BILL ANALYSIS Ó
AB 1916
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Date of Hearing: April 12, 2016
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Jose Medina, Chair
AB 1916
(Irwin) - As Amended April 5, 2016
[Note: This bill is double referred to the Assembly Business
and Professions Committee and will be heard as it relates to
issues under its jurisdiction.]
SUBJECT: Private postsecondary education: school closure bonds
SUMMARY: Requires private postsecondary educational
institutions (institutions) to maintain a surety bond, filed
with the Bureau for Private Postsecondary Education (BPPE) to
provide reimbursement to students in the case of school closure.
Specifically, this bill:
1)Provides, effective January 1, 2019, each institution shall
maintain and file with the BPPE a surety bond, with a surety
bond company authorized to do business in California.
2)Provides the amount of the bond shall be no less than the
amount of tuition and fees charged by the institution during
the prior academic year, divided by four.
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3)Provides that, in the event that an institution ceases
operation, BPPE shall make demand on the surety of that
institution to provide refunds due to any students who were
enrolled at the time of the closure, or within 120 days prior
to the closure, if the bureau determines that there was a
significant decline in the quality or value of that
educational program during that time period. The amount of
any refund received by a student shall offset any claim that
the student may make against the Student Tuition Recovery Fund
(STRF).
4)BPPE shall use the surety to reimburse any refund received by
a student through the STRF.
5)Provides that if BPPE fails to make such a demand within 120
days of closure, any student or group of students may make a
demand directly on the surety of that institution to recover
any refund to which the student or students are due. A
student may, but is not required to, use such payments to pay
for a teach-out or other educational services.
6)Provides that once an institution ceases operation, no new
students shall be enrolled.
7)Provides that 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.
The institution and the surety shall give written notice to
BPPE at least 45 days prior to a release of a surety.
8)Provides that a surety on any bond filed may be released after
the surety serves written notice to BPPE at least 60 days
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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.
9)Provides that an "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, that has operated in California as an independent
academic institution for no less than 15 academic years.
10)Provides that all institutions shall on at least a quarterly
basis provide copies of records sufficient to produce academic
transcripts and to certify completion of any degree or other
program 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 a school, and continuing thereafter. The third party shall
charge a fee of no more than $10 per transcript or
certification, and it shall not withhold a transcript or
certification based on the student's non-payment of a debt or
obligation to the school or to any other party.
11)Provides that 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.
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12)Defines tuition and fees as all of the following: (a) paid
tuition and fees not recovered by the receipt of academic
credits; interest on educational loans incurred to pay such
tuition and fees recovered by the receipt of academic credits;
and, (c) general fund costs associated with restoring the
benefits of eligible students' for Cal Grants, as defined in
Section 69430 of the Education Code, California National Guard
Education Assistance Award Program (CNG EAAP), as defined in
Section 69999.10 of the Education Code, and the Post 9/11 GI
Bill, as defined in Title 38, Part III, Chapter 33 of the US
Code.
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). (Education Code Sec. 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
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
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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 Sec. 94923 - 94925)
FISCAL EFFECT: Unknown.
COMMENTS: Purpose of this bill. According to the author,
"California students of for-profit postsecondary institutions do
not have adequate protection from economic loss in the event
that the institution closes, which has been a frequent
occurrence in recent years. California is one of only 10 states
in the country that does not require for-profit institutions to
maintain a surety bond. Further, California's existing policy
intended to protect these students, the STRF, is entirely funded
by the students with no financial interest being passed on to
the institution itself. Further, some exemptions from state
oversight from the BPPE means STRF is not currently available to
some students at California campuses or California students
enrolled in out-of-state online programs. This bill will
require for-profit and new non-profit institutions to post a
surety bond in the amount of tuition and fees collected for an
academic term, ensuring that students receive the instruction
and credits they have paid for, and if they do not, ensuring
that they are made whole for what they have paid, as well as
their lost benefits, or nontransferable credits."
Discussion and recommendations. An important tool to assist
students harmed by BPPE-regulated institutions is the STRF.
However, as currently established and administered there are
significant gaps in the economic relief provided to students
under STRF:
First, students enrolled in institutions that are exempt from,
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or not covered by the Act are not eligible for STRF. Due to
these broad exemptions in the Act, over 13,000 students enrolled
in Heald College, owned by Corinthian Colleges, Inc. (CCI), at
the time of the institution's unlawful closure were not eligible
for STRF. Due to the physical presence requirement, a number of
California students enrolled in Everest Online (owned by CCI but
housed outside of California) are not eligible for STRF.
Several other large, publicly traded colleges are now under
regulatory, financial and legal pressure similar to that facing
CCI prior to closure.
Establishing a requirement for a surety bond for California
students not covered by STRF would ensure that all California
students are protected. However, Committee staff recommends
clarifying that, for all students covered, STRF remain as the
source of relief for these students.
Second, as outlined in the BPPE Sunset Review report, even for
eligible students, STRF claim and approval rates are very low.
Using CCI as an example, over 4,000 former WyoTech and Everest
students are estimated to be eligible for STRF. BPPE estimates
roughly 80 percent (3,200) met with BPPE staff in the days
following CCI's closure. BPPE reports that about 300 CCI
students have filed STRF applications. In light of the
relatively low number of STRF applications, as further outlined
in the chart below, changes to STRF appear necessary.
Student Tuition Recovery Fund Statistics
--------------------------------------------------------------------------------------------------------
| School Name |# of Students | Claims | Approved | Denied | Pending |% of Enrolled |
| | at Closure | Received | | | | Students w/ |
| | | | | | | STRF Claims |
| | | | | | | Approved |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|WyoTech (CCI) | 1586 | 100 | 34 | 11 | 55 | 2.1% |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|Bryman (+Bio | 311 | 89 | 39 | 31 | 19 | 12.5% |
|Health) | | | | | | |
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|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|Career | 771 | 127 | 44 | 73 | 10 | 5.7% |
|Colleges of | | | | | | |
|America | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|Everest (CCI) | 4336 | 214 | 75 | 40 | 99 | 1.7% |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|Four D | 620 | 55 | 17 | 9 | 29 | 2.7% |
|College | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|IME | 480 | 317 | 180 | 129 | 8 | 37.5% |
--------------------------------------------------------------------------------------------------------
*Between January 1, 2010 and February 28, 2016, 1870 STRF claims
were received.
The institutions above represent 60% of the total STRF claims.
The remainder is divided between approximately 107 institutions.
Based on the outlined data, BPPE is not providing adequate
outreach and education to ensure students eligible for STRF are
applying for and receiving relief. Additionally, STRF does not
cover the administrative, enforcement or outreach costs
associated with an institution's violation of the law and
closure. Finally, BPPE reports significant resource costs
associated with managing records (transcripts, diplomas, etc.)
following a school closure.
Committee staff recommends amending this bill to require that,
for all institutions, the surety bond cover costs associated
with (1) administration costs associated with school closure and
STRF eligibility; (2) transcript and records database and
administration; and (3) student outreach activities.
Additionally, amendments are necessary to clarify, consistent
with current law, that BPPE is responsible for records and
transcripts for all institutions.
The formula for determining the amount of the surety bond, as
established in this bill, should be adjusted to reflect the
aforementioned recommendations, if those recommendations are
adopted by the author and Committee. However, as the Business
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and Professions Committee has jurisdiction over other boards and
bureaus within the Department of Consumer Affairs that have
surety bond requirements, this item may be more appropriately
reviewed and adjusted in the Business and Professions Committee.
BPPE Sunset Review. BPPE is currently undergoing the Sunset
Review process. The issue of ensuring protection for students
not covered by STRF and the possibility of a surety bond
requirement is raised in the BPPE Sunset Review report, prepared
by Committee staff. The author and Committee may wish to raise
this issue through the 2016 Sunset Review process.
REGISTERED SUPPORT / OPPOSITION:
Support
California Federation of Teachers
Opposition
American Career College/West Coast University
California Association of Private Postsecondary Schools
Education Management Corporation (EDMC)
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University of Phoenix
Analysis Prepared by:Laura Metune / HIGHER ED. / (916) 319-3960