BILL ANALYSIS                                                                                                                                                                                                    

                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 573 (Medina) - Higher education: campus closures: Corinthian  
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          |Version: July 9, 2015           |Policy Vote: B., P. & E.D. 7 -  |
          |                                |          0, ED. 7 - 0          |
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          |Urgency: Yes                    |Mandate: Yes                    |
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          |Hearing Date:                   |Consultant: Jillian Kissee      |
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          This bill meets the criteria for referral to the Suspense File.

          Summary:  This bill, an emergency measure, provides various  
          forms of assistance to students impacted by the recent closure  
          of the Heald, Everest and Wyotech campuses owned by Corinthian  
          Colleges Inc. (CCI) and operated in California.

           California Community Colleges: $100,000 for allocation to a  
            community college district to conduct a statewide media  
            campaign targeting students affected by the closure of CCI.   
            Potential cost pressures to backfill the loss of an unknown  
            amount of fee revenue to the extent there is an increase in  
            the statewide proportion of students receiving fee waivers due  
            to this bill.  This bill also allows campuses to determine  
            their own criteria for "need" which qualifies affected CCI  
            students to be exempt from fees.  (Proposition 98)


          AB 573 (Medina)                                        Page 1 of  

           Restoration of Financial Aid Award Years: Approximately $9.6  
            million to restore Cal Grant awards for affected students for  
            two years ($7.9 to restore one year and $1.7 to restore the  
            second year).  (General Fund)

           STRF Claims Payout to Affected Students: $8.3 million  
            annually, until fiscal year 2018-19, for a total of $33.1  
            million in Student Tuition Recovery Fund (STRF) to be offset  
            by increases in fees that generate $6.9 million in the 2015-16  
            fiscal year and $9.2 million annually, until the 2018-19  
            fiscal year.  (Special funds)

           STRF Claims Processing: $1.5 million in the 2015-16 fiscal  
            year and $1.3 million annually until the 2018-19 fiscal year  
            to support 15 positions to process approximately 1,800 claims  
            at the Bureau of Private Postsecondary Education (Bureau).  
            (Special funds)

           Single Point of Contact: The Department of Justice (DOJ)  
            estimates up to $5 million and 10 positions to establish a  
            single point of contact for government response to school  
            closures, allocate legal assistance grants, travel and perform  
            investigations, and to provide technical assistance to  
            students and government-related entities. (General Fund)

           Legal Assistance Grants: $1.3 million appropriation from the  
            Private Postsecondary Education Administration Fund. (Special  

           Cost Pressure: To the extent distance learning programs  
            offered by institutions with a physical presence in the state  
            closes in the future, potentially significant, cost pressures  
            to the STRF to pay claims and for the Bureau to process the  
            claims, potentially offset by revenues generated from STRF  

          Background:  CCI institutions offered a range of programs, including  
          certificate programs, associate's degree programs and bachelor's  
          degree programs.  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  


          AB 573 (Medina)                                        Page 2 of  
          that 85 percent of its students had family incomes of less than  
          $45,000 a year.  An estimated 57 percent of CCI students had  
          household incomes of $19,000 or less, and 35 percent of CCI  
          students had a household income of less than $10,000.  

          Federal rules require that institutions receive at least 10  
          percent 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.  

          The 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 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 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).

          These infractions, and others, as well as CCI's financial  
          instability ultimately led to the closure of CCI on April 26,  
          2015, and for CCI to file bankruptcy on May 4, 2015.

          Proposed Law:  
            This bill:
           Appropriates $100,000 Proposition 98 General Fund to the  
            Chancellor of the California Community Colleges for allocation  
            to a community college district to conduct a statewide media  
            campaign to inform students affected by the closure of CCI of  
            education opportunities available at community colleges.


          AB 573 (Medina)                                        Page 3 of  

           Restoration of State Financial Aid Award Years for up to Two  

            Provides that if a student received a Cal Grant award or a  
            California National Guard Education Assistance Award in the  
            2013-14 or 2014-15 academic year at a California campus of  
            Heald College and was unable to complete an educational  
            program offered by the campus due to the campus's closure on  
            April 27, 2015, it will not count towards the limitation on  
            the number of years of the awards' eligibility.  This  
            restoration of award years for Cal Grant and California  
            National Guard Education Assistance Award eligibility must not  
            exceed two years.  To be eligible for the restoration of award  
            years, a student must have been enrolled at a Heald College  
            campus on April 27, 2015 or had withdrawn from enrollment  
            within 120 days of that date.  

           Waived CCC Fees for Affected Students Until July 1, 2018

            Adds to the list of criteria for which a student must meet at  
            least once to be eligible for waived California Community  
            College fees, the student was enrolled at a CCI campus in  
            California and (1) was unable to complete an education program  
            due to the campus's closure, and has demonstrated need, as  
            determined by the enrolling campus, or (2) withdrew from an  
            education program offered by the campus within 120 days, or  
            longer as determined by the Bureau, of the campus's closure  
            and has demonstrated need, as determined by the enrolling  

           Affected Students May be Considered for Licensure  

           This bill provides that for two years from the closure date of  
            CCI, a state agency that provides certification, registration,  
            or licensure necessary to promote safety and the protection of  
            the public may consider students on a case-by-case basis from  
            the state agency who were enrolled in a CCI program aimed at  


          AB 573 (Medina)                                        Page 4 of  
            preparing students for receiving certification, registration,  
            or licensure and were unable to obtain it due to the closure  
            of the CCI.

           Expands Student Eligible for Awards from the STRF to Include  
          Distance Education Programs

            Expands the use of the STRF to include distance education  
            programs offered by an institution with a physical presence in  
            the state for which the monies provide relief or mitigates of  
            economic loss suffered by a resident student.  This includes  
            any affiliates of that institution but excludes nonpublic,  
            nonprofit institutions incorporated in California and  
            accredited by an agency recognized by the United States  
            Department of Education.

           Expands the list of students that are eligible for payment  
            from the STRF, a student who was enrolled at a California  
            campus of a CCI, or was a student enrolled in an online  
            program offered by an out-of-state campus of a CCI, if the  
            student was enrolled as of April 27, 2015 or withdrew within  
            120 days or a greater time period as determined by the Bureau  
            even despite not having paid any STRF assessment.

           Requires, for institutions approved to operate after the  
            bill's effective date, the Bureau to collect STRF assessments  
            for all enrolled students from an institution upon issuance of  
            the institution's approval to operate.

           Requires, for institutions approved to operate prior to the  
            bill's effective date, the Bureau to collect STRF assessments  
            from the institution for its enrolled students for whom an  
            assessment has not been collected, including assessments for  
            students enrolled in distance education programs.

           This bill increases the cap on the STRF from $25 million to  
            $50 million.   


          AB 573 (Medina)                                        Page 5 of  
          Single Point of Contact

            Establishes, until January 2020, a single point of contact to  
            respond to the closure of institutions that do not comply with  
            requirements established under state and federal law.  Its  
            purpose is to ensure students who were enrolled at, or in an  
            online program offered by, an institution that has closed  
            receive accurate and timely information regarding the school  
            closure process and the students' rights and responsibilities  
            under state and federal law.

           Requires the point of contact's duties to include:  
            coordinating with state and federal agencies, as specified, to  
            determine options and resources for available students and  
            criteria which indicate additional steps are necessary for  
            state agencies to take to ensure the protection of public  
            school closures; establishing and maintaining a website to  
            provide information regarding school closures to students and  
            must list the names of institutions that are on the USDE's  
            list for heightened cash monitoring; assisting students with  
            obtaining documentation from a closed institution, including  
            enrollment agreements, records, transcripts, and loan  
            information.  This bill requires that consideration be given  
            to establishing the contact within the Attorney General's  

           This bill appropriates $1.3 million from the Private  
            Postsecondary Education Administration Fund to the Bureau for  
            providing financial grants to eligible local nonprofit  
            community service organizations to assist students affected by  
            the closure of CCI, made within 30 days of the enactment of  
            this bill.  The Bureau may adopt emergency regulations.

           Within 90 days of notification, the AG must solicit grant  
            applications from eligible local nonprofit community service  
            organizations, as specified, and select an organization to  
            carry out the duties described above to help students in the  
            event of a school closure.  The AG can contract out for these  


          AB 573 (Medina)                                        Page 6 of  

          Comments:  Staff notes the funding source for Bureau positions  
          and administrative costs would be the Private Postsecondary  
          Education Fund which currently has a structural imbalance with  
          expenditures exceeding revenues anticipated in the 2018-19  
          fiscal year.  Because of the lack of sufficient reserves to fund  
          increased administrative support, the Bureau indicates that it  
          may be required to increase various fees charged to licensed  

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