BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 573 (Medina) - Higher education: campus closures: Corinthian Colleges. ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: July 9, 2015 |Policy Vote: B., P. & E.D. 7 - | | | 0, ED. 7 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: Yes |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: |Consultant: Jillian Kissee | | | | ----------------------------------------------------------------- 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) AB 573 (Medina) Page 1 of ? 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 ? 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. AB 573 (Medina) Page 3 of ? 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 AB 573 (Medina) Page 4 of ? 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. AB 573 (Medina) Page 5 of ? 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. AB 573 (Medina) Page 6 of ? 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. -- END --