Amended in Assembly April 5, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 1916

Introduced by Assembly Member Irwin

February 11, 2016

An act to add Section 94886.5 to the Education Code, relating to private postsecondary education.

LEGISLATIVE COUNSEL’S DIGEST

AB 1916, as amended, Irwin. Private postsecondary education: school closure bonds.

Existing law, the California Private Postsecondary Education Act of 2009, provides for the regulation of private postsecondary educational institutions by the Bureau for Private Postsecondary Education in the Department of Consumer Affairs. The act exempts an institution from its provisions, if any of a list of specific criteria are met.

The act establishes the Student Tuition Recovery Fund and requires the bureau to adopt regulations governing the administration and maintenance of the fund, including requirements relating to assessments on students and student claims against the fund, and establishes that the moneys in this fund are continuously appropriated to the bureau for specified purposes.

This bill would require a private postsecondary institution, as defined, to file a surety bond before January 1, 2019, with the begin delete department end delete begin insert bureau end insert in begin delete the end delete begin insert an end insert amount begin delete equal to a reasonable estimate of the maximum amount of tuition and fees imposed on students of the institution for a period of attendance of greatest expense during the applicable academic year. end delete begin insert no less than the total amount of tuition and fees charged by the institution for the immediately preceding academic year, divided by 4. end insert

In the event the institution ceases operation, this bill would require the begin delete bureau, upon request for a refund by a student or the implementation of a teach-out for students of the institution, to end delete begin insert bureau, if it makes a specified determination, to end insert make a demand on the bond begin delete to: (1) issue a refund of tuition and fees for student claims, (2) implement a teach-out for students of the institution, and (3) end delete begin insert to provide recovery to students who were enrolled at the time of the closure, or within 120 days of the closure, and end insert reimburse the Student Tuition Recovery Fund for moneys paid from the fund for begin delete student claims that would have been otherwise recoverable under the bond. end delete begin insert these students. end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 94886.5 is added to the Education Code,
to read:

94886.5.  

(a) Before January 1, 2019, an institution shall file
with the bureau a surety bond in the amount determined pursuant
to subdivision (b). The bond shall be executed by the institution
as principal and by a surety company authorized to do business in
this state. The bond shall be continuous unless the surety is released
pursuant to this section.

(b) The amount of the bond shall be begin delete equal to a reasonable
estimate of the maximum amount of tuition and fees to be returned
to students of the institution for the most expensive period of
attendance during the applicable academic year. Following the
initial filing of the bond with the bureau, the amount of the bond
shall be recalculated annually by the bureau based upon a
reasonable estimate of the maximum amount of tuition and fees
to be returned to students anticipated by the school for that period
of attendance. The bond shall, to the extent practicable, cover
potential administrative costs incurred by the bureau in an amount
no less than 5 percent of the total amount of the bond. In no case
shall the amount of the bond be less than five thousand dollars
($5,000). end delete begin insert no less than the total amount of tuition and fees charged
by the institution for the immediately preceding academic year,
divided by four. end insert

(c)  begin delete (1) end delete begin delete   end delete In the event that an institution ceases operation, the
bureau shall make demand on the surety of the institution begin delete upon
the request for a refund by a student or the implementation of the
teach-out for the students of the institution according to the plan
provided to the bureau pursuant to Section 94926, and the surety
shall pay the claim due within 45 days. The bureau shall use the
bond to pay claims, to the extent practicable, filed by students who
have not otherwise recovered their tuition and fees through a
teach-out, or from the Student Tuition Recovery Fund established
in Section 94923. The bureau shall use the bond to reimburse the
Student Tuition Recovery Fund for all moneys paid from the fund
for claims that would have been otherwise recoverable under the
bond, except as provided in paragraph (4). end delete begin insert to provide refunds of
tuition and fees and, if applicable, punitive damages to students
who were enrolled at the time of the closure, or within 120 days
before the closure, if the bureau determines that there was a
significant decline in the quality or value of applicable educational
programs offered by the institution during that 120-day time period.
If Student Tuition Recovery Fund reimbursements are processed
for these students, the bureau shall immediately notify the surety
and use the surety to fully reimburse the fund. If the bureau fails
to make the demand on the surety within 120 days of closure, a
student or group of students of the closed institution may make a
demand directly on the surety of that institution to recover refunds
of tuition and fees and, if applicable, punitive damages to which
the student or students proves he or she is due. The surety shall
provide recovery to students for at least four years after the closure
of the institution or until the surety is depleted of funds. A student
may, but is not required to, use his or her recovery from the surety
to pay for a teach-out or other educational services. end insert

begin delete

(2) The bureau shall develop and implement a process, and
necessary forms, for students enrolled in an institution ceasing
operation to file claims to the bureau to recover their tuition and
fees not recovered through a teach-out.

(3) Any student enrolled in an institution ceasing operation who
does not file a claim to recover tuition and fees pursuant to
paragraph (2) may recover through a teach-out provided to students
of the institution ceasing operation through a contract with a
community college or any other arrangement approved by the
bureau. The teach-out provided to the student shall replace the
enrollment agreement or contract between the institution ceasing
operation and the student, except that fee and tuition payments
shall be made by the student as required by the enrollment
agreement or contract.

(4) If the amount of the bond is less than the total tuition and
fees paid by all students declining the teach-out at the time the
institution ceased operation, the amount of the bond shall be
prorated among those students.

(5) The Student Tuition Recovery Fund shall be used to cover
economic loss incurred by a student while enrolled at an institution
ceasing operation, including any prepaid tuition and fees not
recovered by the student under the bond.

(6) The bond shall be used to provide recovery for students
enrolled in an institution at the time it ceases operation, within 121
days of the institution ceasing operation, and, if applicable, within
a period of a declining quality of education, as determined by the
bureau, longer than 120 days before the institution ceases operation.

end delete

(d) Once an institution ceases operation, no new students shall
be enrolled.

(e) An institution’s approval to operate shall be suspended by
operation of law when the institution is no longer covered by a
surety bond as required by this section. begin delete The bureau shall give
written notice to the institution at the last-known address, at least
45 days prior to a release of a surety, to the effect that approval
shall be suspended by operation of law until another surety bond
is filed in the same manner and like amount as the bond being
released. end delete

(f) A surety on any bond filed under the provisions of this
section may be released after the surety begin insert or the institution end insert serves
written notice to the bureau at least 60 days prior to the release.
The release shall not discharge or otherwise affect any claim filed
by any student for loss of tuition or any fees that occurred while
the bond was in effect or that occurred under any note or contract
executed during any period of time when the bond was in effect,
except when another bond is filed in a like amount and provides
indemnification for any loss.

(g) For purposes of this section, and notwithstanding Section
94858, “institution” means, to the extent authorized by federal
law, a private postsecondary educational institution that offers
postsecondary education to the public in this state for an
institutional charge, but does not include an independent institution
of higher education, as defined in Section 66010, that has operated
in California begin insert as an independent academic institution end insert for no less
than 15 academic years.

begin insert

(h) An institution, as defined in subdivision (g), shall on at least
a quarterly basis provide copies of records sufficient to produce
academic transcripts, and certify completion of the degrees or
other programs offered by the institution, to a third party. The
third party shall be independent of the institution, financially
stable, and capable of producing transcripts and certifications,
upon request, within two weeks of the closure of the institution,
and in perpetuity thereafter. The third party shall charge a fee of
no more than ten dollars ($10) per transcript or certification it
produces in the event of the institution’s closure, and it shall not
withhold a transcript or certification based on a student’s
nonpayment of a debt or obligation to the institution or any other
party.

end insert begin insert

(i) The bond may be used to award punitive damages to a student
of an institution that ceases operation and is found, by a court of
law, to have violated state or federal law, or laws, that caused or
contributed to the student’s economic loss.

end insert begin delete

(h)

end delete

begin insert (j) end insert  Tuition and fees for purposes of this section are both of the
following:

(1)  begin insert (A) end insert begin insert   end insert Paid tuition and fees not recovered by the receipt of
academic credits.

begin delete

(2) Paid tuition and fees recovered by the receipt of academic
credits that are nontransferable to accredited institutions.

end delete begin insert

(B) Tuition and fees pursuant to subparagraph (A) shall include
amounts paid under the Cal Grant Program (commencing with
Section 69430) of Part 42 of Division 5, the California National
Guard Education Assistance Award Program, as established in
Article 20.7 (commencing with Section 69999.10) of Chapter 2 of
Part 42 of Division 5, and the Post 9/11 GI Bill program, as
established in Chapter 33 (commencing with Section 3301) of Title
38 of the United States Code, as it read on January 1, 2016.

end insert begin insert

(2) Interest on educational loans incurred to pay tuition and
fees not recovered by the receipt of academic credits.

end insert