BILL ANALYSIS Ó SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Jerry Hill, Chair 2015 - 2016 Regular Bill No: AB 573 Hearing Date: June 29, 2015 ----------------------------------------------------------------- |Author: |Medina | |----------+------------------------------------------------------| |Version: |June 2, 2015 | ----------------------------------------------------------------- ---------------------------------------------------------------- |Urgency: |Yes |Fiscal: |Yes | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Sarah Mason | |: | | ----------------------------------------------------------------- Subject: Higher education: campus closures: Corinthian Colleges 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). Existing law: 1)Establishes the California Private Postsecondary Education Act (Act) of 2009 until January 1, 2017, and requires the Bureau of Private Postsecondary Education (Bureau) within the Department of Consumer Affairs (DCA) to, among other things, to review, investigate and approve private postsecondary institutions, programs and courses of instruction pursuant to the Act and authorizes the Bureau to take formal actions against an institution/school to ensure compliance with the Act and even seek closure of an institution/school if determined necessary. The Act also provides for specified disclosures and enrollment agreements for students, requirements for cancellations, withdrawals and refunds, and that the Bureau shall administer the Student Tuition Recovery Fund (STRF) to provide refunds to students affected by the possible closure of an institution/school. (Education Code (EC) §§ 94800 et seq.) 2)Exempts an institution that is accredited by the Accrediting AB 573 (Medina) Page 2 of ? Commission for Senior Colleges and Universities (ACSC), Western Association of Schools and Colleges (WASC), or the Accrediting Commission for Community and Junior Colleges (ACCJC) from the Act and Bureau oversight. Exempts an institution that is accredited by a regional accrediting agency, recognized by the United States Department of Education (USDE) other than WASC from the Act and Bureau oversight until January 1, 2016, so long as the institution complies with requirements related to student tuition recovery. Exempts an institution accredited by an accrediting agency recognized by USDE for at least 10 years, and has not been placed on probation or on a greater level than standard monitoring, or sanctioned, by its accrediting agency; is headquartered in California and has operated continuously in this state for at least 25 years; is privately held and prior to its current exemption, was approved to operate by the Bureau or its predecessor agency and has experienced no change of ownership since the institution was last approved; during its existence, the institution has not filed for bankruptcy protection; the institution maintains an equity ratio composite score of at least 1.5 based on the current financial stability test; at least 12.5 percent of the institution's revenues are derived from sources other than financial aid which includes all forms of state or federal student assistance, including, but not limited to, financial aid provided to veterans and financial aid through the Cal Grant Program; the institution's cohort default rate (CDR) does not exceed 13 percent for the most recent three years, as published by USDE; the institution has a graduation rate that exceeds 60 percent, as reported to the Integrated Postsecondary Education Data System; the institution has not been subject to any legal or regulatory actions by a state attorney general for a violation of consumer protection laws that resulted in monetary settlement, fines, or other documented violations; the institution provides a pro rata refund of unearned institutional charges to students who complete 75 percent or less of the period of attendance; the institution provides to all students the right to cancel the enrollment agreement and obtain a refund of charges paid through attendance at the second class session, or the 14th day after enrollment, whichever is later; the institution complies with all other reasonable criteria, necessary to ensure educational quality and protection of veterans, established by the California State Approving Agency for AB 573 (Medina) Page 3 of ? Veterans Education (CSAAVE). (EC §§ 94874 (i), 94874.1 and 94947) 3)Beginning January 1, 2016, requires for-profit institutions receiving Title 38 funds and serving veterans to be approved by the Bureau. (EC § 94874.2) 4)Authorizes an institution exempt from the Act to apply for Bureau approval and specifies that the institution shall be subject to all of the provisions of the Act and Bureau oversight. (EC § 94878) 5)Establishes various fair business practices and prohibits an institution from engaging in certain activities such as false advertising, promising or guaranteeing employment. (EC § 94897) 6)Requires institutions offering educational programs designed to lead to positions in a profession, occupation, trade or career field requiring licensure to exercise reasonable care to determine if a student will not be able to obtain licensure at the time of his or her graduation and requires an institution to provide a written copy of requirements for licensure. (EC § 94905 (a)) 7)Requires institutions, prior to enrollment, to provide a prospective student with certain information about the institution and Bureau, including a description's of the student's right and responsibilities with respect to the STRF and a statement describing the purpose and operation of STRF and requirements for filing a STRF claim. (EC § 94909 (a) (14)) 8)Requires an institution, in making consumer loans to students, to comply with the Federal Truth in Lending Act. (EC § 94918) 9)Establishes the STRF, administered by the Bureau, 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. Provides that the STRF shall not exceed $25 million. Institutions are required AB 573 (Medina) Page 4 of ? to assess students an amount established in regulation by the Bureau and remit fund to the Bureau for STRF. In 2010, that amount was established at $2.50 per $1000 of tuition charged. In 2013, that amount was reduced to $0.50 per $1000. In 2015, this amount was reduced to $0.00, as the STRF had exceeded the statutory cap (STRF is currently at approximately $28 million). (EC §§ 94923 - 94925) 10)Requires an institution, at least 30 days prior to closing, to notify the Bureau in writing of its intention to close which shall be accompanied by a closure plan that includes a plan for providing teach-outs of educational programs. Provides that if no teach-out plan is contemplated, or for students who do not wish to participate in a teach-out, the plan shall include arrangements for making refunds within 45 days from the date of closure, or for institutions that participate in federal student financial aid programs arrangements for making refunds and returning federal student financial aid program funds. Requires an institution, if it is a participant in federal student financial aid programs, to provide students information concerning these programs and institutional closures. Requires the closure plan to include a plan for the disposition of student records. (EC § 94926) 11)Requires an institution, prior to closing, to provide the Bureau with pertinent student records, including transcripts, as determined by the Bureau. Provides that if the institution is an accredited institution, the Bureau shall be provided with a plan for the retention of records and transcripts, approved by the institution's accrediting agency, that provides information as to how a student may obtain a transcript or any other information about the student's coursework and degrees completed. Specifies that these provisions apply to all private postsecondary institutions, including those exempt from the Act. (EC § 94927.5) 12)Specifies various disclosure and reporting requirements around completion, placement, licensure and salary of students/graduates and establishes various definitions for this purpose. Requires that the information used to substantiate the reported job placement, license passage, and completion rates be documented and maintained by the institution for five years from the date of the publication of the rates and authorizes this information to be retained by AB 573 (Medina) Page 5 of ? the institution in an electronic format. Requires institutions to submit an annual report to the Bureau that includes specified information. (EC §§ 94928-94929.9) 13)Requires fees pursuant to the Act to be deposited in the Private Postsecondary Education Administration Fund (PPE Fund). Authorizes the Bureau to adjust fees if it determines by regulation that the fees established in the Act are inconsistent with the intent. Prohibits the PPE Fund from having a reserve balance greater than the amount necessary to fund six months of authorized operating expenses of the Bureau in any fiscal year. (EC § 94930) 14)Establishes CSAAVE within CalVet and requires minimum requirements for postsecondary institutions approved to participate in federal veteran's education benefits (Title 38), including requiring for-profit institutions to obtain BPPE approval by January 1, 2016. (EC §§ 67100 et seq.) 15)Establishes the California Community Colleges (CCC) with oversight and coordination provided by the CCC Board of Governors (BOG) and Chancellor, and provides that the mission of CCC is to offer lower-division academic and vocational instruction to younger and older students, including those returning to school. (EC § 66010.4) 16)Requires the forty-six dollars per unit per semester fee to be waived for CCC students who meet specified income requirements. The BOG is required to establish minimum academic and progress standards for students receiving a BOG fee waiver. (EC § 76300) 17)Establishes the Cal Grant Program, administered by the California Student Aid Commission (CSAC), to provide tuition and access cost assistance to eligible students attending qualified institution. Institutions are required to meet a series of performance standards; including, a three-year Cohort Default Rate (CDR) of less than 15.5percent and a Graduation Rate (GR) of no less than 20 percent (this rate increases to 30 percent in 2016-17). (EC § 69430 et seq.) 18)Title IV of the Federal Higher Education Act of 1965 (HEA), as amended, establishes the federal student aid program, administered by USDE to provide grants, loans and work-study AB 573 (Medina) Page 6 of ? funds from the federal government to eligible students enrolled in eligible colleges or career schools. (20 U.S.C. Sec. 1070 et seq.) Recent federal regulations to improve integrity of the programs authorized under Title IV of the HEA established new institutional eligibility requirements for financial aid, including that institutions be "authorized" by each state in which they operate, and have an independent state-level student complaint process. (34 CFR Sec. 600.9) 19)Establishes Legal Services Corporation (LSC) as a 501(c)(3) nonprofit that provides grants for legal assistance to low-income Americans. LSC distributes funding to 134 independent nonprofit legal aid programs with nearly 800 offices nationwide. LSC is headed by a bipartisan board of directors whose 11 members are appointed by the President and confirmed by the Senate. (42 U.S.C. 2996 et seq.) This bill: 1)Provides for the following with regards to CCC: a) Declares legislative intent that the CCC provide matriculation services, including assessment, counseling, and academic planning to students enrolled at Corinthian Colleges, Inc. (CCI) institutions and harmed by the April 27, 2015 closure; b) Appropriates $100,000 from the General Fund (GF) to the CCC Chancellor, from GF revenues appropriated for community college districts (Prop 98), 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, c) Provides a CCC 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 other period determined) prior to the CCI closure on April 27, 2015, and did not complete their educational program. 2)Provides that Cal Grant 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 AB 573 (Medina) Page 7 of ? years of Cal Grant Awards eligibility. Clarifies that a student shall be eligible for the restoration of award years if the student was enrolled at a CCI campus on April 27, 2015, or had withdrawn from enrollment within 120 days of that date. Requires the Bureau to provide CSAC with confirmation of student enrollment. Requires an eligible student, before January 1, 2017, to notify CSAC of his or her intent to use the restoration of award years and to enroll in an institution eligible for initial and renewal Cal Grant awards to be eligible for that restoration. 3)Provides for the following regarding the STRF: a) Provides that a student enrolled at a California campus of a CCI institution, including an institution exempt from the Act, 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 26, 2015, or withdrew within 120 days of that date (or greater period determined by the Bureau) is eligible for the STRF; b) Increases the maximum allowable fund balance in the STRF from $25 million to $50 million, and requires the Bureau, if it stops collecting STRF assessments because the fund has approached the new maximum balance, to resume collecting assessments when the fund balance falls below $45 million (instead of $20 million currently). 4)Requires the Bureau to establish and coordinate a standing closed school task force: a) Requires the task force to respond to the closure of institutions that do not comply with the requirements, as applicable, of the Act. b) Requires the task force to ensure that students affected by a closed school receive accurate and timely information regarding the school closure process and the students' rights and responsibilities under federal and state law. Requires the task force to ensure students are provided assistance in all of the following: i) Obtaining refunds, loan discharges, and tuition AB 573 (Medina) Page 8 of ? recovery for which the student is eligible; ii) Obtaining information regarding the option to transfer credits that the student earned while attending the institution, including information necessary to help the student make an informed decision about whether to seek a loan discharge or to transfer credits; and, iii) Other support deemed necessary by the task force in accordance with the Bureau's consumer protection mission. c) Provides that the members of the task force should include, but not necessarily be limited to, representatives on behalf of CSAC, the Department of Justice (DOJ), the Office of the CCC Chancellor, CalVet, one or more legal aid organizations and two financial experts, one representing CCCs and one representing a Bureau-approved institution that meets the performance requirements of the Cal Grant program. 5)Provides assistance for student loan related purposes for students affected by a school closure, as follows: a) Requires the Bureau, 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; b) Provides that the amount of grant funds shall be calculated by multiplying the number of students affected by the school closure by one hundred dollars ($100); c) Requires the Bureau to establish an approval process to ensure each legal aid organization that receives a grant is a 501 (c)(3) tax-exempt organization in good standing with the Internal Revenue Service and in compliance with all applicable laws and requirements as well as demonstrates expertise in assisting students with, and currently provides direct legal services to students for, student loan matters; AB 573 (Medina) Page 9 of ? d) Requires a legal aid organization that receives funds pursuant to these provisions to enter into a grant agreement with the Bureau and use funds exclusively for the purposes outlined in this bill. Provides that any unused funds shall be returned to the Bureau unless a new agreement is entered into authorizing the organization to expend the unused funds. Authorizes the Bureau to terminate the agreement for material breach and provide written notice of the breach and a reasonable opportunity of less than 30 days to resolve the breach; e) Provides that a legal aid organization that receives a grant may give priority to low-income students if demand exceeds available grant funds but may otherwise provide assistance regardless of student income level; f) Requires a legal aid organization that receives a grant to report to the Bureau quarterly on the number of students served from the date of the institution's closure; g) Outlines the following methods for distribution of the funds to preapproved legal aid organizations by the Bureau - 50 percent distributed within 30 days of the date of the institution's unlawful closure, 25 percent upon the submission of the legal aid organization's second quarterly report, 25 percent upon the submission of the legal aid organization's third quarterly report; and h) Appropriates one million three-hundred thousand dollars ($1,300,000) from the Private Postsecondary Education Administration Fund to the Bureau for the aforementioned purposes to assist students affected by the closure of CCI. 6)Extends the suspension of the requirement that the Private Postsecondary Education Administration 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 in order to provide immediate educational and economic relief to the thousands of students harmed by the closure of CCI. FISCAL AB 573 (Medina) Page 10 of ? EFFECT: This bill is keyed "fiscal" by Legislative Counsel. According to the Assembly Committee on Appropriations analysis dated May 6, 2015, approximately 16,000 students were impacted by CCI school closures and this bill will result in the following: 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 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. Legal Assistance Grants. One-time special fund costs to the Bureau of up to a few hundred thousand dollars, assuming legal aid organizations received grants from the Bureau for assisting around 20% of the impacted students. STRF Payments. The STRF mitigate a student's economic losses, defined as tuition and institutional charges plus the cost of equipment and supplies needed for student's educational program. STRF costs will depend on the number of impacted Heald students making STRF claims and the amounts of those claims eligible for reimbursement. If a Heald student transfers no credits to another educational institution and in turn receives forgiveness of their federal loans, the state will incur costs only to the extent that the loan forgiveness does not cover the student's economic loss. If a student transfers some or all of their credits to another institution, their federal loan will not be forgiven, and they may be eligible for a STRF payment equivalent to the value of the loan associated with those credits earned at Heald that are not accepted for transfer. Cal Grants. According to CSAC, almost 2,800 of the impacted Heald students were awarded and used their Cal Grants. Because 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 AB 573 (Medina) Page 11 of ? eligibility. Almost two-thirds of these students were awarded a Cal Grant C, 30% were award Cal Grant B, and the remaining 4% were awarded a Cal Grant A. Costs will depend on how many of these students continue their education and what type of institution they attend. One additional award year of eligibility for these students would equate to a General Fund cost of around $10 million. Costs for CCC counseling and the task force should be minor and absorbable. COMMENTS: 1. Purpose. The Author is the Sponsor of this measure. According to the Author, this bill provides financial and other assistance to students impacted by recent closing of all Heald, Everest, and WyoTech campuses in California, which were owned by CCI. Current state and federal laws provide some relief to some students affected by the closure and this bill ensures all California students are protected. The Author notes that the bill will help these students access CCCs, allow them to continue to utilize their Cal Grants, and assist them in obtaining forgiveness from CCI-associated student loans. According to the Author, federal loan forgiveness is available to students who qualify, but only if they do not transfer any educational credits to another institution. The STRF is available to California Everest and WyoTech students but due to an exemption from state oversight, STRF is not available to Heald students and students enrolled in out-of-state online programs. The Author notes that not only are existing relief programs insufficient to support all California students harmed by the CCI closure, evidence is surfacing that students are being provided inaccurate and inconsistent information regarding their rights and options. For example, a published list of "viable transfer opportunities" released by USDE upon the CCI closure includes more than a dozen other for-profit schools that are also currently under investigation by federal and state authorities. This bill will ensure that California students harmed by the closure of private, for-profit colleges have access to economic relief and educational opportunity. AB 573 (Medina) Page 12 of ? 2. CCI. CCI institutions offered a range of programs, including 8-12 month certificate programs, with tuition and fees that from $13,100-$21,338, 24-month 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 (SEC), 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. 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 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 1-day employments, paying employers to temporarily hire graduates, and falsifying "self-employment" statistics), and promoting student reliance on CCIs Genesis loans that required students to begin repaying loans while still in programs (staff AB 573 (Medina) Page 13 of ? members were provided bonuses for collecting Genesis loan payments, and were encouraged to publically remove students from class if they were behind on Genesis loan payments). On June 19, 2014, the 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 Title IV of the HEA; 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 was allowed to continue enrolling new students in programs. On June 26, 2014, CSAAVE suspended CCI institutions participation in Title 38 programs due to the SEC filing indicating CCI was fiscally unstable. In August of 2014, CSAAVE 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 CSAAVE eligible school. On November 20, 2014, the ECMC Group, 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 dollars; 40% of the private student loans) for students whose campuses were sold. Earlier in the year, 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 AB 573 (Medina) Page 14 of ? 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 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, based in Santa Ana, continued to operate and enroll new students at WyoTech (3 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 appealed this fine). This 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 DCA 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. 3. The Private Postsecondary Act and Challenges for Students Impacted by the CCI Closure Resulting from Exemptions In the Act. After numerous legislative attempts to remedy the laws and structure governing regulation of private postsecondary institutions in California, AB 48 (Portantino, Chapter 310, Statutes of 2009), established the Act and created the Bureau within DCA for the purpose of regulating private postsecondary educational institutions that provide educational services in California. The Act made many substantive changes that both created a new, solid foundation for oversight and responded to the major problems with the AB 573 (Medina) Page 15 of ? former Act and prior Bureau for Private Postsecondary and Vocational Education. The Act establishes prohibitions on false advertising and inappropriate recruiting and requires disclosure of critical information to students such as program outlines, graduation and job placement rates, and license examination information, and ensures colleges justify those figures. The Act also guarantees students can complete their educational objectives if their institution closes its doors while providing the Bureau with enforcement powers necessary to protect consumers. The Act directs the Bureau to: Create a structure that provides an appropriate level of oversight, including approval of private postsecondary educational institutions and programs; Establish minimum operating standards for California private postsecondary educational institutions to ensure quality education for students; Provide students a meaningful opportunity to have their complaints resolved; Ensure that private postsecondary educational institutions offer accurate information to prospective students on school and student performance, thereby promoting competition between institutions that rewards educational quality and employment success; and, Ensure that all stakeholders have a voice and are heard in the Bureau's operations and rulemaking process. The Bureau is required to actively investigate and combat unlicensed activity, administer the STRF, and conduct outreach and education activities for private postsecondary educational institutions and students within the state. Based on significant and continuous insolvency of the STRF fund under the prior law, AB 48 set the limit of the STRF fund at $25 million to ensure that a robust fund is available to students eligible for claims to relieve or mitigate economic loss suffered by a student enrolled in an educational program. AB 573 (Medina) Page 16 of ? Under the Act, the Bureau has oversight of all the non-exempt, private postsecondary institutions located in California. AB 48 contained numerous exemptions to state-level oversight, the most notable of which is an exemption from Bureau authority and regulation under the Act granted to for-profit and nonprofit regionally accredited institutions. As a result of this broad exemption, students attending Heald College, which was accredited by WASC, the largest number of students enrolled in a California CCI institution (estimates put this student population at around 9,000) at the time of the CCI closure are not eligible for STRF. Other for-profit regionally accredited institutions have voluntarily come under the Bureau, or are in the process of applying to receive Bureau approval for purposes of maintaining Title IV eligibility (by meeting the requirement to be "authorized" by each state in which they operate and have an independent state-level student complaint process), however students of these non-WASC regionally accredited institutions have been required to contribute to STRF, guaranteeing the option of STRF protection regardless of their exemption from the other important provisions in the Act. One WASC accredited for-profit institution is the source of the exemption outlined above in EC § 94947 and has not sought approval by the Bureau to meet the requirements of new Title IV requirements, ensuring that if the school closes abruptly in the same manner as CCI or violated any other important provisions of the Act, those students are not eligible for STRF or any recourse the Act provides. The appropriateness of exemptions has been the source of a report issued by the Legislative Analyst's Office (LAO) in 2014, multiple conversations during legislative oversight hearings and also the subject of legislation since AB 48 took effect, and particularly in light of the significant impact of CCI on thousands of students who, without the exemption above, would have been eligible for STRF and other important options within the Act. This topic will likely be the subject of future discussions surrounding the Act. 1. Options for CCI Students. On May 13, the Senate Business, Professions and Economic Development and Senate Education Committees convened a joint hearing, Corinthian College Closures: What's Next for California Students, to examine options for relief and recourse available to the more than 13,000 students impacted by the sudden and abrupt CCI AB 573 (Medina) Page 17 of ? closure, particularly in light of the confusing choices, multiple application processes to multiple government agencies, pressure from private loan companies to begin paying off loans and the possibility that credits earned at Heald, Everest and WyoTech schools may yield few meaningful future educational opportunities. According to a presentation by LAO at that hearing, higher education institutions in the U.S. are overseen by a regulatory triad: USDE which sets standards for institutions participating in federal student financial aid programs; accreditors responsible for educational quality determination as well as regular review of institutions' financial, administrative and business practices and; states who have a primary role of protecting students from unfair business practices - states are responsible for educational quality as well but often rely on accreditation to certify quality. USDE provides relief for students of closed schools through a loan discharge for students enrolled at the time of closure, or who withdrew within the previous 120 days, who could not complete their programs. However, students are ineligible for loan discharge if they completed their programs, benefitted from a teach-out agreement through another school or transferred credits to a similar program. USDE can also discharge loans of students defrauded by their schools through a defense against repayment. This provision also applies to students who were no longer enrolled at the time of their school's closure, including those who completed programs. Accreditors are supposed to require schools to have closure policies, including teach-out policies, policies related to transcript availability and policies for the transfer of student records, key to assisting students in moving forward on their path to higher education. LAO outlined implications for California CCI students, including the option for STRF reimbursement for Everest and WyoTech students and the option of applying for a federal student loan discharge. The LAO also highlighted the higher degree of uncertainty for students with private loans, as there are no standard discharge provisions, payments are subject to the requirements of lenders. STRF may reimburse these students for interest and penalties on loans used to pay tuition and other required educational program charges AB 573 (Medina) Page 18 of ? but the Bureau, as part of administering STRF, is not guaranteed to assist students navigate through this process. Stemming from amendments to the Act in SB 1247 (Lieu, Chapter 840, Statutes of 2014), the Bureau is in the process of drafting STRF regulations to allow for the fund to pay tuition and fees at another school for a student whose charges were paid by a third party (including a financial aid program) and who suffered a loss of educational opportunity as a result of a school closure. The Bureau estimates that it has received about 130 STRF claims to date from eligible CCI students. On June 8, USDE announced steps specifically aimed at helping CCI students. USDE is expanding eligibility for students to apply for a closed school loan discharge, extending the window of time back to June 20, 2014, to capture students who attended CCI institutions at the time CCI entered into an agreement with the Department to terminate its ownership of schools. The Department is creating what it calls a more streamlined process for students to claim a defense to repayment that requires students to assert that a college's actions violated state law and affected their provision of educational services or their federal loans. According to USDE, it will "rely on evidence established by appropriate authorities in considering whether whole groups of students (for example, an entire academic program at a specific campus during a certain time frame) are eligible for borrower defense relief" which will simplify and expedite the relief process and reduce the burden on borrowers. In citing these efforts related to defense to repayment, USDE specifically referred to its investigation of Heald College and relevant California law, determining that evidence of misrepresentation exists for students enrolled in a large majority of programs offered at Heald College campuses between 2010 and 2015. USDE also took steps for all former CCI students who apply for borrower defense to have the option of having their federal loans immediately placed into forbearance, which stops their monthly payments to ensure they do not fall behind or default on their loans while the Department works to resolve the claim. On June 25, USDE appointed a Special Master to oversee borrower defense issues while ensuring the process is simple, streamlined, and fair to students and taxpayers. AB 573 (Medina) Page 19 of ? 2. Arguments in Support. A coalition of supporters including California Competes: Higher Education for a Strong Economy , California Federation of Teachers , Consumer Federation of California , Consumers Union , The Institute for College Access & Success , Public Advocates Inc. , University of San Diego Center for Public Interest Law , University of San Diego Children's Advocacy Institute , University of San Diego Veterans Legal Clinic and Young Invincibles write that this measure is an incredibly important bill that will help make sure that students have meaningful access to consumer protections if their school closes. Supporters note that students who were enrolled at CCI campuses at or near the point of closure have had their dreams dashed, unable to complete the programs they borrowed loans to attend. Supporters state that in many cases, given widespread concerns about the quality of Corinthian-owned institutions, the credits students earned at the closed schools will not transfer to more reputable colleges. According to supporters, the students at the shuttered Corinthian campuses were taken advantage of by an unscrupulous company. California cannot let these students be victimized again by robbing them of the chance to understand their options and seek and receive needed relief. Attorney General Kamala Harris (AG) writes in support of this bill, noting that it will equip students with the tools they need to recover their careers from CCI's predatory scheme. According to the AG, the bill would provide much-needed financial assistance by making Heald students eligible for STRF and doubling the fund's current maximum allowable fund balance. The AG adds that the bill clears the path for those looking to continue their educations by exempting CCI students affected by the closure from Cal Grant time limitations and making those students eligible for CCC waivers. According to the AG, the common-sense solutions contained in this bill prioritize the protection of vulnerable Californians. The California Teachers Association believes that students displaced from private colleges should have the opportunity to easily articulate to community colleges which will provide them with a more affordable, quality education and notes that financially exploited students should have an opportunity to receive assistance in order to ensure they are not burdened AB 573 (Medina) Page 20 of ? by crippling student loan debt after they finish their education. According to Charles R. Drew University of Medicine and Science , CCI students who invested their time, money and Cal Grant eligibility at the colleges have been left to find another institution for enrollment and face loss of the Cal Grant funds expended for an education program that is now unavailable for them to complete. 3. Other Arguments. The California Association of Private Postsecondary Schools (CAPPS) writes with a support if amended position on this bill. According to CAPPS, the overriding priority of this bill must be the resolution of student issues that arise from the CCI closure and as such, this bill needs to acknowledge that if the students' first desire is to finish their education, then all possible efforts should be made to ensure that the student can do just that and CAPPS supports the CCC and Cal Grant provisions of the measure. CAPPS argues that resources to provide relief to Heald students should come from the General Fund and that diverting resources from STRF will result in non-exempt students having to pay higher fees. CAPPS also believes that there is no justification to double the STRF from $25 million to $50 million. According to CAPPS, the appropriation of money to legal aid is unnecessary given the resources already provided to students and should be removed from the bill. 4. Proposed Amendments. While this measure proposes important efforts to help CCI students begin to make their lives whole in the face of myriad challenges stemming from their enrollment in CCI institutions, the Committee suggests a number of steps to strengthen the Act, assist students through the coordination of services and provide options for students who were only weeks away from completing an educational program for which they would have been able to seek licensure and employment. a) STRF should be collected for students enrolled in a distance program that has a physical presence in this state but whose students are not currently protected by the Fund, and institutions should be authorized to pay STRF on their student's behalf. AB 573 (Medina) Page 21 of ? The impact of the CCI closure on millions of California students working to improve their lives through education is very likely the first in what many anticipate will be a series of closures of large for-profit institutions. Several other large, publicly traded colleges are now under similar regulatory, financial and legal pressure. Career Education Corporation (CEC), Education Management Corporation (EDMC), and ITT Educational Services Inc. (ITT) are all under investigation by a number of state attorneys general over a variety of matters, including job placement rates as well as marketing and recruiting. The SEC also recently charged ITT which owns ITT Tech, and two of its executives with fraud for allegedly concealing from ITT's investors the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed. CFPB filed a lawsuit against ITT, accusing it of predatory student lending, alleging that ITT exploited its students and pushed them into high-cost private student loans that were very likely to end in default. According to that lawsuit, in some cases, students did not even know they had a high-cost private student loan, some with rates as high as 16.25 percent, until they started getting collection calls. As the LAO noted at the May 13 hearing, tougher federal regulations and efforts to include veterans' education benefits in the 90 percent limit on share of revenues from federal student aid further threatens the viability of many for-profit institutions that are heavily dependent upon these sources of revenue. The Committee suggests the following to address this situation and provide coverage for students in the event of a school closure, to ensure they are eligible for relief: Amend Education Code Section 94858. "Private postsecondary educational institution" means a private entity with a physical presence in this state that offers postsecondary education to the public for an institutional charge, including distance education offered by a private entity that maintains a physical presence in this state, regardless of whether the distance education is offered through the institution located in this state. Amend Education Code Section 94924. AB 573 (Medina) Page 22 of ? (a) The bureau shall determine the amount of Student Tuition Recovery Fund assessments to be collected for each student. (b) An institution may submit Student Tuition Recovery Fund assessments to the bureau on behalf of students enrolled at that institution. An institution that submits Student Tuition Recovery Fund assessments on behalf of its students is prohibited from advertising or marketing this as a benefit the institution provides to students.
(b)(c) All assessments collected pursuant to this article shall be credited to the Student Tuition Recovery Fund, along with any accrued interest, for the purpose of this article. Notwithstanding Section 13340 of the Government Code, the moneys in the Student Tuition Recovery Fund are continuously appropriated to the bureau, without regard to fiscal year, for the purposes of this article. (c)(d) Except when an institution provides a full refund pursuant to Section 94919 or Section 94920, the Student Tuition Recovery Fund assessment is nonrefundable. (e) The bureau shall collect a Student Tuition Recovery Fund assessment from an institution for all currently enrolled students, as follows: (1) For institutions not approved as of the operative date of this subsection, the bureau shall collect an assessment at the time of the issuance of the approval to operate. (2) For institutions approved on the operative date of this subsection, the bureau shall collect an assessment for all currently enrolled students for which a STRF has not been assessed, including distance education students (as outlined in 94858). a) State agencies should be authorized to consider the eligibility of CCI students who were within a certain time frame from completing a program at a CCI institution which was intended to lead to licensure and employment in California. While many CCI students were at the beginning of their path AB 573 (Medina) Page 23 of ? to further their education and receive training intended for a job, many, many students who came to class on April 27 to find their school shuttered were only weeks away from completing their educational program. Upon completion, graduates of a number of CCI programs would have been eligible for registration, certification or licensure by a state regulatory body. Regulatory programs such as those under the DCA are often independently governed entities that establish standards and criteria for successful licensure, at the heart of which are public protection standards measured through proof of completion of a particular training program and satisfactory performance on a written and practical examination. In order to provide assistance to CCI students who may not want to transfer educational credits to another institution and begin a new program when they were so close to completing one at a CCI institution may actually be better served by being considered for licensure or recognition for which they were trained. The Committee suggests including language in the bill according to the following: For a period not to exceed two years, state agencies that establish certification, registration or licensure necessary to promote public safety and protection of the public are authorized to provide consideration on a case by case basis to determine the eligibility for certification, registration or licensure by that program to students enrolled in a program offered by Corinthian Colleges, Inc. which provided the individual with education or training designed to lead to certification, registration or licensure by that program. Consideration of individuals affected by the sudden and abrupt closure of Corinthian Colleges, Inc. shall be at the discretion of the regulatory program, consistent with the program's public protection mandate and according to criteria created by the program to ensure that any consideration of eligibility for certification, registration or licensure is in keeping with requirements outlined as necessary for public health and safety. b) This bill requires the Bureau to establish a task force comprised of representatives of the agencies outlined above and also requires the Bureau to administer a grant program AB 573 (Medina) Page 24 of ? for eligible organizations assisting students. CCI students and consumers impacted by the abrupt closure of their institution or sudden discontinuation of their educational program are best served by having one centralized entity in state government that coordinates state agency efforts, provides students with timely assistance, referrals to the proper agency or organization to best meet their needs, provides accurate, meaningful information to those students through a dedicated website and phone number and monitors ongoing state and federal regulatory developments that will impact students. Additionally, the types of organizations eligible for funding for their work to assist students under this bill should be expanded to include other entities that provide student loan and debt counseling and assistance. There are multiple agencies and organizations that have a role in assisting the students affected by the CCI closure. USDE, as noted above, is responsible for providing options to students related to their federal student loans. The Bureau administers the STRF and provides options to Everest and WyoTech students whose institutions the Bureau approved. The Bureau is also the record keeper of last resort for closed schools, thus responsible for maintaining student records, including information key to receiving consideration for STRF payment and loan discharges like enrollment agreements and transcripts. CalVet approves institutions for purposes of Title 38 veterans financial aid and helped students transfer to other institutions when it withdrew approval for CCI institutions. CSAC is working with the over 2,000 Heald students who received a Cal Grant award to ensure these students can transfer to eligible institutions and continue to receive Cal Grant payments. The CCCs are working with local CCC representatives to assist CCI students with enrollment and transfer. Businesses in California have a one-stop government resource in state government in the form of GO-Biz which assists in all aspects of establishing a business such as providing information about access to capital, directing businesses to the regulations governing and permits required for their operations as well as monitors the state, federal and international landscape to promote greater opportunities for California businesses. Many AB 573 (Medina) Page 25 of ? vulnerable populations in the state are also served by a centralized contact as they navigate through state agency services, in the form of ombudspersons with missions and statutory direction to help individuals as well as to streamline processes for relief. The Bureau under DCA is a logical starting point for any discussion about broad, centralized services to students harmed by for-profit institutions, however, the Bureau has faced challenges from its inception to implement the educational program quality standards and consumer protections for Californians attending institutions the Bureau regulates. The landscape of schools that are now regulated under the Bureau, and that have become central in California's discussion of private, for-profit colleges, has evolved significantly since the Act took effect and the smaller, independent for-profit institutions based in California that may have made up the bulk of the former Bureau's licensee population has shifted so that now, the largest number of students being served by larger for-profit chains with a presence in states throughout the nation. From staffing, to establishing policies and procedures, to data systems, to timelines, to processing complaints, the Bureau has faced difficulties in implementing a law that exists in a complex regulatory framework of federal law and other state agencies, which is becoming even more complex given the actions by other agencies outlined above. Providing centralized, necessary options to students, coordinating state agency response and administering funds to organizations which are providing meaningful assistance relies on the expertise and understanding of multiple issues related to the whole sector that the DCA and Bureau may not have. Coupled with these challenges are the Bureau's remaining administrative struggles including staffing shortages, backlogs that will impact the Bureau's ability to meet the requirements outlined in this bill and may not be feasible to provide students what they need as they weigh options for next steps after a school closure. There is precedent for the Bureau to contract directly with other entities to meet its mission, including contracting with the AG or other appropriate state agency to establish a process for the Bureau's staff to be trained to AB 573 (Medina) Page 26 of ? investigate complaints and contracting with the AG to for investigative and prosecutorial services. Given these issues, it is more appropriate for the task force outlined in this bill to be replaced with a dedicated school closure and student loan assistance point of contact within the Office of the Attorney General (AG) that can also administer a grant funding effort for local organizations assisting students (or contract with an appropriate entity to undertake this work). The AG's office already has expertise in complex legal situations such as those facing students and currently serves as the centralized point of contact for consumers impacted by the mortgage and foreclosure settlement. The AG's office, in the wake of the CCI closure, created an online tool for students to receive a personalized resource sheet regarding the types of relief available to students which continues to be updated and which can be expanded to provide key information such as a list of institutions on the USDE watchlist that students should not enroll in. The majority of CCI students attending programs when operations ceased in April are located in Southern California, where the AG has a presence and office. It is important to note that the AG has no ability to, or history that it has, provided individual legal assistance or individual legal representation to Californians, however among the involved agencies, it is by far the best situated to continue playing a central, coordinating role in the effort to assist students. A point of contact within the AG can lead the synchronization of other state agencies with a role in assisting students, will continue to monitor regulatory efforts at the state and federal level as the AG currently does and will be in a position to work with partner agencies to establish key criteria for determining the appropriate steps the state should take to protect students. It is appropriate for the bill to be amended to strike the task force and instead create, for a period of five years, a centralized point of contact within the Office of the Attorney General to serve students impacted by a school closure and navigating through options, including those made available by USDE and other state agencies. The point of contact will administer grants, or contract with an AB 573 (Medina) Page 27 of ? appropriate entity for this purpose, to provide funds to eligible nonprofit organizations, including legal aid and other nonprofit community service organizations offering free services with a focus on consumer credit education, counseling on consumer debt problems, assisting with the arrangement of debt management and settlement plans. There should be a clear distinction between the role of this point of contact coordinating entity as separate and unrelated to the larger duties of the AG. c) Technical amendments. The Committee suggests two technical amendments to correct a typo and make a clarifying change to the Bureau's administration of STRF. On page 12 in line 22, replace "26" with "27" 12 if the student was enrolled as of April 2627 , 2015, or withdrew within On page 13, between lines 20 and 21, insert the following: (g) Any representation or agreement by a person not to collect on a student loan obligation does not reduce a student's eligibility for a recovery from the Student Tuition Recovery Fund or reduce the student's economic loss unless the student loan obligation has been forgiven, discharged or cancelled in accordance with the requirements of this section. NOTE: Double-referral to Senate Committee on Education. SUPPORT AND OPPOSITION: Support: Attorney General Kamala Harris California Competes: Higher Education for a Strong Economy California Federation of Teachers Consumer Federation of California California Teachers Association Consumers Union The Institute for College Access & Success Public Advocates Inc. AB 573 (Medina) Page 28 of ? University of San Diego Center for Public Interest Law University of San Diego Children's Advocacy Institute University of San Diego Veterans Legal Clinic Young Invincibles Support if Amended California Association of Private Postsecondary Schools (CAPPS) Opposition: None on file as of June 23, 2015. -- END --