
            determined) is eligible for the Student Tuition Recovery Fund  
            (STRF); increases the maximum allowable fund balance in the STRF  
            from $25 million to $50 million; and, establishes legislative  
            intent that unencumbered restitution funds awarded to students  
            of this state from a lawsuit involving CCI be used to repay any  
            STRF funds provided to those students pursuant to this act. 


          4)Requires the Bureau for Private Postsecondary Education (BPPE)  
            to establish and coordinate a standing closed school task force  
            (task force) to respond to the closure, as specified, of  
            institutions that do not comply with the requirements of the  
            law; and, provides that the members of the task force should  
            include, but not necessarily be limited to, representatives on  
            behalf of the California Student Aid Commission (CSAC), the  
            Department of Justice, the Office of the CCC Chancellor, the  
            Department of Veterans Affairs (CalVet), and one or more legal  
            aid organizations.


          5)Requires BPPE, upon the unanticipated closure of an institution,  
            to provide timely (within 30 days) grant funds to local legal  
            aid organizations, which may include organizations designed  
            specifically to assist veteran students, to assist students, for  
            no less than one year following the closure of the institution,  
            with loan discharge and tuition recovery related claims;  
            provides that the amount of grant funds shall be calculated by  
            multiplying the number of students affected by the school  
            closure by $100; provides that legal aid organizations that  
            receive grants should be located in the areas of the state  
            affected by the institutions closure and that legal aid  
            organizations that receive grants may give priority to low  
            income students if demand exceeds available grant funds;  
            requires legal aid organizations that receive grants to report  
            to the BPPE at the end of the grant on the number of students  
            served from the date of the institution's closure; and,  
            appropriates $1.3 million from the BPPE Administrative Fund to  
            the BPPE for the aforementioned purposes to assist students  








                                                                       AB 573


                                                                      Page  4





            affected by the closure of CCI.


          6)Extends the suspension of the requirement that the BPPE  
            Administrative Fund reserve not exceed six months of operating  
            expenses for an additional year (to July 1, 2016).


          7)Declares this bill an urgency statute to take effect  
            immediately.


          EXISTING LAW:  


          1)Establishes the BPPE within the Department of Consumer Affairs  
            with the primary function of providing protection of  
            students/consumers through the regulation and oversight of  
            private postsecondary educational institutions.  BPPE oversight  
            activities are funded by licensing fees paid by regulated  
            institutions.  Existing law also provides for a variety of  
            exemptions from oversight by the Bureau for specific types of  
            institutions, including institutions accredited by the Western  
            Association of Schools and Colleges (WASC).  However, pursuant  
            to SB 1247 (Lieu), Chapter 840, Statutes of 2014, all for-profit  
            institutions serving veterans and receiving federal Title 38  
            funds, regardless of accreditation status, are required to  
            obtain BPPE approval by January 1, 2016. (Education Code Section  
            94800 et seq.)


          2)Establishes the STRF, administered by the BPPE, to relieve or  
            mitigate economic loss suffered by students enrolled at a  
            non-exempt private postsecondary education institution due to  
            the institutions' closure, the institutions' failure to pay  
            refunds or reimburse loan proceeds, or the institutions' failure  
            to pay students' restitution award for a violation of the  
            Private Postsecondary Education Act.  STRF is capped in statute  
            at $25 million.  Institutions are required to assess students an  








                                                                       AB 573


                                                                      Page  5





            amount established in regulation by the BPPE and remit fund to  
            the BPPE for STRF.  In 2010, that amount was established at  
            $2.50 per $1,000 of tuition charged.  In 2013, that amount was  
            reduced to $0.50 per $1,000.  In 2015, this amount was reduced  
            to $0.00, as the STRF had exceeded the statutory cap (STRF is  
            currently at approximately $28 million).  (Education Code  
            Sections 94923 to 94925)


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee, it has been estimated that approximately 16,000  
          students have been impacted by the school closures, including  
          almost 12,000 from Heald.


          1)BOG Fee Waiver.  The reduction in CCC fee revenues would depend  
            on the number of impacted students who enroll at a CCC, how many  
            CCC units these students take to complete their CCC educational  
            goals, and how many of these students would not otherwise  
            qualify for a BOG fee waiver.  (About two-thirds of the entire  
            CCC course load is taken by students currently receiving a BOG  
            waiver.)  For every 1,000 full-time equivalent students (FTES)  
            from the impacted schools who would not otherwise obtain a fee  
            waiver, the revenue loss to the community colleges would be $1.4  
            million annually.


          2)Legal Assistance Grants. Special fund costs to the BPPE of $1.3  
            million to legal aid organizations received grants from the BPPE  
            for assisting impacted students.  [BPPE Administrative Fund] 


          3)STRF Payments.  STRF costs will depend on the number of impacted  
            Heald students making STRF claims and the amounts of those  
            claims eligible for reimbursement. 


          4)Cal Grants.  According to CSAC, almost 2,800 of the impacted  
            Heald students were awarded and used their Cal Grants.  Because  








                                                                       AB 573


                                                                      Page  6





            Heald was ineligible to participate in the Cal Grant program for  
            several years, virtually all of these students have used one  
            year or less of their Cal Grant eligibility.  One additional  
            award year of eligibility for these students would equate to a  
            GF cost of around $10 million.


          5)This bill appropriates $100,000 for CCC counseling [Proposition  
            98 GF] and costs for the BPPE task force should be minor and  
            absorbable.


          COMMENTS:  Background.  CCI institutions offered a range of  
          programs, including certificate programs, with tuition and fees  
          that ranged from $13,100 and $21,338, associate's degree programs  
          with tuition and fees that ranged from $33,120 and $42,820, and  
          bachelor's degree programs that were between $60,096 and $75,384.   
          According to a 2014 complaint filed by the Consumer Financial  
          Protection Bureau (CFPB), most students attending CCI were  
          low-income, or the first in their families to seek an education  
          beyond high school.  In 2012, CCI reported that 85% of its  
          students had family incomes of less than $45,000 a year.  An  
          estimated 57% of CCI students had household incomes of $19,000 or  
          less, and 35% of CCI students had a household income of less than  
          $10,000.  


          Most students attending CCI received federal financial aid;  
          according to CCIs filing with the Securities and Exchange  
          Commission, CCI received 84.8% of net revenue from federal  
          financial aid (Title IV: Pell Grants and Federal Loans).  Federal  
          rules require that institutions receive at least 10% of revenues  
          from non-Title IV sources ("90/10 rule"); however, this can  
          include state aid, veteran's aid, and private loans (among other  
          sources).  According to the allegations in the CFPB complaint, in  
          order to meet the 90/10 rule, CCI increased tuition in order to  
          create "funding gaps" so that students would be required to take  
          out private loans to pay for their education.  CCI offered  
          students their own "Genesis" loans to cover the funding gaps.   








                                                                       AB 573


                                                                      Page  7





          According to CFPB, by 2014 the outstanding balance of Genesis  
          loans totaled $560 million.  


          The aforementioned CFPB complaint sought, among other monetary  
          penalties and student relief, the rescission of all CCI private  
          loans originated since 2011.  In addition to the CFPB complaint,  
          CCI faced a series of legal actions and investigations into  
          unlawful practices, including by 20 state attorneys general,  
          several federal agencies, and the United States Department of  
          Education (USDE).  These complaints include allegations largely  
          focused on misrepresenting career options (promising lifetime  
          placement services and providing, at best, temporary assistance),  
          falsifying job placements (including counting one-day employments,  
          paying employers to temporarily hire graduates, and falsifying  
          "self-employment" statistics), and promoting student reliance on  
          CCIs loans that required students to begin repaying while still in  
          programs (staff members were provided bonuses for collecting loan  
          payments, and were encouraged to publically remove students behind  
          on loan payments from class).


          On June 19, 2014, USDE announced that it had placed CCI on an  
          increased level of financial oversight.  Financial stability is a  
          requirement of participation in federal financial aid programs  
          under Higher Education Act Title IV; CCI had failed to provide  
          USDE with required financial disclosures.  In response to the USDE  
          decision to delay financial aid funds for 21-days, CCI, which was  
          already facing a cash flow shortage, announced it would likely  
          close.  In the summer of 2014, a CCI bankruptcy would have  
          impacted 72,000 students nationwide, with approximately $1 billion  
          in (potentially dischargeable) federal loans.  On June 23, 2014,  
          USDE and CCI signed a memorandum of understanding requiring the  
          company to develop a plan to sell and teach-out programs over the  
          next six months.  As a part of the agreement, CCI continued  
          enrolling new students in programs.  


          On June 26, 2014, CalVet suspended CCI institutions participation  








                                                                       AB 573


                                                                      Page  8





          in Title 38 programs due to the United States Securities and  
          Exchange Commission filing indicating CCI was fiscally unstable.   
          In August of 2014, CalVet withdrew institutional approval at all  
          institutions owned and operated in California by CCI.  The 23  
          campuses (Heald, WyoTech and Everest) were prohibited from  
          receiving GI bill benefits.  In order to continue using Title 38  
          benefits, veteran students were required to transfer/enroll in a  
          California State Approving Agency for Veterans Education eligible  
          school.  


          On November 20, 2014, the Education Credit Management Corporation  
          (ECMC), a nonprofit organization that operates a large  
          student-loan guaranty agency, announced it would purchase 56  
          campuses from CCI.  ECMC created a nonprofit subsidiary, called  
          the Zenith Education Group, to manage the campuses.  In December  
          of 2014, USDE approved the sale, and as part of the agreement,  
          CCI/ECMC discharged private student loans (approximately $480  
          million; 40% of the private student loans) for students whose  
          campuses were sold.  Earlier in the year, the CFPB had accused CCI  
          of luring students into its "Genesis" loan program in order for  
          the campus to meet the federal "90/10 rule" with false promises  
          about career counseling and misrepresented job placement  
          statistics. 


          A coalition of student, consumer, veterans and civil rights groups  
          opposed the sale of the CCI campuses, noting that ECMC did not  
          have experience running educational institutions.  According to  
          the coalition letter to the USDE, "in the field where ECMC does  
          have experience, its actions have veered more than occasionally  
          into dubious terrain, using ruthless tactics to hound debtors to  
          the point where the company has been sanctioned and reprimanded by  
          judges for abusing the bankruptcy process."  The coalition also  
          noted that the terms of the sale would not give students the  
          choice of having their federal loans discharged.  


          California campuses were not included in the sale to ECMC; press  








                                                                       AB 573


                                                                      Page  9





          reports contributed ECMC's decision largely to a lawsuit that had  
          been filed in October of 2013, (which remains pending) by Attorney  
          General Kamala Harris that contained a range of allegations about  
          deceptive marketing and job-placement claims.  CCI, which is based  
          in Santa Ana, continued to operate and enroll new students at  
          WyoTech (three campuses), Everest (11 campuses), and Heald (10  
          campuses) campuses throughout California.  On April 14, 2015, the  
          USDE announced a $30 million fine against Heald's Salinas and  
          Stockton campuses for fraudulent placement and other advertising  
          (CCI has appealed this fine).  The decision effectively barred all  
          Heald campuses from receiving federal funds for new enrollments.   
          On April 16, 2015, CSAC permanently terminated Heald's eligibility  
          for the Cal Grant program (Everest and WyoTech were already not  
          eligible).  On April 17, 2015, the Department of Consumer Affairs  
          issued an emergency decision prohibiting Everest and WyoTech  
          campuses from enrolling new students.  CCI closed all campuses on  
          April 26, 2015, and filed bankruptcy on May 4, 2015. 


          Purpose of this bill.  According to the author, "this bill will  
          provide economic relief and educational opportunity to the  
          thousands of California students harmed by the closure of CCI.   
          Current state and federal laws provide some relief to some  
          students affected by the closure; this bill ensures all California  
          students are protected.  Specifically the bill will help these  
          students access community colleges, allow them to continue to  
          utilize their Cal Grants, and assist them in obtaining forgiveness  
          from Corinthian-associated student loans."


          Please see the policy committee analysis for a full discussion of  
          this bill.




          Analysis Prepared by:                                               
                          Laura Metune / HIGHER ED. / (916) 319-3960  FN:  
          0000376








                                                                       AB 573


                                                                      Page  10