BILL ANALYSIS Ó
AB 1916
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Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Rudy Salas, Chair
AB 1916
(Irwin) - As Amended April 5, 2016
NOTE: This bill is double-referred, having been previously heard
by the Assembly Committee on Higher Education on April 12, 2016
and approved on a 9-4 vote.
SUBJECT: Private postsecondary education: school closure
bonds.
SUMMARY: Requires private postsecondary institutions to file a
surety bond before January 1, 2019, with the Bureau of Private
Postsecondary Education (BPPE) equal to a reasonable estimate of
the maximum amount of tuition and fees imposed on students of
the institution for a period of attendance, as specified; and
further requires the BPPE, upon request of student claims, to
make a demand on the bond to refund the costs of tuition and
fees, conduct outreach and education with respect to educational
and financial relief, manage student transcripts and records,
and administer the Student Tuition Recovery Fund (STRF).
EXISTING LAW:
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1)Establishes the BPPE within the Department of Consumer Affairs
(DCA) to oversee and regulate private postsecondary
educational institutions; provides that the BPPE operate until
January 1, 2017. (Education Code (EDC) Section 94800, et seq.)
2)Requires the BPPE to adopt by regulation minimum operating
standards for an institution to ensure that the program can
achieve its objective; the facilities and instructional
equipment and material are sufficient to enable the program;
the administrators and faculty are qualified; the institution
maintain written and relevant standards for student
admissions, as well as maintains a withdrawal policy and
provides refunds; gives students a document signifying the
degree or diploma awarded; maintains records and standard
transcripts; and, is accredited by an accrediting agency or is
in the process of accreditation. (EDC Section 94885)
3)Provides for specified exemptions from the Act for specific
types of institutions, including, but not limited to, those
where oversight is already provided by other entities;
provides that an institution seeking exemption must still
comply with all other regulations as though the exemption were
not in place. (EDC Section 94874).
4)Establishes the STRF, administered by the BPPE, to relieve or
mitigate the economic loss suffered by students enrolled at a
non-exempt private postsecondary educational institution due
to the institution's closer, the institution's failure to pay
refunds or reimburse loan proceeds, or the institution's
failure to pay students' restitution award for a violation of
the Act; provides that the STRF is limited to no more than $25
million; requires institutions to assess students an amount
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established in regulation by the BPPE and remit funds to the
BPPE for STRF. (EDC Sections 94923-94925)
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.
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.
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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
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
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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.
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.
FISCAL EFFECT: Unknown. This bill is keyed fiscal by the
Legislative Counsel.
COMMENTS:
Purpose. This bill requires private postsecondary institutions
to file a surety bond before January 1, 2019, with the BPPE
equal to a reasonable estimate of the maximum amount of tuition
and fees imposed on students of the institution for a period of
attendance, as specified, if the institution closes; requires
the BPPE, upon request of student claims, to make a demand on
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the bond to refund the costs of tuition and fees, enforce the
Act, conduct outreach and education with respect to educational
and financial relief, manage student transcripts and records,
and administer the STRF.
This bill is sponsored by the author. According to the author,
"Existing state and federal law provide little relief to the
California students affected by a school closure as shown by the
recent closures of Corinthian Colleges and other small
institutions. In these cases, students are not compensated for
their economic loss, and the institution itself has no financial
disincentive to close at a particular time that further harms
students. The only protection students have is supported by
fees collected from each student, so students are self-insuring
against closure and no liability for compensating students is
shifted to the closing institution under this policy. According
to the National Consumer Law Center, California is not among the
40 other states that require a surety bond to be posted by
for-profit schools to protect students in the event of a
closure. [This bill] would provide protection for California
students attending private for-profit colleges in the event that
the school closes. The posting of a surety bond by these
institutions will protect students in two ways: 1) recovery of
economic loss in the event of a closure; [and,] 2) provides
disincentive for schools to close before the end of an academic
term."
Corinthian Colleges, Inc. (CCI) Institutions. Heald, WyoTech,
and Everest campuses offered a range of programs, including
certificate programs, with tuition and fees that ranged from
$13,100 to $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. 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.
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CCI has been subject to state and federal administrative or
legal actions for the last several years. Below are a few key
dates that demonstrate the landscape of CCI's closure in 2015.
October 2013 - AG Kamala Harris filed a lawsuit against
CCI alleging deceptive marketing and job-placement claims.
August 2014 - the California State Approving Agency for
Veterans Education (CSAAVE) withdrew institutional approval
at all 23 institutions owned and operated in California by
CCI, and were thus no longer eligible for GI bill benefits.
In order to continue using Title 38 benefits, veteran
students were required to transfer/enroll in a CSAAVE
eligible school.
April 14, 2015 - the USDE announced a $30 million fine
against Heald's Salinas and Stockton campuses for
fraudulent placement and other advertising, which CCI
appealed. The decision effectively barred all Heald
campuses from receiving federal funds for new enrollments.
Two days later, the California Student Aid Commission
(CSAC) permanently terminated Heald's eligibility for the
Cal Grant program; Everest and WyoTech were already not
eligible. The next days, the BPPE issued an emergency
decision prohibiting Everest and WyoTech campuses from
enrolling new students. CCI closed all campuses on April
26, 2015.
May 4, 2015 - CCI filed for bankruptcy.
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On March 23, 2016, the AG announced that the San
Francisco County Superior Court of California issued a $1.1
billion default judgment against CCI, finding, among other
things: many of CCI's representations and advertisements
related to job placement were untrue and/or misleading,
dating back to at least 2009; CCI knowingly advertised
programs, since 2010, that it did not offer; CCI unlawfully
used military seals; enrollment agreements contained
unlawful clauses; CCI engaged in unlawful debt collection
and failed to disclose its role in the Genesis Private
Student Loan Program; and, CCI misrepresented the
transferability of credits.
Relief for students. Financial aid relief varies with local,
state and federal provisions, and although there are mechanisms
for restitution, some students remain ineligible for current
programs.
State relief. The STRF, administered by the BPPE, was
established to relieve or mitigate economic loss incurred by
students enrolled at a non-exempt private postsecondary
educational institution. According to the BPPE, California
students enrolled within 60 days of closure of a California
WyoTech and Everest campus are eligible for STRF. California
CCI students enrolled in Heald and Everest Online are not
covered by STRF as those CCI institutions were not regulated by
BPPE. According to the BPPE at its Sunset Review Hearing on
March 28, 2016, the BPPE expanded its consideration to students
who were enrolled within 120 days of the institution's closure.
For the CCI students that are eligible for STRF, application and
approval rates are low. According to BPPE data, of the
estimated 1,586 WyoTech students eligible for STRF, only 34 STRF
applications have been approved. Of the estimated 4,336 Everest
students eligible for STRF, only 75 applications have been
approved. Fewer than 350 total students have applied.
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USDE expanded the closed school loan discharge eligibility to
students enrolled as far back as June 20, 2014, making
California veterans eligible for closed school loan discharge.
BPPE has not yet taken such a similar action. When the
California State Approving Agency for Veterans Education
withdrew institutional approval of CCI campuses in California,
the students of those campuses could no longer benefit from the
GI bill benefits. If BPPE mirrors the expansion provided by the
USDE, California veteran students would be eligible for similar
loan discharge claims.
Federal relief. The USDE announced expanded loan forgiveness
options for CCI students who were affected by the closure or by
the unlawful practices of the institution. Eligible students
are ones who can show that CCI violated state law; and students
who were enrolled after June 20, 2014. Students enrolled in
Heald programs between 2010 and 2014 have been deemed eligible
to apply through an expedited loan forgiveness pathway; an
expedited pathway is pending for Everest and WyoTech students
enrolled in most programs between 2010 and 2013.
The USDE has indicated additional eligibility and financial aid
relief may be established. According to the Special Master for
Borrower Defense of the USDE, thousands of students are in the
approval process for their loans to be discharged or already
have been granted relief. USDE is in the process of starting
similar email campaigns for former WyoTech and Everest students.
Loans discharged as of March 1, 2016 for CCI institutions,
including WyoTech and Everest, amounts to more than $90 million.
-----------------------------------------------------------------
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|Closed school loan forgiveness claims received |11,740 |
|--------------------------------------------------+--------------|
|Students granted relief |6,838 |
|--------------------------------------------------+--------------|
|Borrower defense claims received |11,000 (8,501 |
| |from CCI) |
|--------------------------------------------------+--------------|
|Students eligible for loan forgiveness |Approx. |
| |350,000 |
| |students. |
|--------------------------------------------------+--------------|
|Students approved for loan forgiveness |2,048 |
|--------------------------------------------------+--------------|
|USDE email communications to former-Heald |54,000 |
|students regarding loan discharge eligibility | |
|--------------------------------------------------+--------------|
|Average open rate for these email campaigns |40% |
-----------------------------------------------------------------
Local relief. CSOs assisting students harmed by the fraudulent
activities and illegal closure of CCI (and other closed
institutions such as Four-D College and Marinello Schools of
Beauty) are limited by funding cuts.
Students enrolled at institutions exempt from the Act are
ineligible for STRF, nor are students who are enrolled at
institutions whose physical location is outside of California
(i.e. students enrolled in online programs). Even still,
students who were affected by a school's closure may not know
about their rights with regard to the STRF. As noted in the
BPPE's 2014 Sunset Report, the number of claims for STRF have
been remarkably low. For example, more than 4,000 students who
were enrolled at the now-closed WyoTech and Everest Colleges are
eligible for STRF. Eighty percent of these students met with
BPPE staff in the days following the schools' closure, but only
approximately 300 claims have been filed. Despite the low
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number of claims, the STRF has proven to be in need
improvements. For the claims made by students of WyoTech and
Everest, only 2.1% and 1.7%, respectively, were approved.
Establishing a surety bond. A bond is filed for the benefit of
consumers who may be damaged as a result of defective agreement
or other license law violations. For example, the Contractors
State License Board (CSLB) requires contractors to have a bond
in place before CSLB may issue an active license, reactivate an
inactive license, or renew an active license. According to the
CSLB, "A surety bond is a contract in which a surety company
promises the State of California that the contractor will comply
with the state Contractors License Law. According to the
author, requiring institutions to post a surety bond will
"[ensure] that students receive the instruction and credits they
have paid for, and if they do not, [ensure] that they are made
whole for what they have paid, as well as their lost benefits,
or nontransferable credits."
BPPE Sunset Review. The BPPE is currently undergoing the sunset
review process. The issues of low rates of student claims for
STRF funds, ensuring protection for students not covered by the
STRF, and the possibility of a surety bond requirement are
raised in the BPPE 2015 Sunset Review Background Paper, prepared
by the Senate Committee on Business, Professions and Economic
Development staff.
ARGUMENTS IN SUPPORT:
The Office of the Attorney General writes in support, "[This
bill] would make California the forty-first state to require
for-profit colleges to post some type of surety bond as
collateral to cover student losses following a school closure.
The bill adds much-needed additional safeguards to protect
consumers harmed by a growing industry of for-profit
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institutions that are often financially unstable and prone to
engage in predatory conduct. The bill has been thoughtfully
narrowed to a category of institutions most at risk of failure,
and its provisions have been crafted to ensure that appropriate
funds are available to repay students upon a school's closure.
As the bill makes its way through the legislature, the Attorney
General is committed to helping refine the language of the bill
to ensure that it will adequately serve to protect future
students from financial disaster."
The California Federation of Teachers writes in support, "Much
has been done to regulate private postsecondary institutions in
the wake of the closure of Corinthian Colleges. However, there
remains a great need to provide protection for those California
students attending private for-profit colleges in the event that
a school closes. By requiring these institutions to post a
surety bond, students will be able to recover those economic
losses such as educational supplies, living expenses,
non-transferable credits, or other damages. Additionally, this
bond will serve as a disincentive for schools to close before
the end of an academic term, thereby mitigating the loss to
students."
The Institute for College Access and Success writes in support,
if amended, "These small rates of relief are surely driven in
part by the Bureau's severe understaffing; it has just two
employees dedicated to processing claims for students impacted
by school closures and very limited capacity for student
outreach. Allowing a surety bond to be tapped to support STRF
administration would facilitate students' access to relief, and
as such we recommend amending the bill to enable the bureau to
make demand on surety bonds for reimbursement of STRF-related
administration and student outreach activities. At the same
time, it is important to avoid further complicating STRF
processes, especially since determining eligibility and applying
for relief can already be challenging for students to navigate.
To the extent that students are eligible to obtain state relief,
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the Bureau should be their point of contact and STRF their
source of relief."
ARGUMENTS IN OPPOSITION:
The California Association of Private Postsecondary Schools
writes in opposition, "Current California law allows for a $25
million account, essential an insurance fund, to help students
recover costs if their institution closes. The STRF is fully
funded and in fact has a $3 million surplus. Mandating every
institution have a surety bond equally 25% of their tuition
revenue on top of the $25 million STRF account is the definition
of duplicative. After discussing the mechanics of how this
proposed surety could work, our experts do not think many
Institutions could afford to maintain such a high bond. They
are equally uncertain, given the dollar fluctuations inherent in
calculating such a bond, that commercial entities would be
inclined to offer such a bond, except at a very high price,
which would doom many smaller Institutions."
The University of Phoenix writes in opposition, "Although the
University supports the concept of a bond, it opposes
duplicative financial burdens for licensed institutions through
the imposition of both a bond and the STRF. Specifically, the
bond requirement should only apply to those students who do not
otherwise contribute to the STRF. Even then, by focusing
exclusively on institutions regulated by the BPPE, the measure
leaves out a significant portion of CA online students that
attend non-BPPE regulated institutions; meaning those student
will have no recourse should their institution close." The
University goes on to say, "In addition to the duplicative
coverage, the measure will now provide that students shall be
eligible to receive punitive damages for up to four years after
an institution closes. It's unclear if punitive damages could
be insured under the surety bond required of institutions, in
which case it would be impossible to comply with the bill."
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American Career College / West Coast University writes in
support, "California currently has the [STRF] as the mechanism
to aid students impacted by a school closure. STRF is fully
funded. Requiring another duplicative mechanism will not
streamline efforts to help students receive the aid they need
quickly, but rather will complicate those efforts.
Additionally, the bond requirements in [this bill] are
excessively expensive and it is uncertain whether a bond of this
magnitude could even be obtained. This serves only to take away
from resources that could go directly to educations and training
programs that benefit students."
POLICY ISSUES FOR CONSIDERATION:
On April 12, 2016, the Assembly Higher Education Committee heard
and approved this bill by a vote of 9-4. The author agreed to
accept amendments recommended by the Higher Education Committee,
which will be formally adopted in this Committee. The
amendments specify that for all institutions enrolling students
that are covered by the STRF, the STRF will remain the source of
relief for student economic loss. For institutions exempt from
the BPPE, and therefore not covered by STRF, the surety bond
will cover student economic loss. Additionally, the amendments
require, for all institutions, the surety bond cover BPPE
administrative costs associated with school closure and STRF
eligibility, transcript and records database and administration,
and student outreach activities. Finally, the amendments
specify, consistent with current law, that BPPE is responsible
for records and transcripts for all closed institutions.
Despite the prevalence of states having a surety bond in
addition to STRF-type coverage, it is unclear if California
should also have duplicative coverage. The STRF currently has
$28 million available to students, which is more than its
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statutory limit allows. If an institution covered by a surety
bond closes, the bond itself would still not benefit students
for until STRF funds are expended or if the bond were to replace
STRF entirely.
Instead, the surety bond should only cover costs associated with
a school closure that STRF does not cover, namely reimbursing
the BPPE for conducting outreach and education with respect to
educational and financial relief, managing student transcripts
and records, and fulfilling awards for punitive damages.
AMENDMENTS:
SECTION 1. Section 94874 of the Education Code is amended to
read:
94874. Except as provided in Section 94874.2, Sections 94874.2
and 94886.5, the following are exempt from this chapter:
(a) An institution that offers solely avocational or
recreational educational programs.
(b) (1) An institution offering educational programs sponsored
by a bona fide trade, business, professional, or fraternal
organization, solely for that organization's membership.
(2) (A) Except as provided in subparagraph (B), a bona fide
organization, association, or council that offers
preapprenticeship training programs, on behalf of one or more
Division of Apprenticeship Standards-approved labor-management
apprenticeship programs that satisfies one of the following
conditions:
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(i) It is not on the Eligible Training Provider List established
and maintained by the California Workforce Investment Board but
has met the requirements for placement on the list.
(ii) It is on the Eligible Training Provider List established
and maintained by the California Workforce Investment Board and
meets the requirements for continued listing.
(B) If an organization, association, or council has been removed
from the Eligible Training Provider List established and
maintained by the California Workforce Investment Board for
failure to meet performance standards, it is not exempt until it
meets all applicable performance standards.
(c) A postsecondary educational institution established,
operated, and governed by the federal government or by this
state or its political subdivisions.
(d) An institution offering either of the following:
(1) Test preparation for examinations required for admission to
a postsecondary educational institution.
(2) Continuing education or license examination preparation, if
the institution or the program is approved, certified, or
sponsored by any of the following:
(A) A government agency, other than the bureau, that licenses
persons in a particular profession, occupation, trade, or career
field.
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(B) A state-recognized professional licensing body, such as the
State Bar of California, that licenses persons in a particular
profession, occupation, trade, or career field.
(C) A bona fide trade, business, or professional organization.
(e) (1) An institution owned, controlled, and operated and
maintained by a religious organization lawfully operating as a
nonprofit religious corporation pursuant to Part 4 (commencing
with Section 9110) of Division 2 of Title 1 of the Corporations
Code, that meets all of the following requirements:
(A) The instruction is limited to the principles of that
religious organization, or to courses offered pursuant to
Section 2789 of Business and Professions Code.
(B) The diploma or degree is limited to evidence of completion
of that education.
(2) An institution operating under this subdivision shall offer
degrees and diplomas only in the beliefs and practices of the
church, religious denomination, or religious organization.
(3) An institution operating under this subdivision shall not
award degrees in any area of physical science.
(4) Any degree or diploma granted under this subdivision shall
contain on its face, in the written description of the title of
the degree being conferred, a reference to the theological or
religious aspect of the degree's subject area.
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(5) A degree awarded under this subdivision shall reflect the
nature of the degree title, such as "associate of religious
studies," "bachelor of religious studies," "master of divinity,"
or "doctor of divinity."
(f) An institution that does not award degrees and that solely
provides educational programs for total charges of two thousand
five hundred dollars ($2,500) or less when no part of the total
charges is paid from state or federal student financial aid
programs. The bureau may adjust this cost threshold based upon
the California Consumer Price Index and post notification of the
adjusted cost threshold on its Internet Web site, as the bureau
determines, through the promulgation of regulations, that the
adjustment is consistent with the intent of this chapter.
(g) A law school that is accredited by the Council of the
Section of Legal Education and Admissions to the Bar of the
American Bar Association or a law school or law study program
that is subject to the approval, regulation, and oversight of
the Committee of Bar Examiners, pursuant to Sections 6046.7 and
6060.7 of the Business and Professions Code.
(h) A nonprofit public benefit corporation that satisfies all of
the following criteria:
(1) Is qualified under Section 501(c)(3) of the United States
Internal Revenue Code.
(2) Is organized specifically to provide workforce development
or rehabilitation services.
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(3) Is accredited by an accrediting organization for workforce
development or rehabilitation services recognized by the
Department of Rehabilitation.
(i) An institution that is accredited by the Accrediting
Commission for Senior Colleges and Universities, Western
Association of Schools and Colleges, or the Accrediting
Commission for Community and Junior Colleges, Western
Association of Schools and Colleges.
(j) An institution that satisfies all of the following criteria:
(1) The institution has been accredited, for at least 10 years,
by an accrediting agency that is recognized by the United States
Department of Education.
(2) The institution has operated continuously in this state for
at least 25 years.
(3) During its existence, the institution has not filed for
bankruptcy protection pursuant to Title 11 of the United States
Code.
(4) The institution's cohort default rate on guaranteed student
loans does not exceed 10 percent for the most recent three
years, as published by the United States Department of
Education.
(5) The institution maintains a composite score of 1.5 or
greater on its equity, primary reserve, and net income ratios,
as provided under Section 668.172 of Title 34 of the Code of
Federal Regulations.
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(6) The institution provides a pro rata refund of unearned
institutional charges to students who complete 75 percent or
less of the period of attendance.
(7) The institution provides to all students the right to cancel
the enrollment agreement and obtain a refund of charges paid
through attendance at the second class session, or the 14th day
after enrollment, whichever is later.
(8) The institution submits to the bureau copies of its most
recent IRS Form 990, the institution's Integrated Postsecondary
Education Data System Report of the United States Department of
Education, and its accumulated default rate.
(9) The institution is incorporated and lawfully operates as a
nonprofit public benefit corporation pursuant to Part 2
(commencing with Section 5110) of Division 2 of Title 1 of the
Corporations Code and is not managed or administered by an
entity for profit.
(k) Flight instruction providers or programs that provide flight
instruction pursuant to Federal Aviation Administration
regulations and meet both of the following criteria:
(1) The flight instruction provider or program does not require
students to enter into written or oral contracts of
indebtedness.
(2) The flight instruction provider or program does not require
or accept prepayment of instruction-related costs in excess of
two thousand five hundred dollars ($2,500).
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SECTION 1 SEC. 2. 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 amount
required to cover these costs shall be estimated by the
institution, pursuant to subdivision (a)(1) of this section. The
institutions may petition the bureau to lessen the amount of the
surety if the institution proves it is financially stable. 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.
(a)(1)The surety filed with the bureau as required by this
section shall be calculated by the following formula: Tuition
for a program x Projected California Student Enrollment in that
program x Percentage of Program Length. Length is calculated by
dividing actual program length by one year (52 weeks or 12
months, as appropriate.) If the school offers more than one
program, each program is calculated separately and the results
totaled. The total amount calculated for a program or programs
shall be rounded to the nearest $1,000.
(2) The bureau shall, through regulations, develop a process by
which an institution may petition to have its surety bond
lessened. The regulations shall include, but not be limited to,
establishing minimum evidence of financial stability.
(b)The amount of the bond shall be 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
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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). no less than
the total amount of tuition and fees charged by the institution
for the immediately preceding academic year, divided by four.
(c) (b) (1) In the event that an institution that is required to
participate in the Student Tuition Recovery Fund, pursuant to
Article 14, ceases operation, the bureau shall make demand on
the surety of the institution to provide reimbursement to the
bureau to cover costs associated with that institution's
closure, including enforcement of this chapter, outreach and
education to students regarding available relief, and management
of student transcripts and records, and administration of the
fund, and, if applicable, to provide punitive damages to
students pursuant to subdivision (g). records.
(2) In the event that an institution ceases operation, that is
exempt from the act pursuant to Section 94784, but that is not
an independent institution of higher education, as defined in
Section 66010, that has operated in California as an independent
academic institution for at least 15 academic years, ceases
operation, the bureau shall make demand on the surety of the
institution 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 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). to provide refunds of
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tuition and fees payments to students for economic loss, as
defined in subdivision (f) of Section 94923 and, if applicable,
punitive Section 94923. 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. damages
pursuant to subdivision (g). 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 economic loss 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. The bureau may make demand on the surety of
the institution to provide reimbursement to the bureau to cover
costs associated with that institution's closure, including
outreach and education to the students regarding available
relief, management of student transcripts and records, and
administration of the bond.
(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
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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.
(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. 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.
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(f) A surety on any bond filed under the provisions of this
section may be released after the surety or the institution
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 as an independent academic
institution for no less than 15 academic years.
(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.
(i) The bond (g) A surety bond as required by this section may
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be used to award punitive damages to a student of an the
applicable 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.
(h)
(j) Tuition and fees for purposes of this section are both of
the following:
(1) (A) Paid tuition and fees not recovered by the receipt of
academic credits.
(2)Paid tuition and fees recovered by the receipt of academic
credits that are nontransferable to accredited institutions.
(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.
(2) Interest on educational loans incurred to pay tuition and
fees not recovered by the receipt of academic credits.
REGISTERED SUPPORT:
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Attorney General, Kamala Harris
California Federation of Teachers
The Institute for College Access and Success (if amended)
REGISTERED OPPOSITION:
American Career College / West Coast University
Association of Private Postsecondary Schools
University of Phoenix
Education Management Corporation
Analysis Prepared by:Gabby Nepomuceno / B. & P. / (916) 319-3301