BILL ANALYSIS Ó
AB 2581
Page 1
Date of Hearing: April 12, 2016
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Rudy Salas, Chair
AB 2581
(Medina) - As Amended April 6, 2016
NOTE: This bill is double-referred, having been previously heard
by the Higher Education Committee on April 5, 2016 and approved
on a 11-0 vote.
NOTE: This bill adds an urgency clause.
SUBJECT: Higher education: campus closures: Corinthian
Colleges, Inc.
SUMMARY: Provides financial and other assistance to students of
Heald, Everest, and WyoTech campus in California, which were
owned by Corinthian Colleges, Inc. (CCI) and closed unlawfully
on April 27, 2015; contains an urgency clause allowing the bill
to take effect immediately upon enactment.
EXISTING LAW:
1)Establishes the Bureau of Private Postsecondary Education
(BPPE) within the Department of Consumer Affairs (DCA) to
oversee and regulator private postsecondary educational
institutions. (Business and Professions Code (BPC) Section
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94800 et seq.)
2)Provides that the BPPE is funded by licensing fees paid by
regulated institutions. (BPC Sections 94930-94931.5)
3)Exempts certain institutions from accreditation by the Western
Association of Schools and Colleges (WASC); however all
for-profit institutions serving veterans and receiving Title
38 funds, regardless of accreditation status, are required to
obtain BPPE approval by January 1, 2016. (BPC Section
94874(i))
4)Establishes the Student Tuition Recovery Fund (STRF),
administered by the BPPE, to relieve or mitigate economic loss
incurred by students enrolled at a non-exempt private
postsecondary educational institution due to the institution's
closure, the institution's failure to pay refunds or reimburse
loan proceeds, or for the institution's failure to pay
students' restitution award for a violation of the Private
Postsecondary Education Act. (BPC Sections 94923-94925)
5)Provides that the STRF is statutorily limited to no more than
$25 million. (BPC Section 94925)
6)Requires institutions to assess students an amount established
in regulation by the BPPE and remit funds to the BPPE for the
STRF; in 2010, that amount was established at $2.50 per $1,000
of tuition charged; in 2013, the amount was reduced to $0.50
per $1,000; in 2015, the amount was further reduced to $0.00,
as the STRF had exceeded its statutory cap. (BPC Sections
94923 - 94925)
THIS BILL:
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1)Declares Legislative intent to make grant funds available from
the STRF to assist former students of CCI institutions in
obtaining federal and private loan discharges and other
financial aid relief.
2)Appropriates a total of $1.3 million from the STRF to the
Attorney General (AG) for providing grants and paying
administrative costs not more than $150,000; the amount of
funds available are calculated by multiplying the number of
students (13,000) enrolled at the time of CCI's unlawful
closure by $100.
3)Declares 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.
4)Restores up to two years of Cal Grant and National Guard
Education Assistance awards for students who enrolled at Heald
College and received awards in the 2013-14 or 2014-15 academic
years, were unable to complete their educational programs, and
withdrew between July 1, 2014 and April 27, 2015; requires an
eligible student to notify the California Student Aid
Commission (CSAC), on or before July 1, 2018, of his or her
intent to use this restoration.
5)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.
6)Specifies that the $1.3 million from the STRF goes to the AG
to provide grants to eligible nonprofit community service
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organizations (CSOs) in order to assist eligible CCI students
by relieving or mitigating the economic and educational
opportunity loss by those students.
7)Establishes program parameters to ensure grant agreements are
used for assisting eligible students with federal and private
loan discharge and other financial aid relief; refers students
who are eligible for STRF claim recovery to the BPPE; provides
that grants may be used for CSOs to screen student requests
for assistance to determine if a student meets eligibility
requirements; allows CSOs to provide outreach and education,
referring students for additional legal assistance through pro
bono referral programs and legal services.
8)Specifies that a CSO is eligible if it satisfies the following
characteristics:
a) The CSO is a 501(c)(3) tax-exempt organization in good
standing with the Internal Revenue Service and is in
compliance with all applicable laws and requirements;
b) The CSO demonstrates expertise in assisting students
with, and currently provides free direct legal services to
student 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,
c) The CSO does not charge students for its services.
9)Defines an eligible student as one who was enrolled at CCI and
who was determined by the CSO to be eligible for debt relief
from the United States Department of Education (USDE) or other
for other student financial aid relief.
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10)Requires the BPPE to notify the AG of all unlawful CCI
closures within 15 days of the passage of this bill.
11)Requires the AG to, within 90 days of the notification,
solicit grant applications, select grantees, and notify the
BPPE of the recipient organizations, as specified; authorizes
the AG to enter into contract with another qualified entity.
12)Requires a CSO to enter into a grant agreement within 30 days
of selecting the AG, or qualified entity; the AG or qualified
entity may terminate the grant agreement for material breach
and require repayment of funds used to the STRF; requires the
AG or qualified entity to provide 30 days' notice of the
breach and reasonable time of at least 30 days to resolve the
breach.
13)Provides that any unused funds that were transferred to a CSO
must be returned to the AG, who will further transfer the
funds back to the STRF, unless the AG approves these unused
funds for providing assistance to students who were enrolled
at an institution approved to operate by the BPPE, other than
CCI, and were harmed by the unlawful closure of that
institution.
14)Authorizes a CSO to prioritize low-income students if demand
exceeds available funds.
15)Requires a CSO to report to the AG or qualified entity
quarterly through the grant period on all of the following:
a) The number of eligible students served;
b) A detailed summary of services provided;
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c) The number of STRF claims referred to the BPPE;
d) The number of federal loan forgiveness claims filed,
approved, denied and pending;
e) The number of students screened by the CSO who were
determined ineligible for assistance, as specified, and a
summary of services or referral information provided; and,
f) Any other information deemed appropriate by the AG or
qualified entity, as applicable.
16)Requires the AG to make these reports available to the
Legislature and the BPPE upon request.
17)Requires the AG to provide the Legislature and the BPPE a
final report summarizing the information reported by the CSOs
following the expenditures of all funds, or by January 1,
2019, whichever is earlier.
18)Provides that funds will be distributed to pre-approved CSOs
as scheduled:
a) Within 30 days of the grantee entering into a grant
agreement, 50% will be distributed;
b) Upon submission of the grantee's second quarterly
report, an additional 25% will be distributed; and,
c) Upon submission of the grantee's third quarterly report,
the remaining 25% will be distributed.
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19)Provides emergency rulemaking authority for implementation of
this program.
20)Contains an urgency clause allowing the bill to take effect
immediately upon enactment.
FISCAL EFFECT: Unknown. This bill is keyed fiscal by the
Legislative Counsel.
COMMENTS:
Purpose. This bill seeks to provide financial and other
assistance to students of Heald, Everest, and WyoTech campus in
California, which were owned by CCI and closed unlawfully on
April 27, 2015. In order to provide students with more access to
CSOs, this bill contains an urgency clause allowing the bill to
take effect immediately upon enactment.
This bill is sponsored by the author. According to the author,
"Thousands of California students, who were harmed by the
illegal, deceptive recruitment practices, remain overwhelmed
with debt. The federal student loan debt of these California
students exceeds $300 million. If Corinthian students are forced
to default on these loans, either because they could not
graduate or because their degree is of questionable quality,
they face severe lifelong consequences."
The author goes on to say, "according to the Attorneys General
of 11 states, successfully applying for loan forgiveness would
'require an understanding of contract, tort or unfair practices
statutes;' skills and knowledge inaccessible to most Corinthian
students. In fact, only a small fraction of students eligible
for a federal loan discharge ever file a claim." The author goes
on to say, "Helping California students revoke as much of their
student debt as possible will be good for these students, cost
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the state of California very little, and provide benefits now
and in the future to California's economy."
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.
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
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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.
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
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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.
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 CSAAVE
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.
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Loans discharged as of March 1, 2016 for CCI institutions,
including WyoTech and Everest, amounts to more than $90 million.
-----------------------------------------------------------------
|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. This bill would provide
$1.3 million from the STRF to meet student demand for services.
The expanded funding would increase CSOs ability to provide
information through outreach, education, and workshops so that
students understand their options; provide case evaluation to
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determine a student's unique situation, i.e. a student may have
a single or multiple loans, private, state or federal loans, and
the rights and terms associated with each; and provide
assistance and representation to ensure relief for students,
once a student's rights and options are determined. CSOs can
also help a student facing litigation, harassment by collection
agencies and, if necessary, with appeals.
CSOs can offer assistance in seeking relief from federal loans
by navigating statutory loan discharges and defense-to-repayment
relief when a student can show evidence of fraud committed by
the institution. CSOs can help to obtain affordable repayment
plans through consolidation or rehabilitation on certain loans.
If a student is in default, a CSO may be able to help the
student out of default and provide information for income-based
repayment plans. CSOs can also help clients complete and submit
their own pro-per applications through clinics; if the process
is too complicated, the CSO can represent the student.
For private loans, students have fewer options. CSOs evaluate
all of these cases for potential defenses, which include
statutes of limitation, defenses-to-repayment, among others. If
a student has a defense, CSOs can help them to assert demand
letters and even litigation. CSOs also defend borrowers who are
served with private student loan collection lawsuits.
Consideration for Licensure. This bill enables boards and
bureaus within DCA to consider for licensure, on a case-by-case
basis, the students affected by the closure of CCI who were
enrolled in programs that would otherwise have led to licensure.
These licensing entities would have the discretion to accept a
student's earned credits and hours of experience so long as the
board or bureau maintains its mandate of consumer protection.
This provision is intended to accommodate students who had
nearly completed their program when CCI closed and who do not
wish to re-start their program at a different institution or to
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seek financial restitution. This consideration is available only
until July 1, 2017.
Prior Related Legislation AB 573 (Medina) of 2015 was
substantially similar to this bill. According the Governor,
"the [USDE] has taken the matter of loan discharge seriously. ?
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." NOTE: This bill was
vetoed by Governor Brown due to unwarranted costs associated
with creating a new attorney grant program and extending Cal
Grant eligibility. This bill would address those concerns by
diverting money from the existing STRF and restore Cal Grant
eligibility for a limited period of time.
SB 150 (Nguyen), Chapter 650, Statutes of 2015. SB 150 provides
protection for students facing CCI closures from being taxed on
gross income that resulted from loan discharges.
Current Related Legislation. AB 1916 (Irwin) of the current
Legislative Session requires private postsecondary educational
institutions to maintain a surety bond, files with the BPPE to
provide reimbursement to the students in the case of school
closure. Note: this bill is pending in the Assembly Committee on
Business and Professions.
The BPPE is currently undergoing the Sunset Review process. The
issues 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
withing DCA/BPPE to work with students and CSOs to provide
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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.
ARGUMENTS IN SUPPORT:
The California Federation of Teachers writes in support, "[this
bill] will ensure students harmed by CCI have access to
educational and financial relief, through a variety of programs
including grants to community organizations to help students
with the loan forgiveness and tuition recovery process,
restoring California education grant eligibility for students by
providing up to two years of restoration in the Cal Grant and
national Guard programs, and authorizes state licensing board to
waive non-substantive licensing requirements for specified CCI
students who meet educational requirements."
The Institute for College Access & Success (TICAS) writes in
support, "[this bill] would facilitate students' access to
relieve by providing funding to nonprofit organizations that can
conduct on-the-ground outreach and provide the assistances that
students need." With regard to the Governor's veto of AB 573,
ICAS states, "[w]hile the efforts of the [USDE] were indeed
unprecedented, we now have the data which very clearly shows
these efforts to be insufficient to help affected students at
scale."
A coalition of organizations* writes in support, "neither
federal or state relief is as available as it should be, and the
process for applying is often lengthy and complicated. In order
to navigate the confusing paths to relief, students require
access to skilled legal aid attorneys who can assist them in
determining what options are available and in filling out the
often complex and detailed paperwork that is required."
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ARGUMENTS IN OPPOSITION:
None on file.
IMPLEMENTATION ISSUE(S):
If a licensing entity determines a student of a defunct CCI
institution is eligible to sit for the licensure examination
because he or she has completed nearly all the requisite courses
and experience hours, it is unclear if the student would be
adequately prepared to take the examination two years after the
closure, especially for cases where the student has since been
working in an unrelated field. The author may wish to authorize
the boards and bureaus to require coursework or a state "law and
ethics" examination, if not already required, to ensure that the
potential licensee is versed in the most recent and relevant
state laws."
Additionally, not all students may be keenly aware of the
provisions that this bill would enact. The author should extend
the duration of eligibility to give more students time to
petition for the opportunity to become licensed.
AMENDMENTS:
94051. (a) Notwithstanding any other law, until July 1,
2017 2020, a state agency that provides licensure may consider
for licensure any student who was enrolled in an educational
program of Corinthian Colleges, Inc., designed to lead to
licensure from that state agency, and who did not receive that
licensure due to the institution's closure. This consideration
shall be provided at the discretion of the state agency in
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accordance with its public protection mandate and applicable
criteria established by the agency for consumer safety.
(b) A state agency, as specified in subdivision (a) of this
section, is authorized to require coursework or a state "law and
ethics" examination, if not already required, to ensure that the
potential licensee is versed in the most recent and relevant
state laws.
REGISTERED SUPPORT:
California Federation of Teachers
The Institute for College Access & Success
*Housing and Economic Rights Advocates
*Faculty Forward Network
*East Bay Community Law Center
*Public Law Center
*Consumer Federation of California
*Center for Public Interest Law
*Children's Advocacy Institute
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*Veteran's Legal Clinic
*Consumers Union of United States, Inc.
*Public Advocates
*Public Counsel
REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Gabby Nepomuceno / B. & P. / (916) 319-3301