BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 573


                                                                    Page  1


          (Without Reference to File)





          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          573 (Medina and McCarty)


          As Amended  September 4, 2015


          2/3 vote. Urgency


           -------------------------------------------------------------------- 
          |ASSEMBLY:  | 74-0 |(May 14, 2015) |SENATE: |      | (September 11,  |
          |           |      |               |        |      |2015)            |
          |           |      |               |        |      |                 |
          |           |      |               |        |      |                 |
           -------------------------------------------------------------------- 
                                               (vote not available)




          Original Committee Reference:  HIGHER ED.


          SUMMARY:  Provides financial and other assistance to students of  
          Heald, Everest, and WyoTech campuses in California, which were  
          owned by Corinthian Colleges, Inc. (CCI) and closed unlawfully  
          on April 27, 2015.  Specifically, this bill:  


          1)Establishes Legislative intent that unencumbered restitution  
            funds awarded to the state from a lawsuit involving CCI and  
            its affiliate institutions, including Heald College, shall be  








                                                                     AB 573


                                                                    Page  2


            used to repay any funds provided to students pursuant to this  
            act.


          2)Restores up to two years of Cal Grant and National Guard  
            Education Assistance awards for students who enrolled at Heald  
            and received awards in the 2013-14 or 2014-15 academic years,  
            were unable to complete their educational programs, and  
            withdrew between July 1, 2014, and April 27, 2015.  Requires  
            an eligible student to notify the California Student Aid  
            Commission (CSAC) of his or her intent to use this restoration  
            by January 1, 2017. 


          3)Authorizes, for a period not to exceed two years from the date  
            of the closure of CCI, a state agency that provides  
            certification, registration, or licensure to, on a  
            case-by-case basis, consider for certification, registration,  
            or licensure students who were enrolled in a program of CCI  
            and did not receive the required certification, registration,  
            or licensure due to the closure of CCI.  Provides that  
            consideration is at the discretion of the agency in accordance  
            with its public protection mandate and applicable criteria  
            established for consumer safety.


          4)Increases the maximum allowable fund balance in the Student  
            Tuition Recovery Fund (STRF) from $25 million to $30 million.


          5)Finds and declares all of the following:


             a)   CCI has been the target of consumer and taxpayer  
               protection enforcement efforts by the federal government,  
               the Attorney General, and other state and federal  
               authorities;


             b)   Based on findings of harm to students enrolled at CCI  
               campuses, the United States Department of Education (USDE)  
               announced debt relief programs to assist students,  








                                                                     AB 573


                                                                    Page  3


               including:


               i)     A student who attended a CCI campus that closed on  
                 April 27, 2015, and withdrew any time after June 20,  
                 2014, is eligible to apply for a closed school loan  
                 discharge, so long as the student does not transfer  
                 credit and subsequently complete a comparable program at  
                 another institution;


               ii)    A student who believes he or she was a victim of  
                 fraud or other violations of state law by CCI can apply  
                 for debt relief under borrower defense to repayment.  The  
                 USDE has determined that CCI misrepresented job placement  
                 rates for a majority of programs at its Heald College  
                 campuses between 2010 and 2014 and is in the process of  
                 establishing a specific process for federal loan  
                 discharge for these Heald students; and, 


               iii)   A CCI student who intends to submit a borrower  
                 defense claim may request loan forbearance while a claims  
                 review process is established and the claim is reviewed.


             c)   Pursuant to Education Code Section 94923, the STRF  
               exists to relieve or mitigate a student's economic loss  
               caused by a documented violation of certain laws or by  
               institutional closure, as specified; 


             d)   On October 10, 2013, the California Attorney General  
               filed a lawsuit against CCI for false and predatory  
               advertising, intentional misrepresentations to students,  
               securities fraud, and unlawful use of military seals in  
               advertisements, in violation of the 2007 final judgment in  
               the People of the State of California v. CCI; 


             e)   On April 16, 2015, the Bureau for Private Postsecondary  
               Education (BPPE) issued an emergency decision ordering CCI  








                                                                     AB 573


                                                                    Page  4


               to cease enrollment of any new students in all programs at  
               Everest College and WyoTech locations in California  
               effective upon close of business April 23, 2015;


             f)   It is consistent with the purpose of STRF to provide  
               assistance to CCI students to obtain federal and private  
               loan discharge and other financial aid relief.


          6)Provides $1.3 million from STRF to eligible nonprofit  
            community service organizations (CSOs) in order to assist  
            eligible CCI students with federal and private loan discharge  
            and other financial aid relief.  The bill establishes the  
            following program parameters:


             a)   Eligible CSOs must be 501(c)(3) tax-exempt organizations  
               in good standing with the Internal Revenue Service and in  
               compliance with all applicable laws and requirements,  
               demonstrate legal expertise in assisting students with  
               student loan and tuition recovery-related matters, and not  
               charge students for services.


             b)   Eligible students must have been enrolled at a  
               California campus of, or be a California student who was  
               enrolled in an online campus of, a CCI institution, and be  
               eligible to apply for debt relief from the USDE or other  
               student financial aid relief.


             c)   The program is designed to operate as follows:


               i)     BPPE is required to notify the Attorney General (AG)  
                 of all unlawful CCI closures, and provide related  
                 pertinent information, within 15 days of the effective  
                 date of this bill; 


               ii)    The AG, or entity contracted by the AG to perform  








                                                                     AB 573


                                                                    Page  5


                 these duties, is required to, within 90 days of the  
                 notification, solicit grant applications and select one  
                 or more eligible CSO and determine the share of grant  
                 funds available to the CSO.  


               iii)   The AG, or contracted entity, shall enter into a  
                 grant agreement with the selected CSO(s) to ensure funds  
                 are used exclusively for authorized purposes.  Unused  
                 funds are required to be returned to the STRF.  The  
                 agreement may be terminated, and funds may be required to  
                 be repaid, if the AG or contracted entity determines the  
                 CSO materially breached the agreement.  The CSO must be  
                 provided reasonable opportunity to resolve the breach.   


               iv)    The CSO is authorized to prioritize low-income  
                 students if demand exceeds available grant funds.


             d)   A CSO that receives grant funds is required to report to  
               the AG, or contracted entity, quarterly through the grant  
               period on all of the following:


               i)     The number of eligible students served pursuant to  
                 the grant agreement; 


               ii)    A detailed summary of services provided to those  
                 students;


               iii)   The number of STRF claims referred to the bureau;


               iv)    The number of federal loan forgiveness claims filed  
                 and the number of those claims approved, denied, and  
                 pending;


               v)     Any other information that is deemed appropriate by  








                                                                     AB 573


                                                                    Page  6


                 the Attorney General or qualified entity, as applicable.


             e)   The AG or contracted entity is required to make the  
               quarterly reports available to the Legislature and the BPPE  
               upon request, and to provide the Legislature and BPPE a  
               final report summarizing the information submitted promptly  
               following the time when all funds are expended by the  
               grantees or by August 1, 2018, whichever is earlier.


             f)   Provides that funds shall be distributed to preapproved  
               CSOs as follows:


               i)     Fifty percent shall be distributed to the grantee  
                 within 30 days of the grantee entering into a grant  
                 agreement;


               ii)    Twenty-five percent shall be distributed to the  
                 grantee upon the submission of the grantee's second  
                 quarterly report.


               iii)   Twenty-five percent shall be distributed to the  
                 grantee upon the submission of the grantee's third  
                 quarterly report.


             g)   Provides that eligible CSOs may use grant funds received  
               to pay the costs of assisting eligible students who have  
               been served after the date of closure until June 30, 2018,  
               or until any later date as may be determined necessary by  
               the Attorney General.


             h)   Provides emergency rulemaking authority for  
               implementation of this program. 


          7)Declares this bill an urgency statute to take effect  








                                                                     AB 573


                                                                    Page  7


            immediately.


          The Senate amendments clarify and narrowed several provisions of  
          this bill, as outlined in the aforementioned "Summary" section,  
          and significantly narrowed the scope by removing several  
          sections of this bill, as follows:


          1)Remove language that would have provided California Community  
            Colleges (CCC) $100,000 to conduct an outreach and marketing  
            campaign to former CCI students;


          2)Remove language that would have provided former CCI students  
            impacted by CCIs closure with a CCC Board of Governor's Fee  
            Waiver until July 1, 2018;


          3)Remove language that would have provided Heald College  
            students eligibility to claim an economic loss under the STRF;


          4)Remove language that would have increased the maximum amount  
            of the STRF to $50 million.


          5)Remove language that would have required the BPPE to establish  
            a "Closed School Task Force" to respond to the closure of  
            institutions; and,


          6)Remove language that would have created an ongoing grant fund  
            program for legal aid organizations to assist students  
            impacted by future school closures. 


          EXISTING LAW:   


          1)Establishes the BPPE within the Department of Consumer Affairs  
            with the primary function of providing protection of  








                                                                     AB 573


                                                                    Page  8


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


          2)Establishes the STRF, administered by the BPPE, to relieve or  
            mitigate economic loss suffered by students enrolled at a  
            non-exempt private postsecondary education institution due to  
            the institutions' closure, the institutions' failure to pay  
            refunds or reimburse loan proceeds, or the institutions'  
            failure to pay students' restitution award for a violation of  
            the Private Postsecondary Education Act.  STRF is capped in  
            statute at $25 million.  Institutions are required to assess  
            students an amount established in regulation by the BPPE and  
            remit fund to the BPPE for STRF.  In 2010, that amount was  
            established at $2.50 per $1,000 of tuition charged.  In 2013,  
            that amount was reduced to $0.50 per $1,000.  In 2015, this  
            amount was reduced to $0.00, as the STRF had exceeded the  
            statutory cap (STRF is currently at approximately $28  
            million).  (Education Code Sections 94923 to 94925)


          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee:


          1)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)


          2)Legal Assistance Grants: $1.3 million appropriation from the  








                                                                     AB 573


                                                                    Page  9


            STRF.  (Special funds)


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


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








                                                                     AB 573


                                                                    Page  10


          best, temporary assistance), falsifying job placements  
          (including counting one-day employments, paying employers to  
          temporarily hire graduates, and falsifying "self-employment"  
          statistics), and promoting student reliance on CCIs loans that  
          required students to begin repaying while still in programs  
          (staff members were provided bonuses for collecting loan  
          payments, and were encouraged to publically remove students  
          behind on loan payments from class).


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


          On June 26, 2014, CalVet suspended CCI institutions  
          participation in Title 38 programs due to the United States  
          Securities and Exchange Commission filing indicating CCI was  
          fiscally unstable.  In August of 2014, CalVet withdrew  
          institutional approval at all institutions owned and operated in  
          California by CCI.  The 23 campuses (Heald, WyoTech and Everest)  
          were prohibited from receiving GI bill benefits.  In order to  
          continue using Title 38 benefits, veteran students were required  
          to transfer/enroll in a California State Approving Agency for  
          Veterans Education eligible school.  


          On November 20, 2014, the Education Credit Management  
          Corporation (ECMC), a nonprofit organization that operates a  
          large student-loan guaranty agency, announced it would purchase  








                                                                     AB 573


                                                                    Page  11


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


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


          California campuses were not included in the sale to ECMC; press  
          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,  
          in violation of a 2007 judgment.  


          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).  The decision  
          effectively barred all Heald campuses from receiving federal  
          funds for new enrollments.  On April 16, 2015, CSAC permanently  
          terminated Heald's eligibility for the Cal Grant program  
          (Everest and WyoTech were already not eligible).  On April 17,  
          2015, the BPPE issued an emergency decision prohibiting Everest  
          and WyoTech campuses from enrolling new students.  CCI closed  








                                                                     AB 573


                                                                    Page  12


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


          Federal loan forgiveness.  Over the past four months, the USDE  
          has announced expanded loan forgiveness options for CCI students  
          who were affected by the closure or by the unlawful practices of  
          the institution.  As it currently stands, the following students  
          are eligible to apply for student loan discharge:  1) students  
          who can show that CCI violated state law (Heald students in most  
          programs between 2010 and 2014 have been deemed eligible by USDE  
          to apply through an expedited loan forgiveness pathway); and, 2)  
          students who were enrolled after June 20, 2014.  The USDE has  
          indicated additional eligibility and financial aid relief may be  
          established. 


          Numerous organizations have raised concerns regarding the  
          application process established by the USDE.  For example, an  
          August 18, 2015, letter to the USDE requesting changes to the  
          application process 11 states Attorneys General said the current  
          process would "require an understanding of contract, tort or  
          unfair practices statutes" to successfully navigate.


          Purpose of this bill.  According to the author, "AB 573 will  
          provide $1.3 million in legal assistance grants to help students  
          with the loan forgiveness and tuition recovery process. Only an  
          estimated 6% of students eligible for a loan discharge claim it.  
           CSOs provide loan relief assistance to low-income students.   
          Unfortunately, these organizations are not sufficiently funded  
          to meet demand and are currently turning away and wait-listing  
          student clients. This bill will provide funding to assist  
          students with the loan discharge process. Helping California  
          students cancel as much of their student debt burden as possible  
          will be good for these students, cost the state of California  
          very little, and provide benefits now and in the future to  
          California's economy."  The author further notes that "AB 573  
          will restore California education grant eligibility for students  
          by providing up to 2 years of restoration in the Cal Grant and  
          California National Guard Educational Assistance programs. This  
          will ensure approximately 3,400 Heald students are not harmed by  
                                           







                                                                     AB 573


                                                                    Page  13


          the award year limitations in these programs."  


          Analysis Prepared by:                                             
                          Laura Metune / HIGHER ED. / (916) 319-3960  FN:  
          0002255