BILL ANALYSIS                                                                                                                                                                                                    Ó



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          ASSEMBLY THIRD READING


          AB  
          2652 (Eggman)


          As Amended  April 21, 2016


          Majority vote


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Higher          |10-3 |Medina, Bloom,        |Baker, Linder,      |
          |Education       |     |Chávez, Irwin,        |Olsen               |
          |                |     |Jones-Sawyer, Levine, |                    |
          |                |     |Low, Santiago, Weber, |                    |
          |                |     |Williams              |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |14-6 |Gonzalez, Bloom,      |Bigelow, Chang,     |
          |                |     |Bonilla, Bonta,       |Gallagher, Jones,   |
          |                |     |Calderon, Daly,       |Obernolte, Wagner   |
          |                |     |Eggman, Eduardo       |                    |
          |                |     |Garcia, Roger         |                    |
          |                |     |Hernández, Holden,    |                    |
          |                |     |Quirk, Santiago,      |                    |
          |                |     |Weber, Wood           |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
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          SUMMARY:  Requires a private distance education provider to  
          register with the Bureau for Private Postsecondary Education  
          (BPPE) and participate in the Student Tuition Recovery Fund  
          (STRF).  Specifically, this bill:  


          1)Establishes that it is the intent of the Legislature that  
            appropriate stakeholders work collaboratively to address how  
            best to regulate educational programs offered to the public by  
            means of distance education by institutions with no physical  
            presence in California.


          2)Requires, effective July 1, 2017, to the extent authorized by  
            federal law, a private entity with no physical presence in  
            this state that, if the entity was geographically located in  
            this state, would be subject to the requirements of this act  
            to do both of the following:


             a)   Register with BPPE; and, 


             b)   Participate in STRF for its California students.


          3)Provides that these provisions shall remain in effect until  
            July 1, 2020.


          EXISTING LAW:  


          1)Establishes the BPPE within the Department of Consumer Affairs  
            with the primary function of providing protection of  
            students/consumers through the regulation and oversight of  
            private postsecondary educational institutions.  BPPE  
            oversight activities are funded by licensing fees paid by  
            regulated institutions.  (Education Code Section (EDC) 94800  








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            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 (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 $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).  (EDC 94923 - 94925)


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee, administrative costs for the bureau should be minor,  
          assuming the bureau would simply contact out-of-state distance  
          education providers, inform those with California-based students  
          of their requirement to register with the bureau and to collect  
          and remit STRF assessments from these students.  (There is  
          currently no STRF assessment because the fund balance exceeds a  
          $25 million statutory cap.)  Regardless of whether an  
          out-of-state online institution complies with the STRF  
          requirements, its California-based students would be eligible to  
          recover from STRF for losses suffered due to their institution's  
          closure.  By bringing more students under the protections  
          provided by STRF, this bill increases potential liabilities on  
          the fund.  As a result, a future payout from the fund could  
          exceed $150,000.  Based on actual data from fall 2013, there are  
          about 900,000 students currently enrolled exclusively in  
          distance education courses offered by private, for-profit  
          schools nationwide.  Assuming 13% of these students are in  
          California yields a total of 117,000 students.  The number of  








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          these student taking online courses at in-state versus  
          out-of-state institutions is unknown, but given the universal  
          accessibility of distance education, the number served by  
          out-of-state institutions could easily exceed 10%.


          COMMENTS:  Purpose of this bill.  According to the author, "This  
          bill is seeking to establish consumer protections for  
          Californian students enrolled in distance education.  Many  
          students are enrolled in online education programs and the  
          number is only going to continue to increase.  As a state,  
          Governor Brown has declared he is supportive of online education  
          and views it as a tool to increase access to higher education.   
          As online education continues to grow, California should ensure  
          that we are protecting students as they are protected in brick  
          and mortar institutions."


          Background.  The Act defines private postsecondary educational  
          institutions as private entities with a physical presence in  
          California offering postsecondary education programs to the  
          public for a charge.  California students enrolled in  
          distance/online programs offered by institutions located outside  
          of California do not benefit from the oversight provided by the  
          Act, including access to the STRF.  Additionally, some  
          institutional owners maintain physical campuses in California as  
          well as online campuses housed in other states.  For example,  
          the recently closed Anthem College Online and Corinthian  
          Colleges, Inc.'s Everest Online Campus enrolled California  
          students in online courses through campuses accredited in other  
          states.  Unlike their counterparts attending physical campuses  
          in California, online students, despite being California  
          residents, were not provided BPPE protections or tuition  
          reimbursement under STRF when their campuses abruptly closed.


          Recognizing the need for oversight of the growing online  
          education field, the initial federal Title IV "program  
          integrity" regulations by the United States Department of  








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          Education (USDE) issued in 2010 required distance education  
          programs to have authorization in the student's state of  
          residence.  The USDE regulations specific to distance education  
          were subsequently vacated by federal court ruling.   
          Institutions, however, are still required to comply with the  
          laws and regulations of the states in which they operate.   


          In response to concerns over the complexity and cost of  
          navigating differing requirements in multiple states, a group of  
          institutions, states, and policy organizations developed the  
          State Authorization Reciprocity Agreement (SARA).  SARA provides  
          that accredited, degree-granting institutions approved by an  
          oversight body in one participating state will be deemed  
          automatically to have met approval requirements in other  
          participating states.  The institution's "home" state is  
          required to respond to student complaints only after the student  
          has worked through the institution's standard complaint process.  
           As of January 2016, 36 states agreed to participate in SARA.  


          In California, SB 634 (Block) of 2015 would have authorized  
          state participation in SARA through the BPPE.  The bill was  
          supported by public and private higher education institutions,  
          but was ultimately held without hearing in the Senate Education  
          Committee at the request of the author.  Several organizations  
          representing students, veterans and consumers raised concerns  
          that California participation in SARA would undermine the  
          state's authority to regulate risky online for-profit colleges,  
          and that SARA's provisions largely focused on decreasing  
          regulation for institutions rather than providing adequate  
          protections for students.


          Temporary solution.  This bill, as currently drafted, proposes a  
          temporary solution to require institutions with no physical  
          presence to participate in STRF.  Committee staff understands  
          that this is intended to provide stakeholders sufficient time to  
          identify a permanent solution to ensure students are protected  








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          in the event of a school's illegal practices and/or school  
          closure.  This model is based on previous California law.  From  
          2010 through 2016, non-Western Association of Schools and  
          Colleges (WASC) regionally accredited institutions (including  
          the California campuses of the University of Phoenix) were  
          required to participate in STRF but not follow all other  
          provisions of the Act.  


          BPPE Sunset Review.  BPPE is currently undergoing the Sunset  
          Review process.  The issue of ensuring protection for students  
          not covered by STRF and the possibility of a surety bond and/or  
          STRF coverage is raised in the BPPE Sunset Review report,  
          prepared by Committee staff.  The author and Committee may wish  
          to raise this issue through the 2016 Sunset Review process. 




          Analysis Prepared by:                                             
                          Laura Metune / HIGHER ED. / (916) 319-3960  FN:  
          0003132