BILL ANALYSIS Ó
AB 573
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GOVERNOR'S VETO
AB
573 (Medina and McCarty)
As Enrolled September 16, 2015
2/3 vote
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|ASSEMBLY: | 74-0 |(May 14, 2015) |SENATE: | 36-0 | (September 11, |
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|ASSEMBLY: | 79-0 |(September 11, | | | |
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Original Committee Reference: HIGHER ED.
SUMMARY: Provides financial and other assistance to students of
Heald, Everest, and WyoTech campuses in California, which were
owned by Corinthian Colleges, Inc. (CCI) and closed unlawfully
on April 27, 2015. Specifically, this bill:
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1)Establishes Legislative intent that unencumbered restitution
funds awarded to the state from a lawsuit involving CCI and
its affiliate institutions, including Heald College, shall be
used to repay any funds provided to students pursuant to this
act.
2)Restores up to two years of Cal Grant and National Guard
Education Assistance awards for students who enrolled at Heald
and received awards in the 2013-14 or 2014-15 academic years,
were unable to complete their educational programs, and
withdrew between July 1, 2014, and April 27, 2015. Requires
an eligible student to notify the California Student Aid
Commission (CSAC) of his or her intent to use this restoration
by January 1, 2017.
3)Authorizes, for a period not to exceed two years from the date
of the closure of CCI, a state agency that provides
certification, registration, or licensure to, on a
case-by-case basis, consider for certification, registration,
or licensure students who were enrolled in a program of CCI
and did not receive the required certification, registration,
or licensure due to the closure of CCI. Provides that
consideration is at the discretion of the agency in accordance
with its public protection mandate and applicable criteria
established for consumer safety.
4)Increases the maximum allowable fund balance in the Student
Tuition Recovery Fund (STRF) from $25 million to $30 million.
5)Finds and declares all of the following:
a) CCI has been the target of consumer and taxpayer
protection enforcement efforts by the federal government,
the Attorney General, and other state and federal
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authorities;
b) Based on findings of harm to students enrolled at CCI
campuses, the United States Department of Education (USDE)
announced debt relief programs to assist students,
including:
i) A student who attended a CCI campus that closed on
April 27, 2015, and withdrew any time after June 20,
2014, is eligible to apply for a closed school loan
discharge, so long as the student does not transfer
credit and subsequently complete a comparable program at
another institution;
ii) A student who believes he or she was a victim of
fraud or other violations of state law by CCI can apply
for debt relief under borrower defense to repayment. The
USDE has determined that CCI misrepresented job placement
rates for a majority of programs at its Heald College
campuses between 2010 and 2014 and is in the process of
establishing a specific process for federal loan
discharge for these Heald students; and,
iii) A CCI student who intends to submit a borrower
defense claim may request loan forbearance while a claims
review process is established and the claim is reviewed.
c) Pursuant to Education Code Section 94923, the STRF
exists to relieve or mitigate a student's economic loss
caused by a documented violation of certain laws or by
institutional closure, as specified;
d) On October 10, 2013, the California Attorney General
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filed a lawsuit against CCI for false and predatory
advertising, intentional misrepresentations to students,
securities fraud, and unlawful use of military seals in
advertisements, in violation of the 2007 final judgment in
the People of the State of California v. CCI;
e) On April 16, 2015, the Bureau for Private Postsecondary
Education (BPPE) issued an emergency decision ordering CCI
to cease enrollment of any new students in all programs at
Everest College and WyoTech locations in California
effective upon close of business April 23, 2015;
f) It is consistent with the purpose of STRF to provide
assistance to CCI students to obtain federal and private
loan discharge and other financial aid relief.
6)Provides $1.3 million from STRF to eligible nonprofit
community service organizations (CSOs) in order to assist
eligible CCI students with federal and private loan discharge
and other financial aid relief. The bill establishes the
following program parameters:
a) Eligible CSOs must be 501(c)(3) tax-exempt organizations
in good standing with the Internal Revenue Service and in
compliance with all applicable laws and requirements,
demonstrate legal expertise in assisting students with
student loan and tuition recovery-related matters, and not
charge students for services.
b) Eligible students must have been enrolled at a
California campus of, or be a California student who was
enrolled in an online campus of, a CCI institution, and be
eligible to apply for debt relief from the USDE or other
student financial aid relief.
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c) The program is designed to operate as follows:
i) BPPE is required to notify the Attorney General (AG)
of all unlawful CCI closures, and provide related
pertinent information, within 15 days of the effective
date of this bill;
ii) The AG, or entity contracted by the AG to perform
these duties, is required to, within 90 days of the
notification, solicit grant applications and select one
or more eligible CSO and determine the share of grant
funds available to the CSO.
iii) The AG, or contracted entity, shall enter into a
grant agreement with the selected CSO(s) to ensure funds
are used exclusively for authorized purposes. Unused
funds are required to be returned to the STRF. The
agreement may be terminated, and funds may be required to
be repaid, if the AG or contracted entity determines the
CSO materially breached the agreement. The CSO must be
provided reasonable opportunity to resolve the breach.
iv) The CSO is authorized to prioritize low-income
students if demand exceeds available grant funds.
d) A CSO that receives grant funds is required to report to
the AG, or contracted entity, quarterly through the grant
period on all of the following:
i) The number of eligible students served pursuant to
the grant agreement;
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ii) A detailed summary of services provided to those
students;
iii) The number of STRF claims referred to the bureau;
iv) The number of federal loan forgiveness claims filed
and the number of those claims approved, denied, and
pending;
v) Any other information that is deemed appropriate by
the Attorney General or qualified entity, as applicable.
e) The AG or contracted entity is required to make the
quarterly reports available to the Legislature and the BPPE
upon request, and to provide the Legislature and BPPE a
final report summarizing the information submitted promptly
following the time when all funds are expended by the
grantees or by August 1, 2018, whichever is earlier.
f) Provides that funds shall be distributed to preapproved
CSOs as follows:
i) Fifty percent shall be distributed to the grantee
within 30 days of the grantee entering into a grant
agreement;
ii) Twenty-five percent shall be distributed to the
grantee upon the submission of the grantee's second
quarterly report.
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iii) Twenty-five percent shall be distributed to the
grantee upon the submission of the grantee's third
quarterly report.
g) Provides that eligible CSOs may use grant funds received
to pay the costs of assisting eligible students who have
been served after the date of closure until June 30, 2018,
or until any later date as may be determined necessary by
the Attorney General.
h) Provides emergency rulemaking authority for
implementation of this program.
7)Declares this bill an urgency statute to take effect
immediately.
The Senate amendments clarify and narrowed several provisions of
this bill, as outlined in the aforementioned "Summary" section,
and significantly narrowed the scope by removing several
sections of this bill, as follows:
1)Remove language that would have provided California Community
Colleges (CCC) $100,000 to conduct an outreach and marketing
campaign to former CCI students;
2)Remove language that would have provided former CCI students
impacted by CCIs closure with a CCC Board of Governor's Fee
Waiver until July 1, 2018;
3)Remove language that would have provided Heald College
students eligibility to claim an economic loss under the STRF;
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4)Remove language that would have increased the maximum amount
of the STRF to $50 million.
5)Remove language that would have required the BPPE to establish
a "Closed School Task Force" to respond to the closure of
institutions; and,
6)Remove language that would have created an ongoing grant fund
program for legal aid organizations to assist students
impacted by future school closures.
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
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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 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 Senate Appropriations
Committee:
1)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)
2)Legal Assistance Grants: $1.3 million appropriation from the
STRF. (Special funds)
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
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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. 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 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
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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 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
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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
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,
in violation of a 2007 judgment.
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). 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 BPPE 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.
Federal loan forgiveness. Over the past four months, the USDE
has announced expanded loan forgiveness options for CCI students
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who were affected by the closure or by the unlawful practices of
the institution. As it currently stands, the following students
are eligible to apply for student loan discharge: 1) students
who can show that CCI violated state law (Heald students in most
programs between 2010 and 2014 have been deemed eligible by USDE
to apply through an expedited loan forgiveness pathway); and, 2)
students who were enrolled after June 20, 2014. The USDE has
indicated additional eligibility and financial aid relief may be
established.
Numerous organizations have raised concerns regarding the
application process established by the USDE. For example, an
August 18, 2015, letter to the USDE requesting changes to the
application process 11 states Attorneys General said the current
process would "require an understanding of contract, tort or
unfair practices statutes" to successfully navigate.
Purpose of this bill. According to the author, "AB 573 will
provide $1.3 million in legal assistance grants to help students
with the loan forgiveness and tuition recovery process. Only an
estimated 6% of students eligible for a loan discharge claim it.
CSOs provide loan relief assistance to low-income students.
Unfortunately, these organizations are not sufficiently funded
to meet demand and are currently turning away and wait-listing
student clients. This bill will provide funding to assist
students with the loan discharge process. Helping California
students cancel as much of their student debt burden as possible
will be good for these students, cost the state of California
very little, and provide benefits now and in the future to
California's economy." The author further notes that "AB 573
will restore California education grant eligibility for students
by providing up to 2 years of restoration in the Cal Grant and
California National Guard Educational Assistance programs. This
will ensure approximately 3,400 Heald students are not harmed by
the award year limitations in these programs."
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GOVERNOR'S VETO MESSAGE:
Assembly Bill 573 would extend Cal Grant eligibility for former
students of Heald College and create a grant program within the
Attorney General's office to fund nonprofit organizations
providing free legal services to former students of Corinthian
Colleges.
I am sympathetic to the many students who were enrolled at
Corinthian Colleges when the company abruptly shuttered its
doors earlier this year. I signed SB 150, which prevents
students whose loans have been discharged from being penalized a
second time with a significant tax bill on the value of the loan
discharge, which they can ill afford to pay.
The U.S. Department of Education has taken the matter of loan
discharge seriously. In recent months, it has greatly eased the
burden of filings for many students, and its work to provide a
simple, swift and fair process for students continues. As such,
it appears premature to create an attorney grant program,
especially one that provides little direction on how funds
should be used.
While the bill's provisions to extend Cal Grant eligibility for
Heald students are well-intentioned, I am not comfortable
creating new General Fund costs outside of the budget process,
particularly given the Cal Grant augmentations already included
in this year's budget.
Analysis Prepared by:
Laura Metune / HIGHER ED. / (916) 319-3960 FN:
0002475
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