BILL ANALYSIS Ó AB 2652 Page 1 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 | | | | | | | | | | | | ------------------------------------------------------------------ AB 2652 Page 2 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 AB 2652 Page 3 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 AB 2652 Page 4 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 AB 2652 Page 5 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 AB 2652 Page 6 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