BILL ANALYSIS AB 2746 Page 1 Date of Hearing: April 10, 2008 ASSEMBLY COMMITTEE ON HIGHER EDUCATION Anthony Portantino, Chair AB 2746 (Niello) - As Amended: April 9, 2008 SUBJECT : California Private Postsecondary Education Act of 2008 SUMMARY : Recasts and revises the provisions of the Private Postsecondary and Vocational Education Reform Act of 1989 (Former Act) into the Private Postsecondary Education Act of 2008 (Act). Specifically, this bill : 1)Places the Bureau for Private Postsecondary Education (Bureau) in the Department of Consumer Affairs (DCA) as the successor to the former Bureau for Private Postsecondary and Vocational Education (Former Bureau). 2)Provides for a transition to the provisions of this Act, including that: a) Any statutory or regulatory reference to the former Private Postsecondary Education and Student Protection Act, the Former Act, or the former education code postsecondary education provisions will be construed as referring to this Act. b) Any institution that had approval to operate by the Former Bureau on June 30, 2007, shall maintain that approval for two-years after the expiration date of that approval. c) Applications pending before the Former Bureau prior to January 1, 2006, shall be granted approval to operate until 2010, and applications received after January 1, 2006, shall be granted approval to operate until 2011. Requires that students enrolling in these institutions be notified during the enrollment process that the institution's application for approval was not fully reviewed by the Bureau. d) The Bureau shall adopt emergency regulations that conform to the provisions of this Act by February 1, 2009, and these regulations shall become permanent through the AB 2746 Page 2 regular rulemaking process within one year of the date of enactment of this Act. e) Continues and renames the Private Postsecondary and Vocational Education Administration Fund to be the Private Postsecondary Education Administration Fund (PPEAF). f) Continues the Student Tuition Recovery Fund (STRF) and provides that processing of claims pending before the STRF that were received prior to July 1, 2007, or any claims received between July 1, 2007, and June 30, 2008, shall be in accordance with this Act. g) All applications, excluding STRF and certificate of authorization applications, pending before the Former Bureau as of July 1, 2007, shall be deemed approved. h) Allows any institution that did not have approval from or a pending application with the Former Bureau on June 30, 2008, that began operations after July 1, 2007, to continue to operate but requires the institution to comply with this Act within six months of the application becoming available. i) For any claim or cause of action that arose prior to June 30, 2007 and commenced on or before June 30, 2007, final judgments and/or legal remedies available under the Former Act will be continued. 3)Provides definitions for various terms used in this Act. 4)Exempts the following from the requirements of this Act and from the oversight of the Bureau: a) Institutions offering solely vocational or recreational educational programs. b) Institutions offering programs sponsored by trade, business, professional, or fraternal organizations solely for that organization's members. c) Institutions operated by the federal or state government or their subdivisions. d) Institutions offering continuing education where the AB 2746 Page 3 institution or program is certified or sponsored by a government agency licensing persons in a particular field, a state-recognized professional licensing body, or a trade, business, or professional organization. e) Institutions owned, controlled, and operated and maintained by a church or religious institution that meets several other outlined requirements. f) Institutions certified to offer flight instruction and aircraft maintenance by the Federal Aviation Administration. g) Institutions that provide solely educational programs for total charges of $2500 or less, with no part of the charges paid by state or federal student financial aid programs. h) Institutions that offer solely educational programs in law leading to a Juris Doctor, Master of Laws, Doctor of Jurisprudence degree or similar degrees in law. i) Institutions giving instruction for driving motortrucks of three or more axles and more than 6,000 pounds. j) Institutions participating in the Federal Higher Education Act Title IV student financial aid programs. 5)Provides for the following directives and duties to be carried out by the Bureau: a) In regulating private postsecondary educational institutions, directs the Bureau to make protection of the public the highest priority, and whenever protection of the public is inconsistent with other interests, the protection of the public shall be paramount. b) Provides the Director of DCA with the powers set forth in the Act; allows the Director to delegate the duties to a bureau chief, appointed by the Governor; provides that the bureau chief may delegate any powers and duties to a designee; and provides that the Director may appoint and fix compensation of personnel; establishes the Legislative intent that employees with the Former Bureau have the opportunity to transfer to their former positions with the AB 2746 Page 4 new Bureau. c) Requires the Bureau to, in accordance with the Administrative Procedures Act, adopt regulations necessary to implement this Act within one year of the date of enactment of the Act and to adopt emergency regulations in accordance with existing law. d) Requires the Bureau to adopt a fee schedule, sufficient to cover the objectively assessed expected cost of Bureau activities, for the institutions covered by this Act to pay. Requires fees collected to be deposited into the PPEAF and provides that these funds shall be used to cover the implementation of the Act. Requires the fee schedule to be publicly available. e) Requires the Bureau to maintain a website with information provided by the institutions and verified by the Bureau, and establishes that the website shall include completion rates, placement rates, total program charges, starting salaries of graduates and license examination pass rates if those figures are provided by an institution during enrollment, status of the institutions approval to operate, and institutional refund policies. f) Allows the Bureau to conduct outreach to secondary and postsecondary school students about how to make informed decisions when selecting an institution, allows the Bureau to appoint an advisory committee, and allows the Bureau to conduct workshops to assist institutions in complying with the provisions of this Act. g) Allows the Bureau to empanel visiting committees to assist in evaluating institutional applications, requires visiting committee members to serve at no expense to the state and establishes that the Bureau may facilitate reimbursements from an institution under evaluation to cover visiting committee expenses, and entitles visiting committee members to defense and indemnification. h) Provides that, once complaints reach final disposition, the Bureau shall make the nature and disposition of the complaint available to the public on the Bureau's internet website. AB 2746 Page 5 i) Requires the Bureau to establish a program to target unapproved schools and take all legally appropriate action. 6)Provides that, except for any institutions exempted from this Act, all private postsecondary institutions operating in California must have the approval of the Bureau, as follows: a) Requires the Bureau to establish minimum operating standards for institutions, and specifies that the standards should address educational program content, withdrawal policies, institutional financial stability, and the handling of records and transcripts. b) Requires institutions to present sufficient evidence to the Bureau of meeting the operating standards outlined by the Bureau, and requires the Bureau to independently verify the information provided. c) Requires the Bureau to establish a process whereby institutions can obtain approval to operate. d) Establishes that approvals to operate shall be for five year terms. e) Requires that, for an institution that is granted approval by the Bureau by means of that institution's accreditation, the term of approval coincide with the accreditation term, and that institution comply with all other applicable standards in this Act. f) Requires the Bureau to adopt regulations covering the renewal of an approval to operate, and requires that a renewal of approval coincide with the institution demonstrating continued capacity to meet minimum standards. g) Provides that approval from any other state agency to offer an educational program shall be sufficient to satisfy the requirements of the Bureau. h) Requires prior authorization from the Bureau for institutions wishing to make substantive changes, such as a change in ownership or educational objectives. Provides that the institution's approval may be suspended or revoked for failing to obtain prior approval. Requires the Bureau to establish a process for reviewing requests for AB 2746 Page 6 authorization to make substantive changes. 7)Establishes the following fair business practices: a) Prohibits institutions from conducting several actions, including using the seal of the state on a diploma, promising employment, presenting or advertising specified information including inaccurate information, using "help wanted" ads to solicit students, compensating students for recruitment activities, making untrue or misleading statements regarding, directing an individual to violate this Act or persuading a student not to file a complaint, among other prohibitions. b) Prohibits institutions from merging classes unless students receive the same amount of instruction; prohibits institutions from, after a student has enrolled, making unscheduled suspensions of classes unless caused by circumstances beyond institutional control, or changing the day or time of the class unless certain other requirements are met; prohibits institutions from moving the location of classes without meeting certain requirements, or converting the means of delivery of instruction. c) Provides that, for career fields that require licensure by the state, institutions offering educational programs must have approval to conduct that educational program. d) Allows institutions, when offering courses with a term of four months or less, to require payment of all tuition and fees on the first day of instruction; prohibits an institution from requiring more than one term/four months of advance payment at a time until 50% of coursework has been completed; provides exemptions from the aforementioned requirements for the purposes of federal and state financial aid payments; and allows, under certain conditions, students to choose to pay all fees and tuition upon enrollment. Requires that institutions providing private loan funding ensure that a student is not obligated for indebtedness that exceeds the total cost of the current term of enrollment. e) Prohibits and institution from requiring prospective students to provide personal contact information before being granted access to educational program information via the institution's internet website. AB 2746 Page 7 8)Requires recruiters for institutions to be employees, requires identification from the institution, and requires recruiters to physically possess the identification when recruiting. 9)Establishes the following requirements in regards to enrollment and enrollment agreements: a) Students shall enroll solely by signing an enrollment agreement. b) Students shall be provided a catalog or brochure containing, at a minimum, admission policies including acceptance of credits from other institutions, a description of the instruction provided in the student's program of interest and other specified information, the number of credit hours of the program, attendance and refund policies, qualifications of faculty, the schedule of charges, information regarding institutional participation and the student eligibility in state and federal financial aid programs, and a description of the student's rights and responsibilities under the STRF. c) Provides that an enrollment agreement shall not be enforceable unless the student has first received the institution's brochure or catalog. d) Requires that an "ability to benefit student" (defined as a student without a certificate of graduation from a school providing secondary education) take a USDE prescribed examination and achieve a score specified by the USDE showing that the student may benefit from the training offered before executing an enrollment agreement. e) Requires institutions offering programs in professions that require licensure to, during enrollment, exercise reasonable care to determine if a student will be eligible to obtain licensure; and for students that may be disqualified from licensure due to age, physical conditions, or criminal convictions, prohibits the institution from executing an enrollment agreement unless the student's stated objective is other than licensure. f) Prohibits an institution from discussing job placement assistance or salaries during the enrollment process, but AB 2746 Page 8 allows an institution to discuss job placement assistance after the student has completed 60% of the program. g) Requires an enrollment agreement to include the following: i) A statement with the Bureau's contact information informing the student that they may direct questions regarding the enrollment agreement to the Bureau, ii) The name and specified information regarding the educational program, and the name and address of the institution where the classes will be held. iii) A schedule of total charges, including a list of non-refundable charges, and on the same page as where the student will sign, underlined and in capital letters, the total charges. iv) A statement that the student is responsible for paying the STRF assessment. v) A clear statement that the agreement is legally binding when signed and accepted. vi) Specified disclosure language regarding a student's understanding of rights and responsibilities, requiring the student's signature. h) Requires specified disclosures to a student prior to executing an enrollment agreement, including: i) Disclosure of completion rates (calculated through a specific process) and disclosures supporting institutional claims relative to placement rates, starting salaries, or license examination passage rates. If the program is too new to provide such data, requires a notice to that effect. ii) Specified disclosure language informing the student that credit transferability is at the discretion of the institution to which the student seeks to transfer, and informing the student of his/her responsibility to ensure that this program meets his/her long-term educational goals. AB 2746 Page 9 iii) Disclosure of a buyer's right to cancel, and requires that the institution provide a student with the right to cancel up until the first day of class or the seventh day after enrollment, whichever is later. Requires disclosure of the refund policy and examples of its application, and requires a description of the procedures a student must follow to cancel the enrollment agreement and obtain a refund. iv) A statement provided by the Bureau specifying the requirement that a student pay a state-imposed assessment for the STRF and a statement regarding the purpose of the STRF and requirements for filing a claim. v) A statement specifying that if the student obtains a loan to pay for the educational program, the student is responsible for repaying the full amount of the loan plus interest, less the amount of any refund. vi) A statement specifying that if the student defaults on a state or federally guaranteed loan, the state or federal government or loan guarantee agency may take certain action against the student, and the student may not be eligible for any other financial aid or government assistance until the loan is repaid. vii) A statement specifying that the institution is not a public institution and a statement specifying whether the institution has a pending bankruptcy petition. i) Requires disclosure forms to be acknowledged by a student's initials or signature and prohibits a student from waiving receipt or any term. j) Requires an enrollment agreement to be written in a language that is easily understood, and if English is not the student's primary language and the student is unable to understand the terms and conditions of the agreement, then the student is entitled to a clear explanation of the terms in his/her primary language, and provides that if recruitment was conducted in a language other than English then the enrollment agreement and related disclosures shall be in that language. AB 2746 Page 10 aa) Provides that an enrollment agreement becomes operative when the student attends his/her first class. bb) Prohibits an enrollment agreement from containing a provision that requires a student to invoke internal institutional dispute procedures before enforcing any contractual or other legal rights or remedies, but does not preclude a requirement for binding arbitration as authorized under the Federal Arbitration Act. cc) Provides that an enrollment agreement is not enforceable unless, at the time of execution, the institution held approval to operate. 10)Requires an institution extending credit or lending money for educational costs to a student, to place a notice in the lending documents informing the student that they may assert against the holder of the promissory note all of the claims and defense that could be asserted against the institution up to the amount already paid under the promissory note; provides that such a lending note is not enforceable unless the institution held an approval to operate at the time of execution; and provides that institutional loans to students must comply with the Federal Truth in Lending Act. 11)Establishes the following requirements for cancellations, withdrawals, and refunds: a) Requires an institution that participates in and complies with federal student aid program regulations under Title IV of the Higher Education Act of 1965 to advise students that cancellation notices must be in writing and that a withdrawal may be noticed by a student in writing or by the student not attending courses; and requires the institution to provide a pro rata refund to students who completed 60% or less of the period of attendance. b) Requires that, for institutions not participating in the federal student financial aid program: i) The institution advise students that cancellation notices must be in writing and that a withdrawal may be noticed by a student in writing or by the student's conduct including lack of attendance. AB 2746 Page 11 ii) The institution refund 100% of the amount paid less a reasonable deposit not to exceed $250 if notice of cancellation is made through attendance at the first class or the seventh class day after enrollment, whichever is later. iii) Allows the Bureau to adopt regulations establishing a different method of calculating refunds for instruction delivered by other means such as distance education. iv) The institution establishes a refund policy and entitles students who have completed 60% or less of the period of attendance to a pro rata refund. v) The institution pay or credit refunds within 45 days of a student's cancellation or withdrawal. vi) Allows an institution offering educational programs for which the aforementioned refund calculations cannot be utilized to petition the Bureau for alternative methods of calculating tuition refunds. c) Provides that a student may not waive any of the aforementioned provisions. 12)Provides that the Bureau shall adopt regulations governing the administration and maintenance of the STRF, including requirements related to assessments on students and student claims against the STRF; provides that the STRF monies are continually appropriated to the Bureau; and provides that the STRF may not exceed $25 million at any time. 13)Establishes the following requirements for institutional closures and teach-outs: a) Requires an institution to notify the Bureau in writing at least 30 days prior to closing, and requires the notice to include a closure plan that speaks to, at least, providing teach-outs of educational programs or arrangements for making appropriate refunds, a plan for providing students information on federal financial aid programs and institutional closures if the institution is a participant in these programs, and a plan for the disposition of student records. AB 2746 Page 12 b) Provides that an institution will be in default of an enrollment agreement if an institution closes prior to completion of the program. If the Bureau finds that the institution has made arrangements for the student to complete their program at another institution for the same cost to the student, the student's institutional charges may be refunded on a pro rata basis; if the institution does not make such a provision, the student is entitled to receive a total refund of all institutional charges. c) Requires an institution to provide the Bureau with information including student records and transcripts. 14)Requires institutions to collect, maintain, and report to the Bureau annually the number of students who enroll and the number of students who complete institutional programs. Requires institutions that advertise or make representations regarding student placement rates to report placement rate data to the Bureau annually and establishes requirements for calculating such data. Provides that if an institution's accreditation agency has quantitative student completion and placement requirements in its standards, an institution in compliance with those standards is considered in compliance with the aforementioned requirements. Requires an institution to use the aforementioned data in the Student Performance Fact Sheet. 15)Establishes the following processes and penalties in regards to compliance with and enforcement of this Act: a) Establishes that the Bureau shall determine any institution's compliance with this Act, and that the Bureau shall have the authority to require additional reports be filed by an institution, to send staff for institutional site visits, and to require documents and responses from any institution in order to monitor compliance. Provides that when the Bureau has reason to believe that an institution is out of compliance, it may conduct an investigation of that institution. b) Provides that the Bureau may perform unannounced inspections of institutions. c) Provides that the Bureau may impose penalties, including mandating a specified timetable for remedying AB 2746 Page 13 noncompliance, imposing fines, placing the institution on probation, or suspending or revoking approval, as deemed appropriate by the Bureau and depending on the severity of the violation. d) Requires the Bureau to seek to resolve instances of noncompliance to the extent possible, including the use of alternative dispute resolution procedures. e) Requires an institution to submit an annual report by July 1 to the Bureau, in a format prescribed by the Bureau, that includes, the total number of students enrolled, degrees awarded, of degrees offered, educational program completion rates, and the total charges for each educational program, including a statement indicating whether the institution is current in remitting STRF assessments, along with any other information deemed necessary by the Bureau. f) Requires Bureau staff who detects a minor violation of this Act during inspection, to issue a notice to comply before leaving the institution. i) Requires the Bureau to establish a formal appeal process through regulation, and exempts the regulation from the provisions of the Administrative Procedures Act; provides that, unless a writ of mandate is filed, a citation issued, or a disciplinary proceeding initiated, a notice to comply shall not be subject to the California Public Records Act. ii) Provides that an institution that receives a notice to comply shall have no more than 30 days from the date of inspection to remedy the noncompliance, and provides that the institution shall sign and return the notice to comply upon achieving compliance. iii) Requires a single notice to comply be issued separately, listing all the minor violations cited during the inspection, and provides that no notice shall be issued if compliance is achieved immediately in the presence of the Bureau staff. Provides that immediate compliance may be noted in the inspection report but not subject to further action by the Bureau. AB 2746 Page 14 iv) Provides that a notice to comply is the only means the Bureau may use to cite a minor violation discovered during an inspection and prohibits the Bureau from taking other enforcement action against an institution for a notice to comply if the institution complies with this process. v) Provides that if an institution disagrees with a notice to comply, the institution shall send the Bureau a written notice of disagreement, and allows the agency to take administrative enforcement action to ensure compliance with the requirements of the notice to comply. vi) Allows the Bureau to take administrative enforcement action against an institution that fails to comply with a notice within the specified time period. vii) Defines a minor violation as a deviation from the requirements of this Act or the regulations adopted pursuant to this Act, that the Bureau does not find to result in the harm to students and is not committed knowingly or intentionally or a repeated violation or a pattern of neglect or disregard for the provisions of the Act. g) Allows the Bureau to issue a citation for noncompliance of the Act or regulations found during an investigation, and provides that the citation may contain an order of abatement that may require the demonstration of future compliance, or an administrative fine not to exceed $10,000 per violation. Provides specific criteria for the Bureau to consider when assessing the amount of administrative fines. Provides that the citation shall be in writing and shall contain specified information regarding the violation and the institution's right to a hearing within 30 days. Provides that an administrative fine is due either 30 days from citation, or 30 days from the final judgment following a hearing. Provides that all administrative fines are to be deposited into the PPEAF. h) Allows the Bureau to suspend or revoke an institution's approval to operate for fraud or for repeated violations of the Act that have caused harm to students. Provides that the Bureau shall adopt regulations governing probation and suspension of an approval to operate and that the Bureau AB 2746 Page 15 may seek reimbursement for the costs of an investigation. Provides that an institution shall not be responsible for paying the cost of an investigation to more than one agency. i) Provides that if the Bureau determines the need to make an emergency decision to protect students, prevent misrepresentation to the public, or prevent the loss of public funds or monies paid by students, it may do so pursuant to an outlined process and in accordance with Bureau-adopted regulations. j) Provides that the Bureau may bring an action for equitable relief for violations of this Act, including restitution, a temporary restraining order, the appointment of a receiver, and a preliminary or permanent injunction and that the action may be brought in the county in which the defendant resides or in the county in which any violation has occurred or may occur; and provides that these remedies supplement, and do not supplant, any other remedies and penalties provided under law. aa) Provides that in the case of adverse administrative action by the Bureau, an institution may request a hearing in accordance with law. bb) Provides any individual who believes an institution has violated this Act or subsequent regulations may file a complaint with the Bureau and that the Bureau shall take action to verify the complaint, and provides the Bureau with authority to take appropriate administrative enforcement action upon discovering the facts in regards to the complaint. cc) Provides that if the Bureau finds that an institution's violation of this Act or subsequent regulations has caused damage or loss to a student or group of students, the Bureau may order the institution to pay appropriate refunds or restitution to that student or group of students. dd) Provides that a student or graduate may bring an action for any material violation of this Act that is not a minor violation, as defined, and upon prevailing in such an action, is entitled to relief in the amount that would compensate for all detriment proximately caused. Provides AB 2746 Page 16 that this remedy supplements, and does not supplant, other remedies and penalties provided in law. ee) Establishes that knowingly operating an institution without approval or knowingly providing false information to the Bureau on an application shall be considered infractions and are public offenses. ff) Requires an institution to maintain an agent for service of process within the state, and provide the agent's name and contact information to the Bureau; makes the aforementioned information available to the public upon request. gg) Provides that the Bureau may not subject any person to a fine exceeding $50,000 for operating an institution without Bureau approval. 16)Provides for severability of the Act, in that, if any provisions in this Act are held as invalid, that invalidity shall not effect other provisions, so long as those provisions do not require the invalid provisions in order to be applied. 17)Repeals the Act on January 1, 2015 unless a later statute is enacted to extend this date. 18)Requires the Bureau to provide annual progress updates to the Legislature, in the form of oversight hearings by the committee(s) with jurisdiction, regarding the enforcement of this Act and subsequent regulations. 19)Requires the Legislative Analyst's Office to provide the Legislature and the Governor, by July 1, 2013, a comprehensive review on the extent to which the Bureau has implemented the provisions of this Act. 20)Prohibits a person, beginning January 1, 2009, from owning or operating an institution or providing driving instruction for motortrucks of three or more axles that are more than 6,000 pounds unless the institution has been approved by the Department of Motor Vehicles (DMV). Requires the institution to maintain proof of compliance with liability insurance requirements and a satisfactory safety rating by the California Highway Patrol. Requires the institution to maintain the vehicles used in training in safe mechanical AB 2746 Page 17 condition with all maintenance records. Provides that driving instructions must meet other specified requirements, as well as any other terms and conditions required by the DMV. EXISTING LAW: 1)Expresses the intent of the Legislature to provide for the protection and interests of students and institutions that have matters pending under the Former Act, which became inoperative on July 1, 2007. 2)Provides for the continuation of all matters pending before the Former Bureau on July 1, 2007, until July 1, 2008. 3)Allows, until July 1, 2008, limited state oversight of private postsecondary schools by the DCA. 4)Creates the Bureau for Private Postsecondary Education (Bureau). FISCAL EFFECT : Unknown COMMENTS : Purpose of this Bill: The author notes that there is no existing law governing private postsecondary education in California, as the Former Act was repealed on July 1, 2007. The stop-gap legislation that established minimal temporary oversight of private postsecondary institutions is set to expire July 1, 2008. The author believes that this bill builds on the successful framework utilized in other states to establish a regulatory structure for private institutions with strong and effective student protections, meaningful institutional standards, and a sensible workload for the Bureau. Background on the Former Bureau and Former Act: During the late 1980s, when regulation of the private postsecondary education industry was carried out by a division within the State Department of Education, the state developed a reputation as the "diploma mill capital of the world." As a result of concerns over the integrity and value of the degrees issued by these institutions, the Former Act and the Maxine Waters School Reform and Student Protection Act were enacted. The regulatory framework established by the merging of the Waters Act and the Former Act led to duplicative and conflicting statutory provisions plaguing California's oversight of these institutions with problems that continued through the sunset of the law on AB 2746 Page 18 January 1, 2007. In 2004, because of the persistent problems with the Former Bureau in enforcing the provisions of the Former Act, the Legislature enacted SB 1544 (Figueroa), which required the appointment of an Enforcement Monitor (Monitor) to provide an in-depth and impartial examination of the Former Bureau's operations. The Monitor's report (Report), presented to the Joint Committee on Boards, Commissions and Consumer Protection on December 7, 2005, outlined a "twenty-year record of repeatedly identified, fundamental problems in every one of the Bureau's key operations." The Report found that the Former Bureau both inadequately protected consumers and impeded the expansion of quality postsecondary and vocational educational opportunities. The Monitor's specific findings included: 1)Licensing: The Monitor found that numerous schools operated for years under "temporary" licenses; in 2005, over a quarter (75) of approved degree-granting schools were operating on temporary approvals and of those, 29 operated on such approvals for more than two years, seven for more than four years. 2)Enforcement: The Monitor found that the Former Bureau did not conduct unannounced site visits as required by law, never revoked the license of a school, and had never placed a school on probation. The Monitor further found that the fine amounts for unapproved schools ($2,500) were too low to promote compliance, and fines were rarely assessed. The Monitor noted that inadequate staffing levels led to complaints that unapproved schools were not being investigated; and even when investigated, the investigations largely relied on documents generated by the schools themselves. The Monitor noted that even with better investigative resources, the remedies at the Former Bureau's disposal were inadequate; the Former Bureau did not have the power to order refunds or restitution to a student or group of students. 3)Reporting: The Monitor found that a significant number of the reports required from schools by law, including reports showing how many students actually obtain jobs six months after graduation, were past due and chronically late, and the Former Bureau never verified the data. 4)STRF Program: The Monitor reported that claims for payment AB 2746 Page 19 sometimes lingered for more than two years, the Former Bureau rarely ensured that institutions were paying the right amount of fees, and the staff believed that only about half of the legally required fees were being paid. Due to these STRF shortages, the Former Bureau routinely used fees paid by degree-granting institutions to pay claims of students from non-degree granting schools. 5)Bureau Insolvency: The Monitor's report identified significant problems with the fee structure; the statute-imposed study found that revenue was "insufficient to support ongoing operations," but the Former Bureau failed to recommend raising fees. 6)Arbitrary Regulatory Practices: The Monitor found that the Former Bureau's regulatory practices were unpredictable, creating a financially risky environment for schools seeking to open in California, which potentially impeded educational opportunities. Specifically, the Monitor found that the Former Bureau assessed fees on schools without the statutory or regulatory authority to do so; due to the gross deficiencies in the enforcement program, the Former Bureau attempted to pursue enforcement by forcing schools to agree to conditions before granting approval; and the Former Bureau inappropriately required schools to submit re-approval applications beyond what was required by law. The concerns and recommendations raised by the Monitor were generally consistent with concerns raised by the California Postsecondary Education Commission (CPEC) in 1995, an independent report from Price Waterhouse in 1997, within a Bureau of State Audit's report in 2000, and the DCA's own internal investigation in 2002. The Former Bureau, by the time of its sunset, had not addressed many of its fundamental problems with oversight and enforcement; however, as the Monitor's report identifies, many of the root causes of enforcement and oversight failures can be traced back to deficiencies within the Former Act. The Monitor's Report identified three major structural deficiencies within the Former Act and made recommendations for addressing those deficiencies: 1)The Monitor indicated that the Former Act's different standards and requirements for different categories of AB 2746 Page 20 institutions were inherently complex and recommended a consolidated system that would apply to all institutions. 2)The Monitor noted the 9 to 12 month time frame for granting approval to new institutions was insufficient, leading to the Former Bureau heavily relying on temporary approvals. The Monitor recommended establishing an approval process for institutions similar to the process for institutions to obtain accreditation, lasting two to three years, and allowing the Bureau to monitor the institution as it matures and demonstrates its ability to comply with the state's standards and requirements. 3)The Monitor found that the Former Act's sanctions and penalties were insufficient to deter future misconduct by industry participants and recommended providing the Bureau with the authority to issue formal warning notices, increasing fine amounts, and separating the enforcement process from the renewal process. The Monitor made several other recommendations including: allowing consumers to access enforcement and other public documents via the Bureau's website; improving the approval process to have schools evaluated over the course of years; establishing a proactive enforcement program to target unapproved schools; simplifying the institutional approval applications process; revising the annual reporting statutes to more clearly outline the Legislature's expectations of the Bureau; adopting a meaningful minimum school financial standard; completing initial site reviews within 4 to 6 months of schools opening; implementing unannounced inspections as required by the Former Act; seeking additional resources to allow for several hundred site visits per year; levying higher fines to cover the costs of implementing the Act; and allowing public access to school complaint information via the Bureau's website. Does This Bill Meet Shared Goals for the Oversight of Private Postsecondary Education? As noted above, many of the deficiencies with the Former Bureau can be directly linked to deficiencies within the Former Act. As the Legislature sets out to establish a successor Bureau, the Legislature should evaluate the degree to which the successor Act corrects the statutory deficiencies identified in the Former Act. As with SB 823 (Perata), the private postsecondary AB 2746 Page 21 oversight measure approved by this Committee in July 2007 and now pending in the Assembly Appropriations Committee, this bill is a work in progress that will likely undergo many changes and alterations should it pass out of this Committee and continue to move through the Legislature. Many of the amendments recommended by Committee staff have been incorporated into the April 9, 2008, amended version of this bill. However, the following policy questions are raised without an attempt at reconciliation, those questions are for the author and Legislature to consider should this bill move forward. Student Protections: The paramount goal of any such law is the protection of students, both to prevent abuse and to ensure quality. This bill contains an array of requirements aimed at protecting students, including disclosures, rules for cancellation and refunds, admission standards, enrollment agreement requirements, restrictions on recruiting and false advertising, and safeguards against disruption of class schedules. However, some requirements of the Former Act, such as disclosure of placement and completion rates, clear notice of non-transferability of credits, and a private right of action, are not found in this bill. Further, while there are many specific institutional requirements outlined in this bill, the majority of oversight and enforcement activities are left to Bureau discretion and the adoption of implementing regulations by the Bureau. Until those regulations are implemented, it is difficult to know how well the student protections and institution monitoring and enforcement activities respond to the concerns and recommendations raised by the Monitor. The degree to which these outlined protections will result in greater protection for students will depend largely on the degree to which the Bureau, and the students themselves, can and do take action to ensure institutional compliance with the Act. Regulatory Discretion: As noted above, this bill outlines many specific requirements for institutions; however, the adoption of implementing regulations and the general enforcement of this Act is largely left to the discretion of the Bureau. This bill contains permissive language, which allows rather than requires the Bureau to take action to ensure the provisions of the Act are followed. While there are statutory examples of the successful delegation of decisions to specific agencies, the Former Bureau failed to demonstrate an ability to establish AB 2746 Page 22 appropriate regulations to carry out its basic responsibilities. The sponsor has informed committee staff that the language in this bill is modeled after the permissive language contained in other DCA statutory programs. However, the Legislature may wish to consider whether it is appropriate to remove some of the Bureau's enforcement discretion, making enforcement activities mandatory instead of discretionary. Appropriate Exemptions: No challenge is greater than deciding which institutions need state oversight and which do not. The current version of this bill contains a mixture of exemptions, including: Title IV Financial Aid Participants : Institutions participating in Federal Higher Education Act Title IV financial aid programs are exempt from this Act. This provision aims at exempting institutions accredited by a USDE-approved accrediting body, meaning that the institution provides basic student support services and has some level of ongoing oversight by the USDE. In evaluating institutions for Title IV programs, the USDE examines three major factors including institutional eligibility (based on accreditation and other factors), administrative capability, and financial responsibility. While this exemption largely focuses the Bureau's resources on unaccredited schools, where it can be argued that private loan and other abuses are more prevalent, the Legislature may wish to clarify the scope of the exemption should this bill move forward. For example, in order to qualify for this exemption, should these institutions also be required to participate in the Cal Grant program? And, are there areas where the state should keep some oversight of institutions, such as institutions granted provisional approval or those who have received a negative accreditation action? The Legislature may also wish to require the Legislative Analyst's Office to examine and report on the sufficiency of this exemption. Programs Costing Less Than $2,500 : Institutions that provide educational programs for charges less than $2,500, when no part of the charges are paid by state or federal financial aid programs, are exempt from this Act. The threshold for exemption from the Former Act was $500, and the threshold for exemption in SB 823 (Perata) is $1,000. Should this bill move forward, the author and Legislature AB 2746 Page 23 may wish to evaluate whether $2500 is an appropriate threshold for exemption. Flight Instruction Institutions : This bill provides an exemption for institutions certified to offer flight instruction and aircraft maintenance by the Federal Aviation Administration (FAA). FAA-approved schools are required to meet standards with respect to equipment, facilities, personnel, and curricula. It does not appear that the FAA examines the financial solvency of these institutions. Recent examples of flight training schools filing bankruptcy, such as the Nevada-based Silver State Helicopters, and leaving students without certification and with significant amounts of debt may be reason for the author and the Legislature to reevaluate the appropriateness of this exemption. REGISTERED SUPPORT / OPPOSITION : Support Department of Consumer Affairs (Sponsor) Support Based on the March 24, 2008 Version of this Bill: American InterContinental University Association of Independent California Colleges and Universities Association of Reporter Training Schools Brooks Institute of Photography, Santa Barbara and Ventura California Association of Private Postsecondary Schools California Culinary Academy, San Francisco California School of Culinary Arts, Pasadena Corinthian Colleges, Inc. International Academy of Design and Technology, Sacramento Kitchen Academy Hollywood and Sacramento Log Cabin Republicans Western Pacific Truck School Opposition Opposition Based on the March 24, 2008 Version of this Bill: Accredited Out of State Colleges and Universities in California Association for Private Postsecondary Education in California AB 2746 Page 24 Center for Public Interest Law Consumer Attorneys of California Consumers Union Education Management Corporation Institute for Advanced Study of Human Sexuality Legal Aid Foundation of Los Angeles Service Employees International Union, Local 1000 Sanville Institute Western Institute for Social Research Analysis Prepared by : Laura Metune / HIGHER ED. / (916) 319-3960