BILL ANALYSIS Ó
AB 573
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ASSEMBLY THIRD READING
AB
573 (Medina and McCarty)
As Amended May 11, 2015
2/3 vote. Urgency
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|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, | |
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| | |Jones-Sawyer, | |
| | |Levine, Linder, | |
| | |Low, Santiago, | |
| | |Weber, Williams | |
| | | | |
| | | | |
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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,
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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
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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
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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
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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.
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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
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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
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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
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