BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 573 (Medina) - Higher education: campus closures: Corinthian
Colleges.
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|Version: July 9, 2015 |Policy Vote: B., P. & E.D. 7 - |
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|Urgency: Yes |Mandate: Yes |
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|Hearing Date: |Consultant: Jillian Kissee |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: This bill, an emergency measure, provides various
forms of assistance to students impacted by the recent closure
of the Heald, Everest and Wyotech campuses owned by Corinthian
Colleges Inc. (CCI) and operated in California.
Fiscal
Impact:
California Community Colleges: $100,000 for allocation to a
community college district to conduct a statewide media
campaign targeting students affected by the closure of CCI.
Potential cost pressures to backfill the loss of an unknown
amount of fee revenue to the extent there is an increase in
the statewide proportion of students receiving fee waivers due
to this bill. This bill also allows campuses to determine
their own criteria for "need" which qualifies affected CCI
students to be exempt from fees. (Proposition 98)
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Restoration of Financial Aid Award Years: Approximately $9.6
million to restore Cal Grant awards for affected students for
two years ($7.9 to restore one year and $1.7 to restore the
second year). (General Fund)
STRF Claims Payout to Affected Students: $8.3 million
annually, until fiscal year 2018-19, for a total of $33.1
million in Student Tuition Recovery Fund (STRF) to be offset
by increases in fees that generate $6.9 million in the 2015-16
fiscal year and $9.2 million annually, until the 2018-19
fiscal year. (Special funds)
STRF Claims Processing: $1.5 million in the 2015-16 fiscal
year and $1.3 million annually until the 2018-19 fiscal year
to support 15 positions to process approximately 1,800 claims
at the Bureau of Private Postsecondary Education (Bureau).
(Special funds)
Single Point of Contact: The Department of Justice (DOJ)
estimates up to $5 million and 10 positions to establish a
single point of contact for government response to school
closures, allocate legal assistance grants, travel and perform
investigations, and to provide technical assistance to
students and government-related entities. (General Fund)
Legal Assistance Grants: $1.3 million appropriation from the
Private Postsecondary Education Administration Fund. (Special
funds)
Cost Pressure: To the extent distance learning programs
offered by institutions with a physical presence in the state
closes in the future, potentially significant, cost pressures
to the STRF to pay claims and for the Bureau to process the
claims, potentially offset by revenues generated from STRF
assessments.
Background: CCI institutions offered a range of programs, including
certificate programs, associate's degree programs and bachelor's
degree programs. 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
AB 573 (Medina) Page 2 of
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that 85 percent of its students had family incomes of less than
$45,000 a year. An estimated 57 percent of CCI students had
household incomes of $19,000 or less, and 35 percent of CCI
students had a household income of less than $10,000.
Federal rules require that institutions receive at least 10
percent 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.
The 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 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 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).
These infractions, and others, as well as CCI's financial
instability ultimately led to the closure of CCI on April 26,
2015, and for CCI to file bankruptcy on May 4, 2015.
Proposed Law:
This bill:
Appropriates $100,000 Proposition 98 General Fund to the
Chancellor of the California Community Colleges for allocation
to a community college district to conduct a statewide media
campaign to inform students affected by the closure of CCI of
education opportunities available at community colleges.
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Restoration of State Financial Aid Award Years for up to Two
Years
Provides that if a student received a Cal Grant award or a
California National Guard Education Assistance Award in the
2013-14 or 2014-15 academic year at a California campus of
Heald College and was unable to complete an educational
program offered by the campus due to the campus's closure on
April 27, 2015, it will not count towards the limitation on
the number of years of the awards' eligibility. This
restoration of award years for Cal Grant and California
National Guard Education Assistance Award eligibility must not
exceed two years. To be eligible for the restoration of award
years, a student must have been enrolled at a Heald College
campus on April 27, 2015 or had withdrawn from enrollment
within 120 days of that date.
Waived CCC Fees for Affected Students Until July 1, 2018
Adds to the list of criteria for which a student must meet at
least once to be eligible for waived California Community
College fees, the student was enrolled at a CCI campus in
California and (1) was unable to complete an education program
due to the campus's closure, and has demonstrated need, as
determined by the enrolling campus, or (2) withdrew from an
education program offered by the campus within 120 days, or
longer as determined by the Bureau, of the campus's closure
and has demonstrated need, as determined by the enrolling
campus.
Affected Students May be Considered for Licensure
This bill provides that for two years from the closure date of
CCI, a state agency that provides certification, registration,
or licensure necessary to promote safety and the protection of
the public may consider students on a case-by-case basis from
the state agency who were enrolled in a CCI program aimed at
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preparing students for receiving certification, registration,
or licensure and were unable to obtain it due to the closure
of the CCI.
Expands Student Eligible for Awards from the STRF to Include
Distance Education Programs
Expands the use of the STRF to include distance education
programs offered by an institution with a physical presence in
the state for which the monies provide relief or mitigates of
economic loss suffered by a resident student. This includes
any affiliates of that institution but excludes nonpublic,
nonprofit institutions incorporated in California and
accredited by an agency recognized by the United States
Department of Education.
Expands the list of students that are eligible for payment
from the STRF, a student who was enrolled at a California
campus of a CCI, or was a student enrolled in an online
program offered by an out-of-state campus of a CCI, if the
student was enrolled as of April 27, 2015 or withdrew within
120 days or a greater time period as determined by the Bureau
even despite not having paid any STRF assessment.
Requires, for institutions approved to operate after the
bill's effective date, the Bureau to collect STRF assessments
for all enrolled students from an institution upon issuance of
the institution's approval to operate.
Requires, for institutions approved to operate prior to the
bill's effective date, the Bureau to collect STRF assessments
from the institution for its enrolled students for whom an
assessment has not been collected, including assessments for
students enrolled in distance education programs.
This bill increases the cap on the STRF from $25 million to
$50 million.
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Single Point of Contact
Establishes, until January 2020, a single point of contact to
respond to the closure of institutions that do not comply with
requirements established under state and federal law. Its
purpose is to ensure students who were enrolled at, or in an
online program offered by, an institution that has closed
receive accurate and timely information regarding the school
closure process and the students' rights and responsibilities
under state and federal law.
Requires the point of contact's duties to include:
coordinating with state and federal agencies, as specified, to
determine options and resources for available students and
criteria which indicate additional steps are necessary for
state agencies to take to ensure the protection of public
school closures; establishing and maintaining a website to
provide information regarding school closures to students and
must list the names of institutions that are on the USDE's
list for heightened cash monitoring; assisting students with
obtaining documentation from a closed institution, including
enrollment agreements, records, transcripts, and loan
information. This bill requires that consideration be given
to establishing the contact within the Attorney General's
Office.
This bill appropriates $1.3 million from the Private
Postsecondary Education Administration Fund to the Bureau for
providing financial grants to eligible local nonprofit
community service organizations to assist students affected by
the closure of CCI, made within 30 days of the enactment of
this bill. The Bureau may adopt emergency regulations.
Within 90 days of notification, the AG must solicit grant
applications from eligible local nonprofit community service
organizations, as specified, and select an organization to
carry out the duties described above to help students in the
event of a school closure. The AG can contract out for these
duties.
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Staff
Comments: Staff notes the funding source for Bureau positions
and administrative costs would be the Private Postsecondary
Education Fund which currently has a structural imbalance with
expenditures exceeding revenues anticipated in the 2018-19
fiscal year. Because of the lack of sufficient reserves to fund
increased administrative support, the Bureau indicates that it
may be required to increase various fees charged to licensed
institutions.
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