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
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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
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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
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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.
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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
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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