BILL ANALYSIS �
-----------------------------------------------------------------------
|Hearing Date: April 28, 2014 |Bill No:SB |
| |1069 |
-----------------------------------------------------------------------
SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: SB 1069Author:Torres
As Amended:March 26, 2014Fiscal: Yes
SUBJECT: Student Tuition Recovery Fund: claims.
SUMMARY: Requires the Bureau for Private Postsecondary Education
(BPPE) to adopt regulations to make students who utilize a Cal Grant,
a Pell Grant, or both, eligible to apply for payment from the Student
Tuition Recovery Fund.
NOTE: This bill was heard by the Senate Committee on Education on
April 24, 2014 and passed 8-0. In that Committee, the Author agreed
to take amendments which are reflected in this analysis.
Existing law:
1) Authorizes the Cal Grant Program, administered by the California
Student Aid Commission (CSAC), to provide grants to financially
needy students to attend college. The program consists of the Cal
Grant A, Cal Grant B, and Cal Grant C programs and eligibility is
based upon financial need, grade point average, California
residency, and other eligibility criteria, as specified.
(Education Code (EC) � 69430-69433.9)
2) Provides for student protections and regulatory oversight of
private postsecondary schools in the state pursuant to the
California Private Postsecondary Education Act of 2009 (Act). The
Act is enforced by the Bureau for Private Postsecondary Education
(Bureau) within the Department of Consumer Affairs. (EC � 94800 et
seq.)
3) Requires BPPE to adopt regulations governing the administration and
maintenance of the Student Tuition Recovery Fund (STRF), including
SB 1069
Page 2
requirements relating to assessments on students and student
claims. (EC � 94923)
4) Limits the amount in the STRF to no more than twenty-five million
dollars ($25,000,000) at any time. (EC � 94925)
5) Provides that at least 30 days prior to closing, an institution
must notify BPPE in writing of its intention to close and provide a
closure plan which must include, but not necessarily be limited to,
all of the following: (EC � 94926)
a) A plan for providing teach-outs of educational programs,
including any agreements with any other postsecondary educational
institutions to provide teach-outs.
b) If no teach-out plan is contemplated, or for students who do
not wish to participate in a teach-out, arrangements for making
refunds within 45 days from the date of closure; or for
institutions that participate in federal student financial aid
programs, arrangements for making refunds and returning federal
student financial aid program funds.
c) If the institution is a participant in federal student
financial aid programs, it shall provide students information
concerning these programs and institutional closures.
d) A plan for the disposition of student records.
This bill: Provides that a student who utilizes a Cal Grant, Pell
Grant, or both to pay tuition at a qualifying institution is eligible
to apply for payment from the Student Tuition Recovery Fund.
FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by Legislative
Counsel.
COMMENTS:
1. Purpose. This bill is sponsored by the Author . According to the
Author, this bill is in response to the abrupt January 24, 2014
closure of Career Colleges of America (CCA). According to the
Author, about 800 students were enrolled at campuses in San
Bernardino, South Gate, and mid-city Los Angeles and the school was
unable to negotiate a teach-out plan prior to closure. According
to the Author, with no plan in place, the credits the students
SB 1069
Page 3
earned were not transferred to other schools and students who had
spent years attending CCA, paying upwards of $37,000 for their
programs, were now forced to start over.
The Author is particularly concerned that current regulations
outlining eligibility for reimbursement under the BPPE administered
Student Tuition Recovery Fund (STRF) does not allow students to
seek relief for institutional costs paid by thirds parties like
Pell and Cal Grants. According to the Author, "CCA students are
low-income and received federal Pell Grants. Both Pell and Cal
Grants have lifetime use limits of 6 and 4 years respectively. As
a result of the school's closure these students have not only lost
time, but they have lost debt-free funding opportunities that could
be used for future educational needs." The Author believes that
STRF funds should be available to students, like those impacted by
the CCA closure, as a means of mitigating Pell and Cal Grant losses
by setting funds aside for students' subsequent enrollment in other
institutions.
2. Background. The Bureau of Private Postsecondary Education (BPPE)
is responsible for oversight of private postsecondary educational
institutions operating with a physical presence in California.
Established by Assembly Bill 48 (Portantino, Chapter 310, Statutes
of 2009), after numerous legislative attempts to remedy the laws
and structure governing regulation of private postsecondary
institutions, the bill took effect January 1, 2010, to make many
substantive changes that created a new, solid foundation for
oversight and gave the new BPPE an array of enforcement tools to
ensure schools comply with the law.
One important tool to assist students is the Student Tuition
Recovery Fund (STRF). The STRF is designed to relieve or mitigate
losses suffered by students who attend approved institutions, such
as when institutions close, fail to pay or reimburse loan proceeds
under a federally guaranteed student loan program, or fail to pay
judgments against them. School closures have a significant impact
on the lives of, and educational opportunities for students
enrolled at the time of a closure. While some schools close simply
because the cost of doing business is to high compared with their
ability to earn a profit, others close suddenly and abruptly,
leaving students in the lurch, many of whom have paid high up-front
tuition costs and all of whom believed that they were investing in
training that would eventually lead to greater job and economic
opportunities. The Bureau plays a role in assisting students
subject to a school closure and can also force a school to close if
it is violating the Act to such a significant degree that consumers
SB 1069
Page 4
are harmed by continued enrollment.
To fund STRF, institutions are required to charge students fifty
cents ($.50) per one thousand dollars ($1,000) of institutional
charges, rounded to the nearest thousand dollars which the
institution then submits to BPPE as payment into the fund. The Act
leaves the bulk of STRF rules and administration to the regulatory
process via regulations promulgated by the Bureau, but clearly
states that the balance of the STRF may not be in excess of $25
million at any time. Students seeking reimbursement from STRF must
submit a claim and supporting documents to BPPE at which point
Bureau staff review the claim application to determine whether
adequate supporting materials were provided, among other items, and
determine whether to approve or deny the claim. Approved STRF
claims result in payment from the STRF to the student. BPPE is
currently authorized in its regulations to negotiate with a lender,
holder, guarantee agency, or USDE for the full compromise or
write-off of student loan obligations to relieve students of
economic loss and, if possible, to reduce the liability of the STRF
for the payment of claims. The Bureau is also authorized to pay a
student's claim directly to the lender, holder, guarantee agency or
USDE.
Current law authorizes the Cal Grant Program, administered by the
California Student Aid Commission, to provide grants to financially
needy students to attend college. The program consists of the Cal
Grant A, Cal Grant B, and Cal Grant C programs and eligibility is
based upon financial need, grade point average, California
residency, and other eligibility criteria, as specified. BPPE's
current STRF regulations do not specifically address options for
tuition repayment for a student who used a portion of their Cal
Grant eligibility at a now ineligible institution. While an
institution like CCA, which lost its accreditation and was no
longer eligible to accept Cal Grant monies, would also not be
eligible to receive future Cal Grant payments, no mechanism
currently exists for the student or the State, to recoup the award
payments previously paid to the institution.
At its December 2013 Advisory Committee meeting, regulations were
considered to define "third-party payers" as a person, business or
agency who pays any portion of an institutional charge on behalf of
a student. The proposal further would provide that for a student
whose total or partial charges are paid by a third-party payer who
suffers a loss of an educational opportunity, the portion paid by
the third party payer up to the amount of the economic losses may
be paid to a subsequent institution upon evidence that a student is
SB 1069
Page 5
enrolled in a different institution. These regulations are
currently being reviewed and prepared for public comment. While
the regulations appear to begin to address the issue this bill
intends to address, the proposed regulations make no provision for
how, or to whom the funds would be paid.
Currently, STRF has a large balance and over one year ago met the
statutory cap of $25 million established in the Act. BPPE recently
proposed regulations to significantly decrease the amount of money
paid into the fund, as well as completely stop collecting STRF for
a period of four years to avoid being in violation of the Act and
the established maximum for the fund. There is some concern that
prohibiting the collection of STRF as a means of avoiding conflict
with the law does not take the same consumer oriented approach as
enhancing efforts to properly utilize the funds in a timely manner
or determining whether there are other appropriate uses for the
fund. A recent background paper for the April BPPE Sunset Review
Hearing found that there are currently very narrow options for the
use of STRF when an institution closes that could be expanded
beyond tuition repayment, for example, to assist in the repayment
of student loans for students who have been subject to a school
closure. Committee staff noted that STRF could also be used to
repay student loans for students attending institutions found to be
in violation of the Act; for example, if the school is cited for
failing to provide required disclosures, or for providing false or
misleading information on the School Performance Fact Sheet.
3. Related Legislation This Session. SB 1247 (Lieu) of 2014 extends
until January 1, 2019 the term of the California Private
Postsecondary Education Act of 2009, which provides for the
regulation of private postsecondary educational institutions by the
Bureau for Private Postsecondary Education in the Department of
Consumer Affairs. The bill also extends the term of the Student
Tuition Recovery Fund under the administration of the Bureau, and
subjects the Bureau to review by the appropriate policy committees
of the Legislature. ( Status : This bill will also be heard before
the BP&ED Committee during today's hearing.)
AB 330 (Chau) of 2013 would require postsecondary educational
institutions to provide their net price calculators and average
student debt per graduate to the California Student Aid Commission
(CSAC) as a condition of eligibility for the Cal Grant Program,
requires CSAC to provide this information on its website in a
searchable database, and requires a for-profit institution to
include this information in its School Performance Fact Sheet.
( Status: This bill is pending in the Senate Committee on
SB 1069
Page 6
Education.)
AB 534 (Wieckowski) of 2013 would have required public and private
postsecondary educational institutions to provide entrance and exit
counseling, as specified, for students enrolled at their
institutions regarding student loans offered by the institution or
a private lender, and prohibits a lender from accepting an
application for a private student loan without first receiving
certification that the counseling was conducted by the appropriate
postsecondary institution, which may charge a fee to the lender for
this service.
( Status: This bill was held in the Assembly Committee on
Appropriations.)
4. Prior Related Legislation. AB 48 (Portantino, Chapter 310,
Statutes of 2009) established the Private Postsecondary Act of
2009.
5. Arguments in Support. Legal Aid Foundation of Los Angeles (LAFLA)
supports this bill, writing that it will help to ensure that
students impacted by sudden for-profit school closures will have
future educational opportunities to pursue their dreams. LAFLA
believes that this is an important bill and has been involved with
helping students affected by the CCA closure. According to LAFLA,
most of the students would like to continue their education
elsewhere and believes that this bill "is crucial to ensuring that
students harmed by school closures have a full opportunity to
pursue a higher education at a different college."
6. Author's Amendments. The Author agreed to take amendments in
response to issues raised by staff in the Senate Committee on
Education. Staff noted that in its current form, "it is unclear
who would receive the funds if a Cal Grant recipient successfully
claimed reimbursement from the STRF. Would a student receive the
funds directly? As the funds were initially paid by the state, and
not the student, would such action be considered a gift of public
funds? Would the BPPE retain the funds on a student's behalf and
pay them directly to an alternate institution of the student's
choice? Only institutions that meet specified criteria, as
determined by the CSAC, are eligible to participate in the Cal
Grant program. Should an agency other than the CSAC be authorized
to re-distribute Cal Grant funds? "
The Author has agreed to take amendments to also require the
payment of a student's claim directly to the California Student Aid
Commission, if the STRF claimant's educational costs were paid with
SB 1069
Page 7
a Cal Grant.
SUPPORT AND OPPOSITION:
Support:
Legal Aid Foundation of Los Angeles
Opposition:
None on file as of April 23, 2014.
Consultant:Sarah Mason