BILL ANALYSIS Ó AB 573 Page 1 ASSEMBLY THIRD READING AB 573 (Medina and McCarty) As Amended May 11, 2015 2/3 vote. Urgency ------------------------------------------------------------------- |Committee |Votes |Ayes |Noes | | | | | | | | | | | |----------------+------+--------------------+----------------------| |Higher |12-0 |Medina, Baker, | | |Education | |Bloom, Chávez, | | | | |Harper, Irwin, | | | | |Levine, Linder, | | | | |Low, Santiago, | | | | |Weber, Williams | | | | | | | |----------------+------+--------------------+----------------------| |Appropriations |17-0 |Gomez, Bigelow, | | | | |Bloom, Bonta, | | | | |Calderon, Chang, | | | | |Daly, Eggman, | | | | |Gallagher, Eduardo | | | | |Garcia, Holden, | | | | |Jones, Quirk, | | | | |Rendon, Wagner, | | | | |Weber, Wood | | | | | | | |----------------+------+--------------------+----------------------| |Higher |11-0 |Medina, Baker, | | |Education | |Chávez, Irwin, | | AB 573 Page 2 | | |Jones-Sawyer, | | | | |Levine, Linder, | | | | |Low, Santiago, | | | | |Weber, Williams | | | | | | | | | | | | ------------------------------------------------------------------- SUMMARY: Provides financial and other assistance to students impacted by recent closing of all Heald, Everest, and WyoTech campuses in California, which were owned by Corinthian Colleges, Inc. (CCI). Specifically, this bill: 1)Appropriates $100,000 from the General Fund (GF) to the California Community Colleges (CCC) Chancellor, from GF revenues appropriated for community college districts (Proposition 98 of 1988), for the purposes of a CCC district conducting a statewide media campaign to inform students affected by the CCI closure of educational opportunities available at CCCs; and, provides a CCC Board of Governors (BOG) Fee Waiver, until July 1, 2018, to a student who was enrolled at a CCI campus on April 27, 2015, or withdrew within 120 days (or period determined) prior to the CCI closure on April 27, 2015, and did not complete their educational program. 2)Provides award recipient students enrolled at a CCI campus that were unable to complete their educational program due to the closure shall not have the award years utilized at a CCI campus included in the limitation on the number of award years of Cal Grant eligibility. 3)Provides that a student enrolled at a California campus of a CCI institution, or a California student enrolled in an online program offered by an out-of-state CCI campus, who meets all other eligibility requirements, and was enrolled as of April 27, AB 573 Page 3 2015, or withdrew within 120 days of that date (or period determined) is eligible for the Student Tuition Recovery Fund (STRF); increases the maximum allowable fund balance in the STRF from $25 million to $50 million; and, establishes legislative intent that unencumbered restitution funds awarded to students of this state from a lawsuit involving CCI be used to repay any STRF funds provided to those students pursuant to this act. 4)Requires the Bureau for Private Postsecondary Education (BPPE) to establish and coordinate a standing closed school task force (task force) to respond to the closure, as specified, of institutions that do not comply with the requirements of the law; and, provides that the members of the task force should include, but not necessarily be limited to, representatives on behalf of the California Student Aid Commission (CSAC), the Department of Justice, the Office of the CCC Chancellor, the Department of Veterans Affairs (CalVet), and one or more legal aid organizations. 5)Requires BPPE, upon the unanticipated closure of an institution, to provide timely (within 30 days) grant funds to local legal aid organizations, which may include organizations designed specifically to assist veteran students, to assist students, for no less than one year following the closure of the institution, with loan discharge and tuition recovery related claims; provides that the amount of grant funds shall be calculated by multiplying the number of students affected by the school closure by $100; provides that legal aid organizations that receive grants should be located in the areas of the state affected by the institutions closure and that legal aid organizations that receive grants may give priority to low income students if demand exceeds available grant funds; requires legal aid organizations that receive grants to report to the BPPE at the end of the grant on the number of students served from the date of the institution's closure; and, appropriates $1.3 million from the BPPE Administrative Fund to the BPPE for the aforementioned purposes to assist students AB 573 Page 4 affected by the closure of CCI. 6)Extends the suspension of the requirement that the BPPE Administrative Fund reserve not exceed six months of operating expenses for an additional year (to July 1, 2016). 7)Declares this bill an urgency statute to take effect immediately. EXISTING LAW: 1)Establishes the BPPE within the Department of Consumer Affairs with the primary function of providing protection of students/consumers through the regulation and oversight of private postsecondary educational institutions. BPPE oversight activities are funded by licensing fees paid by regulated institutions. Existing law also provides for a variety of exemptions from oversight by the Bureau for specific types of institutions, including institutions accredited by the Western Association of Schools and Colleges (WASC). However, pursuant to SB 1247 (Lieu), Chapter 840, Statutes of 2014, all for-profit institutions serving veterans and receiving federal Title 38 funds, regardless of accreditation status, are required to obtain BPPE approval by January 1, 2016. (Education Code Section 94800 et seq.) 2)Establishes the STRF, administered by the BPPE, to relieve or mitigate economic loss suffered by students enrolled at a non-exempt private postsecondary education institution due to the institutions' closure, the institutions' failure to pay refunds or reimburse loan proceeds, or the institutions' failure to pay students' restitution award for a violation of the Private Postsecondary Education Act. STRF is capped in statute at $25 million. Institutions are required to assess students an AB 573 Page 5 amount established in regulation by the BPPE and remit fund to the BPPE for STRF. In 2010, that amount was established at $2.50 per $1,000 of tuition charged. In 2013, that amount was reduced to $0.50 per $1,000. In 2015, this amount was reduced to $0.00, as the STRF had exceeded the statutory cap (STRF is currently at approximately $28 million). (Education Code Sections 94923 to 94925) FISCAL EFFECT: According to the Assembly Appropriations Committee, it has been estimated that approximately 16,000 students have been impacted by the school closures, including almost 12,000 from Heald. 1)BOG Fee Waiver. The reduction in CCC fee revenues would depend on the number of impacted students who enroll at a CCC, how many CCC units these students take to complete their CCC educational goals, and how many of these students would not otherwise qualify for a BOG fee waiver. (About two-thirds of the entire CCC course load is taken by students currently receiving a BOG waiver.) For every 1,000 full-time equivalent students (FTES) from the impacted schools who would not otherwise obtain a fee waiver, the revenue loss to the community colleges would be $1.4 million annually. 2)Legal Assistance Grants. Special fund costs to the BPPE of $1.3 million to legal aid organizations received grants from the BPPE for assisting impacted students. [BPPE Administrative Fund] 3)STRF Payments. STRF costs will depend on the number of impacted Heald students making STRF claims and the amounts of those claims eligible for reimbursement. 4)Cal Grants. According to CSAC, almost 2,800 of the impacted Heald students were awarded and used their Cal Grants. Because AB 573 Page 6 Heald was ineligible to participate in the Cal Grant program for several years, virtually all of these students have used one year or less of their Cal Grant eligibility. One additional award year of eligibility for these students would equate to a GF cost of around $10 million. 5)This bill appropriates $100,000 for CCC counseling [Proposition 98 GF] and costs for the BPPE task force should be minor and absorbable. COMMENTS: Background. CCI institutions offered a range of programs, including certificate programs, with tuition and fees that ranged from $13,100 and $21,338, associate's degree programs with tuition and fees that ranged from $33,120 and $42,820, and bachelor's degree programs that were between $60,096 and $75,384. According to a 2014 complaint filed by the Consumer Financial Protection Bureau (CFPB), most students attending CCI were low-income, or the first in their families to seek an education beyond high school. In 2012, CCI reported that 85% of its students had family incomes of less than $45,000 a year. An estimated 57% of CCI students had household incomes of $19,000 or less, and 35% of CCI students had a household income of less than $10,000. Most students attending CCI received federal financial aid; according to CCIs filing with the Securities and Exchange Commission, CCI received 84.8% of net revenue from federal financial aid (Title IV: Pell Grants and Federal Loans). Federal rules require that institutions receive at least 10% of revenues from non-Title IV sources ("90/10 rule"); however, this can include state aid, veteran's aid, and private loans (among other sources). According to the allegations in the CFPB complaint, in order to meet the 90/10 rule, CCI increased tuition in order to create "funding gaps" so that students would be required to take out private loans to pay for their education. CCI offered students their own "Genesis" loans to cover the funding gaps. AB 573 Page 7 According to CFPB, by 2014 the outstanding balance of Genesis loans totaled $560 million. The aforementioned CFPB complaint sought, among other monetary penalties and student relief, the rescission of all CCI private loans originated since 2011. In addition to the CFPB complaint, CCI faced a series of legal actions and investigations into unlawful practices, including by 20 state attorneys general, several federal agencies, and the United States Department of Education (USDE). These complaints include allegations largely focused on misrepresenting career options (promising lifetime placement services and providing, at best, temporary assistance), falsifying job placements (including counting one-day employments, paying employers to temporarily hire graduates, and falsifying "self-employment" statistics), and promoting student reliance on CCIs loans that required students to begin repaying while still in programs (staff members were provided bonuses for collecting loan payments, and were encouraged to publically remove students behind on loan payments from class). On June 19, 2014, USDE announced that it had placed CCI on an increased level of financial oversight. Financial stability is a requirement of participation in federal financial aid programs under Higher Education Act Title IV; CCI had failed to provide USDE with required financial disclosures. In response to the USDE decision to delay financial aid funds for 21-days, CCI, which was already facing a cash flow shortage, announced it would likely close. In the summer of 2014, a CCI bankruptcy would have impacted 72,000 students nationwide, with approximately $1 billion in (potentially dischargeable) federal loans. On June 23, 2014, USDE and CCI signed a memorandum of understanding requiring the company to develop a plan to sell and teach-out programs over the next six months. As a part of the agreement, CCI continued enrolling new students in programs. On June 26, 2014, CalVet suspended CCI institutions participation AB 573 Page 8 in Title 38 programs due to the United States Securities and Exchange Commission filing indicating CCI was fiscally unstable. In August of 2014, CalVet withdrew institutional approval at all institutions owned and operated in California by CCI. The 23 campuses (Heald, WyoTech and Everest) were prohibited from receiving GI bill benefits. In order to continue using Title 38 benefits, veteran students were required to transfer/enroll in a California State Approving Agency for Veterans Education eligible school. On November 20, 2014, the Education Credit Management Corporation (ECMC), a nonprofit organization that operates a large student-loan guaranty agency, announced it would purchase 56 campuses from CCI. ECMC created a nonprofit subsidiary, called the Zenith Education Group, to manage the campuses. In December of 2014, USDE approved the sale, and as part of the agreement, CCI/ECMC discharged private student loans (approximately $480 million; 40% of the private student loans) for students whose campuses were sold. Earlier in the year, the CFPB had accused CCI of luring students into its "Genesis" loan program in order for the campus to meet the federal "90/10 rule" with false promises about career counseling and misrepresented job placement statistics. A coalition of student, consumer, veterans and civil rights groups opposed the sale of the CCI campuses, noting that ECMC did not have experience running educational institutions. According to the coalition letter to the USDE, "in the field where ECMC does have experience, its actions have veered more than occasionally into dubious terrain, using ruthless tactics to hound debtors to the point where the company has been sanctioned and reprimanded by judges for abusing the bankruptcy process." The coalition also noted that the terms of the sale would not give students the choice of having their federal loans discharged. California campuses were not included in the sale to ECMC; press AB 573 Page 9 reports contributed ECMC's decision largely to a lawsuit that had been filed in October of 2013, (which remains pending) by Attorney General Kamala Harris that contained a range of allegations about deceptive marketing and job-placement claims. CCI, which is based in Santa Ana, continued to operate and enroll new students at WyoTech (three campuses), Everest (11 campuses), and Heald (10 campuses) campuses throughout California. On April 14, 2015, the USDE announced a $30 million fine against Heald's Salinas and Stockton campuses for fraudulent placement and other advertising (CCI has appealed this fine). The decision effectively barred all Heald campuses from receiving federal funds for new enrollments. On April 16, 2015, CSAC permanently terminated Heald's eligibility for the Cal Grant program (Everest and WyoTech were already not eligible). On April 17, 2015, the Department of Consumer Affairs issued an emergency decision prohibiting Everest and WyoTech campuses from enrolling new students. CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015. Purpose of this bill. According to the author, "this bill will provide economic relief and educational opportunity to the thousands of California students harmed by the closure of CCI. Current state and federal laws provide some relief to some students affected by the closure; this bill ensures all California students are protected. Specifically the bill will help these students access community colleges, allow them to continue to utilize their Cal Grants, and assist them in obtaining forgiveness from Corinthian-associated student loans." Please see the policy committee analysis for a full discussion of this bill. Analysis Prepared by: Laura Metune / HIGHER ED. / (916) 319-3960 FN: 0000376 AB 573 Page 10