BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: AB 573 Hearing Date: June 29,
2015
-----------------------------------------------------------------
|Author: |Medina |
|----------+------------------------------------------------------|
|Version: |June 2, 2015 |
-----------------------------------------------------------------
----------------------------------------------------------------
|Urgency: |Yes |Fiscal: |Yes |
----------------------------------------------------------------
-----------------------------------------------------------------
|Consultant|Sarah Mason |
|: | |
-----------------------------------------------------------------
Subject: Higher education: campus closures: Corinthian
Colleges
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).
Existing law:
1)Establishes the California Private Postsecondary Education Act
(Act) of 2009 until January 1, 2017, and requires the Bureau
of Private Postsecondary Education (Bureau) within the
Department of Consumer Affairs (DCA) to, among other things,
to review, investigate and approve private postsecondary
institutions, programs and courses of instruction pursuant to
the Act and authorizes the Bureau to take formal actions
against an institution/school to ensure compliance with the
Act and even seek closure of an institution/school if
determined necessary. The Act also provides for specified
disclosures and enrollment agreements for students,
requirements for cancellations, withdrawals and refunds, and
that the Bureau shall administer the Student Tuition Recovery
Fund (STRF) to provide refunds to students affected by the
possible closure of an institution/school. (Education Code
(EC) §§ 94800 et seq.)
2)Exempts an institution that is accredited by the Accrediting
AB 573 (Medina) Page 2
of ?
Commission for Senior Colleges and Universities (ACSC),
Western Association of Schools and Colleges (WASC), or the
Accrediting Commission for Community and Junior Colleges
(ACCJC) from the Act and Bureau oversight. Exempts an
institution that is accredited by a regional accrediting
agency, recognized by the United States Department of
Education (USDE) other than WASC from the Act and Bureau
oversight until January 1, 2016, so long as the institution
complies with requirements related to student tuition
recovery. Exempts an institution accredited by an accrediting
agency recognized by USDE for at least 10 years, and has not
been placed on probation or on a greater level than standard
monitoring, or sanctioned, by its accrediting agency; is
headquartered in California and has operated continuously in
this state for at least 25 years; is privately held and prior
to its current exemption, was approved to operate by the
Bureau or its predecessor agency and has experienced no change
of ownership since the institution was last approved; during
its existence, the institution has not filed for bankruptcy
protection; the institution maintains an equity ratio
composite score of at least 1.5 based on the current financial
stability test; at least 12.5 percent of the institution's
revenues are derived from sources other than financial aid
which includes all forms of state or federal student
assistance, including, but not limited to, financial aid
provided to veterans and financial aid through the Cal Grant
Program; the institution's cohort default rate (CDR) does not
exceed 13 percent for the most recent three years, as
published by USDE; the institution has a graduation rate that
exceeds 60 percent, as reported to the Integrated
Postsecondary Education Data System; the institution has not
been subject to any legal or regulatory actions by a state
attorney general for a violation of consumer protection laws
that resulted in monetary settlement, fines, or other
documented violations; the institution provides a pro rata
refund of unearned institutional charges to students who
complete 75 percent or less of the period of attendance; the
institution provides to all students the right to cancel the
enrollment agreement and obtain a refund of charges paid
through attendance at the second class session, or the 14th
day after enrollment, whichever is later; the institution
complies with all other reasonable criteria, necessary to
ensure educational quality and protection of veterans,
established by the California State Approving Agency for
AB 573 (Medina) Page 3
of ?
Veterans Education (CSAAVE). (EC §§ 94874 (i), 94874.1 and
94947)
3)Beginning January 1, 2016, requires for-profit institutions
receiving Title 38 funds and serving veterans to be approved
by the Bureau. (EC § 94874.2)
4)Authorizes an institution exempt from the Act to apply for
Bureau approval and specifies that the institution shall be
subject to all of the provisions of the Act and Bureau
oversight. (EC § 94878)
5)Establishes various fair business practices and prohibits an
institution from engaging in certain activities such as false
advertising, promising or guaranteeing employment. (EC §
94897)
6)Requires institutions offering educational programs designed
to lead to positions in a profession, occupation, trade or
career field requiring licensure to exercise reasonable care
to determine if a student will not be able to obtain licensure
at the time of his or her graduation and requires an
institution to provide a written copy of requirements for
licensure. (EC § 94905 (a))
7)Requires institutions, prior to enrollment, to provide a
prospective student with certain information about the
institution and Bureau, including a description's of the
student's right and responsibilities with respect to the STRF
and a statement describing the purpose and operation of STRF
and requirements for filing a STRF claim. (EC § 94909 (a)
(14))
8)Requires an institution, in making consumer loans to students,
to comply with the Federal Truth in Lending Act. (EC § 94918)
9)Establishes the STRF, administered by the Bureau, 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. Provides that the
STRF shall not exceed $25 million. Institutions are required
AB 573 (Medina) Page 4
of ?
to assess students an amount established in regulation by the
Bureau and remit fund to the Bureau for STRF. In 2010, that
amount was established at $2.50 per $1000 of tuition charged.
In 2013, that amount was reduced to $0.50 per $1000. In 2015,
this amount was reduced to $0.00, as the STRF had exceeded the
statutory cap (STRF is currently at approximately $28
million). (EC §§ 94923 - 94925)
10)Requires an institution, at least 30 days prior to closing,
to notify the Bureau in writing of its intention to close
which shall be accompanied by a closure plan that includes a
plan for providing teach-outs of educational programs.
Provides that if no teach-out plan is contemplated, or for
students who do not wish to participate in a teach-out, the
plan shall include arrangements for making refunds within 45
days from the date of closure, or for institutions that
participate in federal student financial aid programs
arrangements for making refunds and returning federal student
financial aid program funds. Requires an institution, if it
is a participant in federal student financial aid programs, to
provide students information concerning these programs and
institutional closures. Requires the closure plan to include
a plan for the disposition of student records. (EC § 94926)
11)Requires an institution, prior to closing, to provide the
Bureau with pertinent student records, including transcripts,
as determined by the Bureau. Provides that if the institution
is an accredited institution, the Bureau shall be provided
with a plan for the retention of records and transcripts,
approved by the institution's accrediting agency, that
provides information as to how a student may obtain a
transcript or any other information about the student's
coursework and degrees completed. Specifies that these
provisions apply to all private postsecondary institutions,
including those exempt from the Act. (EC § 94927.5)
12)Specifies various disclosure and reporting requirements
around completion, placement, licensure and salary of
students/graduates and establishes various definitions for
this purpose. Requires that the information used to
substantiate the reported job placement, license passage, and
completion rates be documented and maintained by the
institution for five years from the date of the publication of
the rates and authorizes this information to be retained by
AB 573 (Medina) Page 5
of ?
the institution in an electronic format. Requires
institutions to submit an annual report to the Bureau that
includes specified information. (EC §§ 94928-94929.9)
13)Requires fees pursuant to the Act to be deposited in the
Private Postsecondary Education Administration Fund (PPE
Fund). Authorizes the Bureau to adjust fees if it determines
by regulation that the fees established in the Act are
inconsistent with the intent. Prohibits the PPE Fund from
having a reserve balance greater than the amount necessary to
fund six months of authorized operating expenses of the Bureau
in any fiscal year. (EC § 94930)
14)Establishes CSAAVE within CalVet and requires minimum
requirements for postsecondary institutions approved to
participate in federal veteran's education benefits (Title
38), including requiring for-profit institutions to obtain
BPPE approval by January 1, 2016. (EC §§ 67100 et seq.)
15)Establishes the California Community Colleges (CCC) with
oversight and coordination provided by the CCC Board of
Governors (BOG) and Chancellor, and provides that the mission
of CCC is to offer lower-division academic and vocational
instruction to younger and older students, including those
returning to school. (EC § 66010.4)
16)Requires the forty-six dollars per unit per semester fee to
be waived for CCC students who meet specified income
requirements. The BOG is required to establish minimum
academic and progress standards for students receiving a BOG
fee waiver. (EC § 76300)
17)Establishes the Cal Grant Program, administered by the
California Student Aid Commission (CSAC), to provide tuition
and access cost assistance to eligible students attending
qualified institution. Institutions are required to meet a
series of performance standards; including, a three-year
Cohort Default Rate (CDR) of less than 15.5percent and a
Graduation Rate (GR) of no less than 20 percent (this rate
increases to 30 percent in 2016-17). (EC § 69430 et seq.)
18)Title IV of the Federal Higher Education Act of 1965 (HEA),
as amended, establishes the federal student aid program,
administered by USDE to provide grants, loans and work-study
AB 573 (Medina) Page 6
of ?
funds from the federal government to eligible students
enrolled in eligible colleges or career schools. (20 U.S.C.
Sec. 1070 et seq.) Recent federal regulations to improve
integrity of the programs authorized under Title IV of the HEA
established new institutional eligibility requirements for
financial aid, including that institutions be "authorized" by
each state in which they operate, and have an independent
state-level student complaint process. (34 CFR Sec. 600.9)
19)Establishes Legal Services Corporation (LSC) as a 501(c)(3)
nonprofit that provides grants for legal assistance to
low-income Americans. LSC distributes funding to 134
independent nonprofit legal aid programs with nearly 800
offices nationwide. LSC is headed by a bipartisan board of
directors whose 11 members are appointed by the President and
confirmed by the Senate. (42 U.S.C. 2996 et seq.)
This bill:
1)Provides for the following with regards to CCC:
a) Declares legislative intent that the CCC provide
matriculation services, including assessment, counseling,
and academic planning to students enrolled at Corinthian
Colleges, Inc. (CCI) institutions and harmed by the April
27, 2015 closure;
b) Appropriates $100,000 from the General Fund (GF) to the
CCC Chancellor, from GF revenues appropriated for community
college districts (Prop 98), 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,
c) Provides a CCC 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 other period determined)
prior to the CCI closure on April 27, 2015, and did not
complete their educational program.
2)Provides that Cal Grant 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
AB 573 (Medina) Page 7
of ?
years of Cal Grant Awards eligibility. Clarifies that a
student shall be eligible for the restoration of award years
if the student was enrolled at a CCI campus on April 27, 2015,
or had withdrawn from enrollment within 120 days of that date.
Requires the Bureau to provide CSAC with confirmation of
student enrollment. Requires an eligible student, before
January 1, 2017, to notify CSAC of his or her intent to use
the restoration of award years and to enroll in an institution
eligible for initial and renewal Cal Grant awards to be
eligible for that restoration.
3)Provides for the following regarding the STRF:
a) Provides that a student enrolled at a California campus
of a CCI institution, including an institution exempt from
the Act, 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 26, 2015, or withdrew within 120 days of that date
(or greater period determined by the Bureau) is eligible
for the STRF;
b) Increases the maximum allowable fund balance in the STRF
from $25 million to $50 million, and requires the Bureau,
if it stops collecting STRF assessments because the fund
has approached the new maximum balance, to resume
collecting assessments when the fund balance falls below
$45 million (instead of $20 million currently).
4)Requires the Bureau to establish and coordinate a standing
closed school task force:
a) Requires the task force to respond to the closure of
institutions that do not comply with the requirements, as
applicable, of the Act.
b) Requires the task force to ensure that students affected
by a closed school receive accurate and timely information
regarding the school closure process and the students'
rights and responsibilities under federal and state law.
Requires the task force to ensure students are provided
assistance in all of the following:
i) Obtaining refunds, loan discharges, and tuition
AB 573 (Medina) Page 8
of ?
recovery for which the student is eligible;
ii) Obtaining information regarding the option to
transfer credits that the student earned while attending
the institution, including information necessary to help
the student make an informed decision about whether to
seek a loan discharge or to transfer credits; and,
iii) Other support deemed necessary by the task force in
accordance with the Bureau's consumer protection mission.
c) Provides that the members of the task force should
include, but not necessarily be limited to, representatives
on behalf of CSAC, the Department of Justice (DOJ), the
Office of the CCC Chancellor, CalVet, one or more legal aid
organizations and two financial experts, one representing
CCCs and one representing a Bureau-approved institution
that meets the performance requirements of the Cal Grant
program.
5)Provides assistance for student loan related purposes for
students affected by a school closure, as follows:
a) Requires the Bureau, 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;
b) Provides that the amount of grant funds shall be
calculated by multiplying the number of students affected
by the school closure by one hundred dollars ($100);
c) Requires the Bureau to establish an approval process to
ensure each legal aid organization that receives a grant is
a 501 (c)(3) tax-exempt organization in good standing with
the Internal Revenue Service and in compliance with all
applicable laws and requirements as well as demonstrates
expertise in assisting students with, and currently
provides direct legal services to students for, student
loan matters;
AB 573 (Medina) Page 9
of ?
d) Requires a legal aid organization that receives funds
pursuant to these provisions to enter into a grant
agreement with the Bureau and use funds exclusively for the
purposes outlined in this bill. Provides that any unused
funds shall be returned to the Bureau unless a new
agreement is entered into authorizing the organization to
expend the unused funds. Authorizes the Bureau to
terminate the agreement for material breach and provide
written notice of the breach and a reasonable opportunity
of less than 30 days to resolve the breach;
e) Provides that a legal aid organization that receives a
grant may give priority to low-income students if demand
exceeds available grant funds but may otherwise provide
assistance regardless of student income level;
f) Requires a legal aid organization that receives a grant
to report to the Bureau quarterly on the number of students
served from the date of the institution's closure;
g) Outlines the following methods for distribution of the
funds to preapproved legal aid organizations by the Bureau
- 50 percent distributed within 30 days of the date of the
institution's unlawful closure, 25 percent upon the
submission of the legal aid organization's second quarterly
report, 25 percent upon the submission of the legal aid
organization's third quarterly report; and
h) Appropriates one million three-hundred thousand dollars
($1,300,000) from the Private Postsecondary Education
Administration Fund to the Bureau for the aforementioned
purposes to assist students affected by the closure of CCI.
6)Extends the suspension of the requirement that the Private
Postsecondary Education Administration 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 in order to provide immediate educational and
economic relief to the thousands of students harmed by the
closure of CCI.
FISCAL
AB 573 (Medina) Page 10
of ?
EFFECT: This bill is keyed "fiscal" by Legislative Counsel.
According to the Assembly Committee on Appropriations analysis
dated May 6, 2015, approximately 16,000 students were impacted
by CCI school closures and this bill will result in the
following:
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 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.
Legal Assistance Grants. One-time special fund costs to
the Bureau of up to a few hundred thousand dollars,
assuming legal aid organizations received grants from the
Bureau for assisting around 20% of the impacted students.
STRF Payments. The STRF mitigate a student's economic
losses, defined as tuition and institutional charges plus
the cost of equipment and supplies needed for student's
educational program. STRF costs will depend on the number
of impacted Heald students making STRF claims and the
amounts of those claims eligible for reimbursement. If a
Heald student transfers no credits to another educational
institution and in turn receives forgiveness of their
federal loans, the state will incur costs only to the
extent that the loan forgiveness does not cover the
student's economic loss. If a student transfers some or all
of their credits to another institution, their federal loan
will not be forgiven, and they may be eligible for a STRF
payment equivalent to the value of the loan associated with
those credits earned at Heald that are not accepted for
transfer.
Cal Grants. According to CSAC, almost 2,800 of the
impacted Heald students were awarded and used their Cal
Grants. Because 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
AB 573 (Medina) Page 11
of ?
eligibility. Almost two-thirds of these students were
awarded a Cal Grant C, 30% were award Cal Grant B, and the
remaining 4% were awarded a Cal Grant A. Costs will depend
on how many of these students continue their education and
what type of institution they attend. One additional award
year of eligibility for these students would equate to a
General Fund cost of around $10 million.
Costs for CCC counseling and the task force should be
minor and absorbable.
COMMENTS:
1. Purpose. The Author is the Sponsor of this measure.
According to the Author, this bill provides financial and
other assistance to students impacted by recent closing of
all Heald, Everest, and WyoTech campuses in California, which
were owned by CCI. Current state and federal laws provide
some relief to some students affected by the closure and this
bill ensures all California students are protected. The
Author notes that the bill will help these students access
CCCs, allow them to continue to utilize their Cal Grants, and
assist them in obtaining forgiveness from CCI-associated
student loans.
According to the Author, federal loan forgiveness is
available to students who qualify, but only if they do not
transfer any educational credits to another institution. The
STRF is available to California Everest and WyoTech students
but due to an exemption from state oversight, STRF is not
available to Heald students and students enrolled in
out-of-state online programs. The Author notes that not only
are existing relief programs insufficient to support all
California students harmed by the CCI closure, evidence is
surfacing that students are being provided inaccurate and
inconsistent information regarding their rights and options.
For example, a published list of "viable transfer
opportunities" released by USDE upon the CCI closure includes
more than a dozen other for-profit schools that are also
currently under investigation by federal and state
authorities. This bill will ensure that California students
harmed by the closure of private, for-profit colleges have
access to economic relief and educational opportunity.
AB 573 (Medina) Page 12
of ?
2. CCI. CCI institutions offered a range of programs, including
8-12 month certificate programs, with tuition and fees that
from $13,100-$21,338, 24-month 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 (SEC), 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. 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 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 1-day
employments, paying employers to temporarily hire graduates,
and falsifying "self-employment" statistics), and promoting
student reliance on CCIs Genesis loans that required students
to begin repaying loans while still in programs (staff
AB 573 (Medina) Page 13
of ?
members were provided bonuses for collecting Genesis loan
payments, and were encouraged to publically remove students
from class if they were behind on Genesis loan payments).
On June 19, 2014, the 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 Title IV of the HEA; 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 was allowed to
continue enrolling new students in programs.
On June 26, 2014, CSAAVE suspended CCI institutions
participation in Title 38 programs due to the SEC filing
indicating CCI was fiscally unstable. In August of 2014,
CSAAVE 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 CSAAVE eligible school.
On November 20, 2014, the ECMC Group, 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 dollars; 40% of the private student loans) for
students whose campuses were sold. Earlier in the year, 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
AB 573 (Medina) Page 14
of ?
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 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, based in Santa Ana, continued
to operate and enroll new students at WyoTech (3 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
appealed this fine). This 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
DCA 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.
3. The Private Postsecondary Act and Challenges for Students
Impacted by the CCI Closure Resulting from Exemptions In the
Act. After numerous legislative attempts to remedy the laws
and structure governing regulation of private postsecondary
institutions in California, AB 48 (Portantino, Chapter 310,
Statutes of 2009), established the Act and created the Bureau
within DCA for the purpose of regulating private
postsecondary educational institutions that provide
educational services in California. The Act made many
substantive changes that both created a new, solid foundation
for oversight and responded to the major problems with the
AB 573 (Medina) Page 15
of ?
former Act and prior Bureau for Private Postsecondary and
Vocational Education. The Act establishes prohibitions on
false advertising and inappropriate recruiting and requires
disclosure of critical information to students such as
program outlines, graduation and job placement rates, and
license examination information, and ensures colleges justify
those figures. The Act also guarantees students can complete
their educational objectives if their institution closes its
doors while providing the Bureau with enforcement powers
necessary to protect consumers. The Act directs the Bureau
to:
Create a structure that provides an appropriate
level of oversight, including approval of private
postsecondary educational institutions and programs;
Establish minimum operating standards for
California private postsecondary educational
institutions to ensure quality education for students;
Provide students a meaningful opportunity to have
their complaints resolved;
Ensure that private postsecondary educational
institutions offer accurate information to prospective
students on school and student performance, thereby
promoting competition between institutions that rewards
educational quality and employment success; and,
Ensure that all stakeholders have a voice and are
heard in the Bureau's operations and rulemaking process.
The Bureau is required to actively investigate and combat
unlicensed activity, administer the STRF, and conduct
outreach and education activities for private postsecondary
educational institutions and students within the state.
Based on significant and continuous insolvency of the STRF
fund under the prior law, AB 48 set the limit of the STRF
fund at $25 million to ensure that a robust fund is available
to students eligible for claims to relieve or mitigate
economic loss suffered by a student enrolled in an
educational program.
AB 573 (Medina) Page 16
of ?
Under the Act, the Bureau has oversight of all the
non-exempt, private postsecondary institutions located in
California. AB 48 contained numerous exemptions to
state-level oversight, the most notable of which is an
exemption from Bureau authority and regulation under the Act
granted to for-profit and nonprofit regionally accredited
institutions. As a result of this broad exemption, students
attending Heald College, which was accredited by WASC, the
largest number of students enrolled in a California CCI
institution (estimates put this student population at around
9,000) at the time of the CCI closure are not eligible for
STRF. Other for-profit regionally accredited institutions
have voluntarily come under the Bureau, or are in the process
of applying to receive Bureau approval for purposes of
maintaining Title IV eligibility (by meeting the requirement
to be "authorized" by each state in which they operate and
have an independent state-level student complaint process),
however students of these non-WASC regionally accredited
institutions have been required to contribute to STRF,
guaranteeing the option of STRF protection regardless of
their exemption from the other important provisions in the
Act. One WASC accredited for-profit institution is the
source of the exemption outlined above in EC § 94947 and has
not sought approval by the Bureau to meet the requirements of
new Title IV requirements, ensuring that if the school closes
abruptly in the same manner as CCI or violated any other
important provisions of the Act, those students are not
eligible for STRF or any recourse the Act provides. The
appropriateness of exemptions has been the source of a report
issued by the Legislative Analyst's Office (LAO) in 2014,
multiple conversations during legislative oversight hearings
and also the subject of legislation since AB 48 took effect,
and particularly in light of the significant impact of CCI on
thousands of students who, without the exemption above, would
have been eligible for STRF and other important options
within the Act. This topic will likely be the subject of
future discussions surrounding the Act.
1. Options for CCI Students. On May 13, the Senate Business,
Professions and Economic Development and Senate Education
Committees convened a joint hearing, Corinthian College
Closures: What's Next for California Students, to examine
options for relief and recourse available to the more than
13,000 students impacted by the sudden and abrupt CCI
AB 573 (Medina) Page 17
of ?
closure, particularly in light of the confusing choices,
multiple application processes to multiple government
agencies, pressure from private loan companies to begin
paying off loans and the possibility that credits earned at
Heald, Everest and WyoTech schools may yield few meaningful
future educational opportunities.
According to a presentation by LAO at that hearing, higher
education institutions in the U.S. are overseen by a
regulatory triad: USDE which sets standards for institutions
participating in federal student financial aid programs;
accreditors responsible for educational quality determination
as well as regular review of institutions' financial,
administrative and business practices and; states who have a
primary role of protecting students from unfair business
practices - states are responsible for educational quality as
well but often rely on accreditation to certify quality.
USDE provides relief for students of closed schools through a
loan discharge for students enrolled at the time of closure,
or who withdrew within the previous 120 days, who could not
complete their programs. However, students are ineligible for
loan discharge if they completed their programs, benefitted
from a teach-out agreement through another school or
transferred credits to a similar program. USDE can also
discharge loans of students defrauded by their schools
through a defense against repayment. This provision also
applies to students who were no longer enrolled at the time
of their school's closure, including those who completed
programs. Accreditors are supposed to require schools to
have closure policies, including teach-out policies, policies
related to transcript availability and policies for the
transfer of student records, key to assisting students in
moving forward on their path to higher education.
LAO outlined implications for California CCI students,
including the option for STRF reimbursement for Everest and
WyoTech students and the option of applying for a federal
student loan discharge. The LAO also highlighted the higher
degree of uncertainty for students with private loans, as
there are no standard discharge provisions, payments are
subject to the requirements of lenders. STRF may reimburse
these students for interest and penalties on loans used to
pay tuition and other required educational program charges
AB 573 (Medina) Page 18
of ?
but the Bureau, as part of administering STRF, is not
guaranteed to assist students navigate through this process.
Stemming from amendments to the Act in SB 1247 (Lieu, Chapter
840, Statutes of 2014), the Bureau is in the process of
drafting STRF regulations to allow for the fund to pay
tuition and fees at another school for a student whose
charges were paid by a third party (including a financial aid
program) and who suffered a loss of educational opportunity
as a result of a school closure. The Bureau estimates that
it has received about 130 STRF claims to date from eligible
CCI students.
On June 8, USDE announced steps specifically aimed at helping
CCI students. USDE is expanding eligibility for students to
apply for a closed school loan discharge, extending the
window of time back to June 20, 2014, to capture students who
attended CCI institutions at the time CCI entered into an
agreement with the Department to terminate its ownership of
schools. The Department is creating what it calls a more
streamlined process for students to claim a defense to
repayment that requires students to assert that a college's
actions violated state law and affected their provision of
educational services or their federal loans. According to
USDE, it will "rely on evidence established by appropriate
authorities in considering whether whole groups of students
(for example, an entire academic program at a specific campus
during a certain time frame) are eligible for borrower
defense relief" which will simplify and expedite the relief
process and reduce the burden on borrowers. In citing these
efforts related to defense to repayment, USDE specifically
referred to its investigation of Heald College and relevant
California law, determining that evidence of
misrepresentation exists for students enrolled in a large
majority of programs offered at Heald College campuses
between 2010 and 2015. USDE also took steps for all former
CCI students who apply for borrower defense to have the
option of having their federal loans immediately placed into
forbearance, which stops their monthly payments to ensure
they do not fall behind or default on their loans while the
Department works to resolve the claim. On June 25, USDE
appointed a Special Master to oversee borrower defense issues
while ensuring the process is simple, streamlined, and fair
to students and taxpayers.
AB 573 (Medina) Page 19
of ?
2. Arguments in Support. A coalition of supporters including
California Competes: Higher Education for a Strong Economy ,
California Federation of Teachers , Consumer Federation of
California , Consumers Union , The Institute for College Access
& Success , Public Advocates Inc. , University of San Diego
Center for Public Interest Law , University of San Diego
Children's Advocacy Institute , University of San Diego
Veterans Legal Clinic and Young Invincibles write that this
measure is an incredibly important bill that will help make
sure that students have meaningful access to consumer
protections if their school closes. Supporters note that
students who were enrolled at CCI campuses at or near the
point of closure have had their dreams dashed, unable to
complete the programs they borrowed loans to attend.
Supporters state that in many cases, given widespread
concerns about the quality of Corinthian-owned institutions,
the credits students earned at the closed schools will not
transfer to more reputable colleges. According to
supporters, the students at the shuttered Corinthian campuses
were taken advantage of by an unscrupulous company.
California cannot let these students be victimized again by
robbing them of the chance to understand their options and
seek and receive needed relief.
Attorney General Kamala Harris (AG) writes in support of this
bill, noting that it will equip students with the tools they
need to recover their careers from CCI's predatory scheme.
According to the AG, the bill would provide much-needed
financial assistance by making Heald students eligible for
STRF and doubling the fund's current maximum allowable fund
balance. The AG adds that the bill clears the path for those
looking to continue their educations by exempting CCI
students affected by the closure from Cal Grant time
limitations and making those students eligible for CCC
waivers. According to the AG, the common-sense solutions
contained in this bill prioritize the protection of
vulnerable Californians.
The California Teachers Association believes that students
displaced from private colleges should have the opportunity
to easily articulate to community colleges which will provide
them with a more affordable, quality education and notes that
financially exploited students should have an opportunity to
receive assistance in order to ensure they are not burdened
AB 573 (Medina) Page 20
of ?
by crippling student loan debt after they finish their
education.
According to Charles R. Drew University of Medicine and
Science , CCI students who invested their time, money and Cal
Grant eligibility at the colleges have been left to find
another institution for enrollment and face loss of the Cal
Grant funds expended for an education program that is now
unavailable for them to complete.
3. Other Arguments. The California Association of Private
Postsecondary Schools (CAPPS) writes with a support if
amended position on this bill. According to CAPPS, the
overriding priority of this bill must be the resolution of
student issues that arise from the CCI closure and as such,
this bill needs to acknowledge that if the students' first
desire is to finish their education, then all possible
efforts should be made to ensure that the student can do just
that and CAPPS supports the CCC and Cal Grant provisions of
the measure. CAPPS argues that resources to provide relief
to Heald students should come from the General Fund and that
diverting resources from STRF will result in non-exempt
students having to pay higher fees. CAPPS also believes that
there is no justification to double the STRF from $25 million
to $50 million. According to CAPPS, the appropriation of
money to legal aid is unnecessary given the resources already
provided to students and should be removed from the bill.
4. Proposed Amendments. While this measure proposes important
efforts to help CCI students begin to make their lives whole
in the face of myriad challenges stemming from their
enrollment in CCI institutions, the Committee suggests a
number of steps to strengthen the Act, assist students
through the coordination of services and provide options for
students who were only weeks away from completing an
educational program for which they would have been able to
seek licensure and employment.
a) STRF should be collected for students enrolled in a
distance program that has a physical presence in this state
but whose students are not currently protected by the Fund,
and institutions should be authorized to pay STRF on their
student's behalf.
AB 573 (Medina) Page 21
of ?
The impact of the CCI closure on millions of California
students working to improve their lives through education
is very likely the first in what many anticipate will be a
series of closures of large for-profit institutions.
Several other large, publicly traded colleges are now under
similar regulatory, financial and legal pressure. Career
Education Corporation (CEC), Education Management
Corporation (EDMC), and ITT Educational Services Inc. (ITT)
are all under investigation by a number of state attorneys
general over a variety of matters, including job placement
rates as well as marketing and recruiting. The SEC also
recently charged ITT which owns ITT Tech, and two of its
executives with fraud for allegedly concealing from ITT's
investors the poor performance and looming financial impact
of two student loan programs that ITT financially
guaranteed. CFPB filed a lawsuit against ITT, accusing it
of predatory student lending, alleging that ITT exploited
its students and pushed them into high-cost private student
loans that were very likely to end in default. According
to that lawsuit, in some cases, students did not even know
they had a high-cost private student loan, some with rates
as high as 16.25 percent, until they started getting
collection calls. As the LAO noted at the May 13 hearing,
tougher federal regulations and efforts to include
veterans' education benefits in the 90 percent limit on
share of revenues from federal student aid further
threatens the viability of many for-profit institutions
that are heavily dependent upon these sources of revenue.
The Committee suggests the following to address this
situation and provide coverage for students in the event of
a school closure, to ensure they are eligible for relief:
Amend Education Code Section 94858.
"Private postsecondary educational institution" means a
private entity with a physical presence in this state
that offers postsecondary education to the public for an
institutional charge, including distance education
offered by a private entity that maintains a physical
presence in this state, regardless of whether the
distance education is offered through the institution
located in this state.
Amend Education Code Section 94924.
AB 573 (Medina) Page 22
of ?
(a) The bureau shall determine the amount of Student
Tuition Recovery Fund assessments to be collected for
each student.
(b) An institution may submit Student Tuition Recovery
Fund assessments to the bureau on behalf of students
enrolled at that institution. An institution that
submits Student Tuition Recovery Fund assessments on
behalf of its students is prohibited from advertising or
marketing this as a benefit the institution provides to
students.
(b) (c) All assessments collected pursuant to this
article shall be credited to the Student Tuition Recovery
Fund, along with any accrued interest, for the purpose of
this article. Notwithstanding Section 13340 of the
Government Code, the moneys in the Student Tuition
Recovery Fund are continuously appropriated to the
bureau, without regard to fiscal year, for the purposes
of this article.
(c) (d) Except when an institution provides a full
refund pursuant to Section 94919 or Section 94920, the
Student Tuition Recovery Fund assessment is
nonrefundable.
(e) The bureau shall collect a Student Tuition Recovery
Fund assessment from an institution for all currently
enrolled students, as follows:
(1) For institutions not approved as of the operative
date of this subsection, the bureau shall collect an
assessment at the time of the issuance of the approval to
operate.
(2) For institutions approved on the operative date of
this subsection, the bureau shall collect an assessment
for all currently enrolled students for which a STRF has
not been assessed, including distance education students
(as outlined in 94858).
a) State agencies should be authorized to consider the
eligibility of CCI students who were within a certain time
frame from completing a program at a CCI institution which
was intended to lead to licensure and employment in
California.
While many CCI students were at the beginning of their path
AB 573 (Medina) Page 23
of ?
to further their education and receive training intended
for a job, many, many students who came to class on April
27 to find their school shuttered were only weeks away from
completing their educational program. Upon completion,
graduates of a number of CCI programs would have been
eligible for registration, certification or licensure by a
state regulatory body. Regulatory programs such as those
under the DCA are often independently governed entities
that establish standards and criteria for successful
licensure, at the heart of which are public protection
standards measured through proof of completion of a
particular training program and satisfactory performance on
a written and practical examination. In order to provide
assistance to CCI students who may not want to transfer
educational credits to another institution and begin a new
program when they were so close to completing one at a CCI
institution may actually be better served by being
considered for licensure or recognition for which they were
trained. The Committee suggests including language in the
bill according to the following:
For a period not to exceed two years, state agencies that
establish certification, registration or licensure
necessary to promote public safety and protection of the
public are authorized to provide consideration on a case by
case basis to determine the eligibility for certification,
registration or licensure by that program to students
enrolled in a program offered by Corinthian Colleges, Inc.
which provided the individual with education or training
designed to lead to certification, registration or
licensure by that program. Consideration of individuals
affected by the sudden and abrupt closure of Corinthian
Colleges, Inc. shall be at the discretion of the regulatory
program, consistent with the program's public protection
mandate and according to criteria created by the program to
ensure that any consideration of eligibility for
certification, registration or licensure is in keeping with
requirements outlined as necessary for public health and
safety.
b) This bill requires the Bureau to establish a task force
comprised of representatives of the agencies outlined above
and also requires the Bureau to administer a grant program
AB 573 (Medina) Page 24
of ?
for eligible organizations assisting students. CCI
students and consumers impacted by the abrupt closure of
their institution or sudden discontinuation of their
educational program are best served by having one
centralized entity in state government that coordinates
state agency efforts, provides students with timely
assistance, referrals to the proper agency or organization
to best meet their needs, provides accurate, meaningful
information to those students through a dedicated website
and phone number and monitors ongoing state and federal
regulatory developments that will impact students.
Additionally, the types of organizations eligible for
funding for their work to assist students under this bill
should be expanded to include other entities that provide
student loan and debt counseling and assistance.
There are multiple agencies and organizations that have a
role in assisting the students affected by the CCI closure.
USDE, as noted above, is responsible for providing options
to students related to their federal student loans. The
Bureau administers the STRF and provides options to Everest
and WyoTech students whose institutions the Bureau
approved. The Bureau is also the record keeper of last
resort for closed schools, thus responsible for maintaining
student records, including information key to receiving
consideration for STRF payment and loan discharges like
enrollment agreements and transcripts. CalVet approves
institutions for purposes of Title 38 veterans financial
aid and helped students transfer to other institutions when
it withdrew approval for CCI institutions. CSAC is working
with the over 2,000 Heald students who received a Cal Grant
award to ensure these students can transfer to eligible
institutions and continue to receive Cal Grant payments.
The CCCs are working with local CCC representatives to
assist CCI students with enrollment and transfer.
Businesses in California have a one-stop government
resource in state government in the form of GO-Biz which
assists in all aspects of establishing a business such as
providing information about access to capital, directing
businesses to the regulations governing and permits
required for their operations as well as monitors the
state, federal and international landscape to promote
greater opportunities for California businesses. Many
AB 573 (Medina) Page 25
of ?
vulnerable populations in the state are also served by a
centralized contact as they navigate through state agency
services, in the form of ombudspersons with missions and
statutory direction to help individuals as well as to
streamline processes for relief.
The Bureau under DCA is a logical starting point for any
discussion about broad, centralized services to students
harmed by for-profit institutions, however, the Bureau has
faced challenges from its inception to implement the
educational program quality standards and consumer
protections for Californians attending institutions the
Bureau regulates. The landscape of schools that are now
regulated under the Bureau, and that have become central in
California's discussion of private, for-profit colleges,
has evolved significantly since the Act took effect and the
smaller, independent for-profit institutions based in
California that may have made up the bulk of the former
Bureau's licensee population has shifted so that now, the
largest number of students being served by larger
for-profit chains with a presence in states throughout the
nation. From staffing, to establishing policies and
procedures, to data systems, to timelines, to processing
complaints, the Bureau has faced difficulties in
implementing a law that exists in a complex regulatory
framework of federal law and other state agencies, which is
becoming even more complex given the actions by other
agencies outlined above.
Providing centralized, necessary options to students,
coordinating state agency response and administering funds
to organizations which are providing meaningful assistance
relies on the expertise and understanding of multiple
issues related to the whole sector that the DCA and Bureau
may not have. Coupled with these challenges are the
Bureau's remaining administrative struggles including
staffing shortages, backlogs that will impact the Bureau's
ability to meet the requirements outlined in this bill and
may not be feasible to provide students what they need as
they weigh options for next steps after a school closure.
There is precedent for the Bureau to contract directly with
other entities to meet its mission, including contracting
with the AG or other appropriate state agency to establish
a process for the Bureau's staff to be trained to
AB 573 (Medina) Page 26
of ?
investigate complaints and contracting with the AG to for
investigative and prosecutorial services.
Given these issues, it is more appropriate for the task
force outlined in this bill to be replaced with a dedicated
school closure and student loan assistance point of contact
within the Office of the Attorney General (AG) that can
also administer a grant funding effort for local
organizations assisting students (or contract with an
appropriate entity to undertake this work). The AG's
office already has expertise in complex legal situations
such as those facing students and currently serves as the
centralized point of contact for consumers impacted by the
mortgage and foreclosure settlement. The AG's office, in
the wake of the CCI closure, created an online tool for
students to receive a personalized resource sheet regarding
the types of relief available to students which continues
to be updated and which can be expanded to provide key
information such as a list of institutions on the USDE
watchlist that students should not enroll in. The majority
of CCI students attending programs when operations ceased
in April are located in Southern California, where the AG
has a presence and office. It is important to note that
the AG has no ability to, or history that it has, provided
individual legal assistance or individual legal
representation to Californians, however among the involved
agencies, it is by far the best situated to continue
playing a central, coordinating role in the effort to
assist students. A point of contact within the AG can lead
the synchronization of other state agencies with a role in
assisting students, will continue to monitor regulatory
efforts at the state and federal level as the AG currently
does and will be in a position to work with partner
agencies to establish key criteria for determining the
appropriate steps the state should take to protect
students.
It is appropriate for the bill to be amended to strike the
task force and instead create, for a period of five years,
a centralized point of contact within the Office of the
Attorney General to serve students impacted by a school
closure and navigating through options, including those
made available by USDE and other state agencies. The point
of contact will administer grants, or contract with an
AB 573 (Medina) Page 27
of ?
appropriate entity for this purpose, to provide funds to
eligible nonprofit organizations, including legal aid and
other nonprofit community service organizations offering
free services with a focus on consumer credit education,
counseling on consumer debt problems, assisting with the
arrangement of debt management and settlement plans. There
should be a clear distinction between the role of this
point of contact coordinating entity as separate and
unrelated to the larger duties of the AG.
c) Technical amendments. The Committee suggests two
technical amendments to correct a typo and make a
clarifying change to the Bureau's administration of STRF.
On page 12 in line 22, replace "26" with "27"
12 if the student was enrolled as of April 26 27 , 2015,
or withdrew within
On page 13, between lines 20 and 21, insert the
following:
(g) Any representation or agreement by a person not to
collect on a student loan obligation does not reduce a
student's eligibility for a recovery from the Student
Tuition Recovery Fund or reduce the student's economic
loss unless the student loan obligation has been
forgiven, discharged or cancelled in accordance with the
requirements of this section.
NOTE: Double-referral to Senate Committee on Education.
SUPPORT AND OPPOSITION:
Support:
Attorney General Kamala Harris
California Competes: Higher Education for a Strong Economy
California Federation of Teachers
Consumer Federation of California
California Teachers Association
Consumers Union
The Institute for College Access & Success
Public Advocates Inc.
AB 573 (Medina) Page 28
of ?
University of San Diego Center for Public Interest Law
University of San Diego Children's Advocacy Institute
University of San Diego Veterans Legal Clinic
Young Invincibles
Support if Amended
California Association of Private Postsecondary Schools (CAPPS)
Opposition:
None on file as of June 23, 2015.
-- END --