BILL ANALYSIS Ó
AB 2581
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Date of Hearing: April 5, 2016
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Jose Medina, Chair
AB 2581
(Medina) - As Introduced February 19, 2016
SUBJECT: Higher education: campus closures: Corinthian
Colleges, Inc
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:
1)Establishes numerous findings and declarations, including
Legislative intent that grant funds be made available from
STRF to assist former students of CCI in obtaining federal and
private loan discharge and other financial aid related relief,
that the amount of funds available be calculated by
multiplying the number of students (13,000) enrolled at the
time of the institution's unlawful closure by $100, and that
organizations receiving grants use available funds in ways
that maximize the number of California students that apply for
and receive loan discharge and tuition recovery.
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
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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 July 1, 2018.
3)Authorizes, until July 1, 2017, a state agency that provides
licensure to consider for licensure any student who was
enrolled in an educational program of CCI designed to lead to
licensure from that state agency, and who did not receive that
licensure due to the institution's closure.
4)Provides $1.3 million from STRF to the Attorney General (AG)
to provide grants to eligible nonprofit community service
organizations (CSOs) in order to assist eligible CCI students
by relieving or mitigating the economic and educational
opportunity loss incurred by those students. Authorizes
$150,000 for AG administrative costs.
5)The bill establishes the following program parameters:
a) Grant agreements must ensure funds are used for the
exclusive purpose of assisting eligible students with
federal and private loan discharge and other financial aid
relief, and that students eligible to claim recovery
through STRF are referred to BPPE. Grants may be used for
CSOs to screen student requests for assistance in order to
determine if students meet eligibility requirements.
Services provided by CSOs may include outreach and
education, screening requests for assistance, referring
students for additional legal assistance through pro bono
referral programs, and legal services.
b) An eligible CSO must satisfy all of the following:
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i) The CSO is a 501(c)(3) tax-exempt organization in
good standing with the Internal Revenue Service and in
compliance with all applicable laws and requirements;
ii) The CSO demonstrates expertise in assisting students
with, and currently provides free direct legal services
to students for, or will work in partnership with or
under the supervision of an attorney or a nonprofit legal
services organization that has demonstrated expertise in
assisting students with, student loan and tuition
recovery-related matters; and,
iii) The CSO does not charge students for services.
c) An eligible student is defined as a student who was
enrolled at CCI and who has been screened by the CSO and
determined to be eligible for debt relief from USDE or
other student financial aid relief.
d) Requires BPPE to notify the Attorney General (AG) of all
unlawful CCI closures, as specified, within 15 days of the
passage of this bill.
e) Requires the AG to, within 90 days of the notification,
solicit grant applications, select grantees, and notify
BPPE of the recipient organizations, as specified. The AG
is authorized to enter into contract with another qualified
entity to perform these duties.
f) Requires, 30 days of selection, the CSO must enter into
a grant agreement with the AG. Provides that unused funds
must be returned to STRF. Authorizes the AG to terminate
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the grant agreement for material breach, and to require
repayment of funds. Requires the AG to provide the grantee
a notice and reasonable opportunity to resolve the breach.
g) Authorizes a CSO to give priority to low-income students
if demand exceeds available grant funds.
h) Requires a CSO to report to the AG quarterly through the
grant period on all of the following:
i) The number of eligible students served pursuant to
the grant agreement.
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) The number of students screened by the nonprofit
community service organization who were determined
ineligible for assistance with debt relief, a summary of
reasons for ineligibility, and a summary of any services
or referral information provided to those students.
vi) Any other information that is deemed appropriate by
the AG.
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i) Requires the AG to make reports available to the
Legislature and BPPE upon request.
j) Requires the AG to provide the Legislature and BPPE a
final report summarizing the information reported by the
CSOs following the expenditure of all funds, or by January
1, 2019, whichever is earlier.
aa) 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.
iii) Twenty-five percent shall be distributed to the
grantee upon the submission of the grantee's third
quarterly report.
bb) Provides emergency rulemaking authority for
implementation of this program.
cc) Declares this bill an urgency statute to take effect
immediately.
EXISTING LAW:
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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
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: Unknown. Based on the Senate Appropriations
Committee analysis of prior similar legislation:
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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)Local Assistance Grants: $1.3 million appropriation from the
STRF. (Special funds)
COMMENTS: Background on CCI. CCI institutions (Heald, WyoTech,
and Everest) 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 (Title IV: Pell Grants
and Federal Loans).
In October of 2013, AG Kamala Harris filed a lawsuit against CCI
(that contained a range of allegations about deceptive marketing
and job-placement claims, in violation of a 2007 judgment. In
August of 2014, the California State Approving Agency for
Veterans Education (CSAAVE) 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
CSAAVE eligible school.
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
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funds for new enrollments. On April 16, 2015, the California
Student Aid Commission (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.
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.
Background on relief options for students.
1)STRF. The STRF, administered by the BPPE, is funded by
students enrolled in institutions regulated by the BPPE and
provides for reimbursement to students for economic loss due
to the closure or illegal activity of a regulated institution.
According to BPPE, California students enrolled in a
California WyoTech and Everest campus within 120 days of
closure 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. Unlike
federal loan forgiveness, STRF provides for partial refunds if
students transfer some of their credits to another
institution.
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In 2015, USDE took action to expand the closed school loan
discharge eligibility to students enrolled as far back as June
20, 2014. The USDE action made California veteran students
eligible for closed school loan discharge. BPPE has not yet
taken such a similar action.
For the CCI students that are eligible for STRF (enrolled
within 120 days of closure) 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.
2)Federal loan forgiveness. The USDE has announced expanded
loan forgiveness options for CCI students 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; Everest
and WyoTech students in most programs between 2010 and 2013,
an expedited application pathway is pending); and, 2) students
who were enrolled after June 20, 2014. The USDE has indicated
additional eligibility and financial aid relief may be
established.
On March 25, 2016, USDE announced it had received 11,740
closed school loan forgiveness claims, and, as of March 1,
2016, granted relief for 6,838 students; and has received
11,000 borrower defense claims (8,501 from CCI students) and
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has approved 2,048. Rough estimates place the number of
students eligible for loan forgiveness at about 350,000
students. Since the time of CCI closure, USDE has sent email
communications to over 54,000 former-Heald students to inform
them of their loan discharge eligibility; the average open
rate for these email campaigns is approximately 40%. USDE is
in the process of starting similar email campaigns for former
WyoTech and Everest students.
Local assistance grants. CSOs are currently working to assist
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). Unfortunately, funding cuts to
these programs have reduced the ability of local organizations
to meet student demand for services. This bill would provide
$1.3 million in funding to local community based organizations
to provide services to students, including:
1)Outreach and education for students and borrowers to
understand their options. For example, the Legal Aid
Foundation of Los Angeles (LAFLA) hosted two loan workshops
for over 60 students following the closure of Marinello, in
order to help students complete understand their rights and
options.
2)Case intake and evaluation services to determine the
particular facts of a student's situation and provide advice
about next steps. For example, students often have multiple
loans. Their rights depend on the types of loans they have.
Even within government loan programs (FFEL, Direct,
Consolidation, or Parent Plus), rights depend on the history
of the loans, who holds the loan, and the date loans were
taken out. Private loan rights also depend on the terms of
the loan and the applicable state law.
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3)Assistance and representation to ensure relief for students,
once a student's rights and options are determined. For
example, according to LAFLA:
a) For Federal Loans:
Statutory loan discharges. Closed school, false
certification, unpaid refund, and disability discharges
generally require extensive corroborating evidence that
must be obtained from USDE, schools (if they still exist),
BPPE, and other sources. Although closed school and
disability discharges usually require less evidence, most
students are confused and daunted by the complicated
discharge applications.
Defense-to-repayment relief. Borrowers may request a
cancellation of their federal loans if their schools
engaged in state law violations. To obtain this relief,
they must produce sufficient evidence to make a prima facie
case under state law. While USDE has provided a streamlined
process for some Heald students, little guidance has been
provided regarding the procedures, evidence, and standards
required for these claims for different types of loans for
WyoTech, Everest and other institutions where students were
defrauded.
Options after default. If a borrower is in default, he/she
may be able to get out of default and obtain an affordable
repayment plan through consolidation or rehabilitation. But
only certain loans are eligible for consolidation and
rehabilitation. For example, if a loan has been reduced to
a judgment, the borrower will not be able to get out of
default through consolidation or rehabilitation unless the
judgment is set aside. LAFLA works to negotiate vacation of
the judgment.
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Income-based repayment plans. Borrowers must get out of
default before they can obtain income-dependent repayment
plans. In addition, some loans, such as Parent PLUS loans,
are not eligible for the income-based repayment plans, but
can eligible for one type of income-dependent repayment
plan after consolidation.
Pro-per assistance. CSOs help clients complete and submit
their own applications, including through clinics, when the
process is sufficiently accessible. If the process is too
complicated, CSOs will represent the borrower.
b) In private loans borrowers have fewer options. CSOs
evaluate all private loan cases for potential defenses,
which include statutes of limitation, defenses-to-repayment
based on school misconduct (if a holder notice is included
in the promissory note), etc. If borrowers have a defense,
CSOs help them to assert it through demand letters and, if
necessary, litigation. CSOs also defend borrowers who are
served with private student loan collection lawsuits. CSOs
can assist students who are being harassed by private
collection agencies.
4)Follow-up and appeals are often necessary, for even the
simplest of cases. For example, according to LAFLA, a CCI
client received a denial from the loan servicer for his closed
school loan discharge application because the servicer had "no
record of the school closing." An appeal was filed and, after
negotiations with the loan servicer's general counsel, the
servicer fixed the problem and granted the discharge. The
servicer also went back and reopened all cases involving CCI
students.
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Prior Legislation and Governor's Veto. AB 573 (Medina, 2015)
was substantially similar to this bill. In vetoing AB 573,
Governor Brown stated, in part, that USDE "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."
Author's statement. According to the author, "this bill will
provide vital funding to local organizations to help students
with the loan forgiveness and tuition recovery process. Since
Governor Brown's veto of AB 573, only a fraction of students
eligible for loan discharge and tuition recovery have submitted
claims; of those who have submitted claims, even fewer students
have had claims successfully approved. This is clear evidence
that existing efforts by USDE and BPPE are insufficient to
ensure students receive the benefits to which they are
entitled."
According to the author, "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 this bill "will restore California
education grant eligibility for students by providing up to 2
years of restoration in the Cal Grant and California National
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Guard Educational Assistance programs. This will ensure
approximately 3,400 Heald students are not harmed by the award
year limitations in these programs." Committee staff
understands, in response to the Governor's veto statement, the
author and other members of the Legislature are concurrently
working to request this provision be included in the Budget Act.
Arguments in support. According to The Institute for College
Access and Success (TICAS), very few eligible students have
received loan relief from USDE. Among Heald students, whom have
had an expedited relief process available since June of 2015,
only 16% (when looking at the best possible interpretation of
the available figures) have received discharge under closed
school or borrower defense provisions. In California, while
BPPE reports having contacted 80% of former STRF-eligible
students, only 7% have applied for STRF relief. According to
TICAS, "to put these low shares into further perspective, a
California Superior Court last week concluded that every former
Corinthian student in California since 2010 deserves restitution
due to the company's unlawful and predatory practices." TICAS
notes that there is no evidence that students are foregoing
relief because they do not need it; many eligible students are
not aware that relief is available. Further, TICAS notes that
many students do not receive relief because the process for
determining eligibility and applying for relief is complex.
According to TICAS, AB 2581 would facilitate students' access to
relief by providing funding to nonprofit organizations that can
conduct on-the-ground outreach and provide the assistance that
the students need.
Possible amendments. Since the closure of CCI, two other
California colleges have closed unlawfully and abruptly. In
July of 2015, Four D College shutdown; according to BPPE data,
620 students were enrolled at the time of closure. Only 55
former-Four D students have filed STRF claims, and only 17 have
had claims approved. On February 4, 2016, Marinello Schools of
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Beauty ceased operations. The closure affected approximately
3,200 students in California that are likely eligible for STRF
and federal Closed School loan discharge.
Currently this bill requires unused grant funds to be returned
to the STRF. Instead, the author and committee may wish to
authorize CSOs, with the approval of the AG, to use grant
funding to provide assistance to students affected by other
school closures. Additionally, the author and committee may
wish to update the findings and declarations to reflect the most
recent CCI student loan eligibility and application data
available from USDE.
BPPE Sunset Review. BPPE is currently undergoing the Sunset
Review process. The issue of STRF and outreach to students is
raised in the BPPE Sunset Review report. The report makes a
series of recommendations, including establishing a student
advocate within DCA/BPPE to work with students and CSOs to
provide outreach to students. The author and committee may wish
to raise the proposals included in this bill through the 2016
Sunset Review process, as appropriate.
REGISTERED SUPPORT / OPPOSITION:
Support
California Federation of Teachers
Center for Public Interest Law
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Children's Advocacy Institute
Consumer Federation of California
Consumers Union of United States, Inc.
East Bay Community Law Center
Faculty Forward Network
Housing and Economic Rights Advocates
Legal Aid Foundation of Los Angeles
The Institute for College Access and Success
Public Advocates
Public Counsel
Public Law Center
Veterans Legal Clinic
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Opposition
None on File
Analysis Prepared by:Laura Metune / HIGHER ED. / (916) 319-3960