BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                        AB 573|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                   THIRD READING 

          Bill No:  AB 573
          Author:   Medina (D) and McCarty (D), et al.
          Amended:  8/31/15 in Senate
          Vote:     27  - Urgency

           SENATE BUS, PROF. & ECON. DEV. COMMITTEE:  7-0, 6/29/15
           AYES:  Hill, Block, Galgiani, Hernandez, Jackson, Mendoza,  
           NO VOTE RECORDED:  Bates, Berryhill

           SENATE EDUCATION COMMITTEE:  7-0, 7/15/15
           AYES:  Liu, Block, Hancock, Leyva, Mendoza, Monning, Pan
           NO VOTE RECORDED:  Runner, Vidak

           AYES:  Lara, Beall, Hill, Leyva, Mendoza
           NO VOTE RECORDED:  Bates, Nielsen

           ASSEMBLY FLOOR:  74-0, 5/14/15 - See last page for vote

           SUBJECT:   Higher education:  campus closures:  Corinthian  

          SOURCE:    Author

          DIGEST:  This bill provides financial and other assistance to  
          students impacted by the recent closing of all Heald, Everest,  
          and WyoTech campuses in California, which were owned by  
          Corinthian Colleges, Inc. (CCI).  


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          Existing law:

          1)Establishes the California Private Postsecondary Education Act  
            of 2009 (Act) until January 1, 2017, and requires the Bureau  
            of Private Postsecondary Education (Bureau) within the  
            Department of Consumer Affairs to, among other things, 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  

          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 (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.  

          2)Provides a CCC board of governors (BOG) fee waiver, until July  
            1, 2018, to a student who was enrolled at a California campus  
            of a CCI institution, was unable to complete an educational  
            program offered by the campus due to the campus' closure on  
            April 27, 2015, and has demonstrated financial need as  
            determined by the enrolling campus.  

          3)Provides a BOG fee waiver to a student who was enrolled at a  
            California campus of a CCI institution, withdrew from an  
            education program offered by the campus after the earlier of  


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            either: 120 days before the April 27, 2015 closure or an  
            earlier date determined by the Bureau, or the date set by the  
            United States Department of Education (USDE) for closed school  
            loan discharge eligibility and has demonstrated financial need  
            as determined by the enrolling campus.

          4)Provides that Cal Grant recipient students enrolled at a Heald  
            College campus that were unable to complete their educational  
            program due to the closure shall not have the award years  
            utilized at Heald College campus included in the limitation on  
            the number of award 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 Heald College  
            campus on April 27, 2015, or withdrew from enrollment between  
            July 1, 2014 and April 27, 2015. 

          5)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 $40 million  
            (instead of $20 million currently).

          6)Requires, until January 1, 2020, the Governor to establish a  
            single point of contact (POC) to respond to each closure of an  
            institution that does not comply with closure and related  
            requirements established under state and federal law.  

          7)States that the goal of the POC is to ensure that 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, and states that the  
            POC's primary duty shall be to advocate on behalf of and  
            represent the interest of California students who attended the  
            closed institution.  

          8)Provides that consideration should be given to establishing  
            the POC within the Attorney General (AG)'s office for unlawful  
            closures of large institutions regarding which the AG has a  


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            pending investigation or ongoing litigation. 

          6)Provides grant funds to eligible nonprofit community service  
            organizations offering free counseling on student financial  
            aid and loan debt problems upon the unlawful closure of an  
            institution to assist students according to the following:

             a)   Services provided by the organizations shall include  
               assistance with loan discharge and other student financial  
               aid, veteran's education benefits, loan-related relief and  
               tuition recovery claims.

             b)   The organization 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; the  
               organization demonstrates expertise in assisting students  
               with, and currently provides, free direct legal services or  
               will work in partnership with or under the supervision an  
               attorney or nonprofit legal services organization with this  
               expertise; and the organization does not charge students  
               for services.

             c)   Grant funds shall be made available from the STRF and  
               shall be calculated by multiplying the number of students  
               affected by the institution's closure by $100.

             d)   The Bureau shall notify the AG of all unlawful school  
               closures within 

             15 days of the closure.  The AG shall, within 90 days of  
               receipt of the notification, solicit grant applications  
               from eligible nonprofit community service organizations and  
               may enter into a contract with another qualified entity to  
               perform duties outlined.
             e)   Organizations that receive funds shall report to the AG,  
               or a qualified entity, quarterly through the grant period  
               on the number of students served.  For a closure involving  
               fewer than 250 students, 100 percent of funds shall be  


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               distributed within 30 days of the grantee entering into a  
               grant agreement; for a school closure involving 250 or more  
               students, 50 percent shall be distributed within 30 days of  
               the grantee entering into a grant agreement, 

             25 percent shall be distributed upon the submission of the  
               grantee's second quarterly report and the final 25 percent  
               upon the submission of the third quarterly report.
             f)   Appropriates $1.3 million dollars from the STRF to the  
               Bureau for purposes of providing grants to organizations to  
               assist eligible students affected by the CCI closure and to  
               pay for the reasonable administrative costs of the AG  
               related to these grants. 

          1)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. 


          CCI.  CCI institutions offered a range of programs, including  
          8-12 month certificate programs, with tuition and fees that were  
          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, CCI received 84.8% of net revenue from federal  
          financial aid (Title IV: Pell Grants and Federal Loans).   


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          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.  

          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 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).  CCI closed all campuses on  
          April 26, 2015, and filed bankruptcy on May 4, 2015.

          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 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  

          USDE provides relief for students of closed schools through a  


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          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.   
          USDE is expanding eligibility for CCI 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 USDE  
          to terminate its ownership of schools.  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 USDE works to  
          resolve the claim.  

          At the hearing, the Legislative Analyst's Office highlighted the  
          high degree of uncertainty for students with private loans, as  
          there are no standard discharge provisions and 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, but  
          there are concerns that there is no guarantee students will be  
          assisted as they navigate through this process.

          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.  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  


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          out-of-state online programs.  The author states 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.

          FISCAL EFFECT:   Appropriation:    Yes         Fiscal  
          Com.:YesLocal:   Yes

          According to the Senate Appropriations Committee:

           CCCs: $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  
            financial need which qualifies affected CCI students to be  
            exempt from fees.  (Proposition 98)

           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: $8.2 million  
            annually, until fiscal year 2018-19, for a total of $32.7  
            million in 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  

           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  


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            at the Bureau. (Special funds)

           Single Point of Contact: Unknown cost pressures to the  
            Department of Justice potentially in the hundreds of thousands  
            to low millions for additional staff to be single POC for  
            specified institutions to the extent it is designated as the  
            single POC by the Governor.  Potential significant additional  
            costs for the entity designated by the Governor to be the  
            single POC for all other institutions.  (General Fund)

           Legal Assistance Grants: $1.3 million appropriation from the  
            STRF.  (Special funds)

          SUPPORT:   (Verified8/31/15)

          Bay Area Legal Aid
          Board of Governors of the California Community Colleges
          California Community College League
          California Competes
          California Federation of Teachers
          California Rural Legal Assistance Foundation
          California SEIU
          California Student Aid Commission
          Center for Responsible Lending
          Consumer Federation of California
          Public Advocates
          Public Law Center
          The Institute for College Access and Success
          University of San Diego Center for Public Interest Law
          University of San Diego Children's Advocacy Institute
          University of San Diego Veterans Legal Clinic
          Western Center on Law and Poverty

          OPPOSITION:   (Verified8/31/15)

          California Association of Private Postsecondary Schools 

          ARGUMENTS IN SUPPORT:     Supporters believe that this bill is  
          an incredibly important bill that will help make sure that  


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          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.

          ARGUMENTS IN OPPOSITION:     The California Association of  
          Private Postsecondary Schools (CAPPS) states that 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 this bill.  CAPPS 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 this bill.  

          ASSEMBLY FLOOR:  74-0, 5/14/15
          AYES:  Achadjian, Alejo, Baker, Bigelow, Bloom, Bonilla, Bonta,  
            Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez,  
            Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd,  
            Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia,  
            Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,  
            Grove, Hadley, Roger Hernández, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Lopez, Low, Maienschein,  
            Mathis, McCarty, Medina, Melendez, Mullin, Nazarian,  
            Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone,  
            Thurmond, Ting, Waldron, Weber, Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Travis Allen, Harper, Linder, Mayes,  
            Steinorth, Wagner

          Prepared by:Sarah Mason / B., P. & E.D. / (916) 651-4104


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