BILL ANALYSIS
SENATE COMMITTEE ON EDUCATION
Leroy F. Greene, Chairman
1997-98 Regular Session
BILL NO: AB 71
AUTHOR: Wright
AMENDED: June 4, 1997
FISCAL COMM.: Yes HEARING DATE: June
11, 1997
URGENCY: No CONSULTANT: Scott P. Plotkin
SPECIAL NOTE #1
The Committee is scheduled to hear this bill and SB 1286
(Calderon) today, both of which deal with oversight and
regulation of private postsecondary and vocational
education. Current law is scheduled to sunset on June 30,
1997, necessitating the enactment of urgency legislation if
there is to be no interruption of such oversight. AB 71
and SB 1286 constitute fundamentally different approaches
to the problem.
SPECIAL NOTE #2
Should this bill be approved by the Committee, the do pass
motions should include action to re-refer the bill to the
Senate Committee on Judiciary, at the request of the Senate
Rules Committee.
SUMMARY
This bill extends the sunset of the Private Postsecondary
and Vocational Education Reform Act of 1989 to January 1,
2003, and makes numerous substantial and technical
amendments to the Act.
BACKGROUND
In 1989, the Legislature enacted the Private Postsecondary
and Vocational Education Reform Act of 1989 which
establishes the regulatory framework for all private
postsecondary educational institutions, including
degree-granting, vocational and non-degree granting
schools. Within the Reform Act is the Maxine Waters
School Reform and Student Protection Act which
establishes consumer protection and financial
standards for for-profit certificate or
diploma-granting schools (i.e., private vocational
schools).
These acts addressed two related problems: (a) diploma
mills that in essence sold academic degree without
adequate educational programs, and (b) unscrupulous
trade schools, or those engaged in fraudulent
recruitment and student loan practices that left
students with tremendous debt but no new job skills
and the government with escalating student loan
defaults.
This reform legislation was intended to resolve these
issues by significantly strengthening the standards
for state licensure and transferring licensure
responsibility from the State Department of Education
to the new Council.
To receive or keep a license, institutions must maintain
and disclose minimum rates for student program
completion and job placement as well as standards for
financial responsibility. The law also establishes a
special fund to reimburse student tuition losses when
schools close and provide standards for ownership,
recruitment and advertising. The law is among the
most stringent in the United States and serves as a
national model. Following its enactment Congress
passed similar regulatory legislation in this area.
Currently, a number of third-party funding agencies,
including worker's compensation, rehabilitation, and
JTPA require Council approval for a school as a
condition of funding.
The 20-member Council includes representatives from private
postsecondary schools, the public, state agencies, and
appointees from the Governor and the Legislature. The
Council staff carry out the administrative, research,
and regulatory responsibilities of the agency, which
include: (a) approval of degree and nondegree
institutions; (b) assisting consumers by investigating
complaints and providing refunds in special
circumstances; (c) investigating schools operating
without Council approval; (d) conducting research on
private postsecondary education; and (e) assessing
licensure fees for schools.
Presently, there are nearly 2,500 approved institutions
educating over 400,000 students. Approximately
eighty-five percent of the schools are nondegree
granting and fifteen percent grant degrees.
Approximately twenty-one percent of the students are
enrolled in degree programs.
The California Postsecondary Education Commission (CPEC)
completed its review of the Reform Act in October
1995, and formally submitted its report to the
Legislature in a joint hearing of the Senate Education
Committee and Assembly Higher Education Committee on
February 28, 1996. CPEC conclusions concerning the
Reform Act included the following: (a) consumers were
sufficiently protected, (b) the integrity of degrees
and diplomas were effectively protected, and (c)
student and institutional protections and rights
reflected a balanced view. For these reasons, CPEC
recommended removal of the repeal date, allowing the
law to operate indefinitely.
At the end of the 1996 Legislative Session the Governor
vetoed AB 2960 (Firestone and Campbell), which would
have extended the sunset date for the Act from June
30, 1997 to June 30, 2002. In the Governor's veto
message the following concerns were raised.
The level of fees required for compliance and the
ability of small schools to stay in business.
Larger, more capitalized schools do not have the
same problem as the smaller schools that operate
on a much smaller margin.
The manner in which the staff of the Council carry out
their responsibilities. There are reports from
some schools of alleged reprisals and
vindictiveness by Council staff. It was
recommended that the Council provide an
administrative appeal process short of
litigation.
The Reform Act was the product of bipartisan efforts lead
by then Assemblywoman Maxine Waters (D) and Senator
Becky Morgan (R), and was signed into law by Governor
Deukmejian. Legislation in this area previously had
bipartisan support, i.e., last year AB 2960 passed
both the Assembly and Senate with only one opposing
vote.
Frequently, school owners argue that the Reform Act has
negatively impacted schools by quoting school closure
figures. According to the Council, prior to the Act,
in 1980-82, 911 businesses closed compared to 1993-95
when only 595 schools closed. Each year since 1993,
more schools have opened in California.
The Reform Act sunsets and becomes inoperative on June 30,
1997, and is repealed on January 1,1998. Several
bills are pending in the Legislature to extend the
sunset.
ANALYSIS
This bill extends the sunset of the Private Postsecondary
and Vocational Education Reform Act of 1989 to January 1,
2003. There are numerous substantive and technical
amendments, as follows:
Exemptions from Regulation and oversight.
Law programs offering the baccalaureate, masters and
doctoral degrees may be approved by the
California Committee of Bar Examiners in lieu of
Council approval.
"Continuing education" and institutions exclusively
offering "continuing education" from the approval
of the Council.
Institutions which exclusively offer college exam
preparation courses.
Religious denominations to include non-profit
religious organizations comprised of
multi-denominational members of the same
well-recognized religion.
Agents recruiting outside of the United States.
The Following Are New Exemptions to Article 7 (Private
Vocational Schools)
"Intensive English Programs" are exempt from the
Article.
b) Schools training in the body arts, such as massage,
are exempt
from the Article.
c) Institutions that continuously operated for at least
five years as a
nonprofit religious corporation that are not
managed or
administered by the entity for profit are exempt
from the Article.
Changes Affecting all Regulated Schools.
The Council would be comprised of all public members,
the majority of whom are to be appointed by the
Governor eliminating
charges of conflict of interest.
Removal of the fifty mile limitation on branches and
satellites for all institutions. Schools subject
to Article 7 will need to demonstrate compliance
with performance and default rate standards.
Ability to submit a single application for all
branches and satellites.
Permits a reduced cancellation period on a sliding
scale for schools operating programs of fifty
days or less.
Elimination of a full application for renewal.
Schools required to submit renewal applications
will only submit changes from last application.
Renewal fees will be related to changes.
Exempts schools with revenues under $750,000 from the
biennial requirement for audited financial
reports by a certified public accountant. This
represents considerable savings for small
schools.
Council may extend the length of approval pending a
recommendation, thus eliminating the need for
"backdating" and shorter approvals.
Annual report requirements for reporting data by
gender, ethnicity and race are eliminated.
A school may appeal an administrative action to the
Council in lieu of an administrative hearing.
The Council may recover fees for schools operating
without approval prior to the Council issuing an
approval.
Simplifies the method for calculating refunds.
Reduces oversight and regulation since the minimum
standards based on the type of program offered
rather than the institution.
Reduces amount schools will pay into the Student
Tuition Recovery Fund (STRF), by requiring
schools to pay STRF assessments only on students
eligible to collect from the STRF.
License and Exam Preparation Programs.
Greatly reduced application process.
Continuous approval once approval providing the school
operates compliance with the law.
Small Schools and Low Costs Schools.
Schools enrolling fewer than 100 students per year and
not participating in state and federal financial
aid programs are exempt from Article 7.
Educational Services costing $1,000 or less and no
part of the total charge is paid for from
proceeds of a loan or grant subject to the
federal financial aid programs are exempt from
Article 7. This figure will be adjusted every
five years based on the Consumer Price Index.
Amount of STRF assessment for schools charging less
than $1,000 in tuition is reduced. The
assessment fee will be set at $1.00 per student
as opposed to the current $2.50 per student. A
separate STRF is established with a maximum cap
of $300,000. All STRF claims originating from
enrollments prior to the establishment of this
new fund will be paid from the vocational STRF.
The Following Changes Affect Degree-Granting Institutions.
Once approved, approval is continuous providing the
school remains in compliance. There is no
renewal process or renewal application.
Requirement that students receive a tour prior to
enrolling is eliminated.
The Following Changes Affect Degree-Granting Institutions
Renewal application reduced to a process of submission
of changes to last application, not a full
application.
Renewal application fees will be based on the actual
costs involved in the administrative review
process rather than a flat fee.
Maximum length of approval increased from 3 years to 5
years.
Eliminates the requirement for schools to file
quarterly wage reports with the Council.
Eliminated the requirement that the schools notify the
Council of increases of salary, dividend,
distribution or cash draw paid to any person of
more than $250,000 in a given year.
STAFF COMMENTS
Supporters of this legislation maintain that the
continuation of the Council is absolutely essential in
order to place the emphasis of the law on consumer
protection, safeguarded by an independent agency. The
numerous changes being proposed are a result of
negotiations with interested parties and the
determination that these modification are necessary
and desirable, while still protecting the consumer.
Opponents of this legislation assert that a complete
re-write of the law is necessary to correct problems
relative to overly "tough" and prescriptive statutes
and overly zealous implementation and enforcement by
current Council staff.
It is reported, but not confirmed, that it is the position
of the Governor that the jurisdiction and functions of
the Council be transferred to the Department of
Consumer Affairs. This is the proposal embodied in SB
1286 (Calderon), also being heard by the Committee
today.
Because the Council and its duties and responsibilities
sunsets on June 30, 1997, an urgency bill is necessary
in order to continue or replace the Council and Act as
of that date. However, Legislative Counsel has opined
that the Constitution prohibits the creation (or in
this case, the re-creation) of a "office" by the
Legislature in an urgency statute.
Thus, because AB 71 does not contain an urgency clause,
there will be a six month gap in the oversight and
regulatory provision of law, because its
provisions would take effect on January 1, 1998--even
though current law becomes inoperative on June 30,
1997.
There has been some concern raised that should there be no
law in effect from July 1, 1997 to January 1, 1998,
the federal government may cut off financial aid
availability to students in those institutions that
would otherwise be eligible. This is because the
federal law requires private postsecondary institution
to be regulated by the states in order to be eligible
for financial aid. Clarification is still pending.
Some schools argue that projected reductions in fees
realized as a result of this bill may not be
significant, and therefore, their concerns about
excessive fees will not be addressed. This bill
proposes that reductions in fees will be realized due
to changes in administrative regulations and reporting
requirements. It is difficult to determine the exact
effect changes in law will have on fees, since the
Council is self-supporting, and the determination of
fee levels is a zero sum exercise, dependent on the
actual level of activity envisioned for the Council.
However, it is estimated that the current provisions
of AB 71 will reduce the Council's budget by over $1.7
million.
Schools argue that the 100% pro rata refund policy is
unrealistic and that a 60% refund policy is
acceptable. They claim that changing the existing
requirement to 50% would bring California law in
compliance with federal law.
On the other hand, 100% pro rata refund policy encourages
the schools to recruit students who have the ability
to complete the program because the student pays only
for the education received. This policy also
encourages schools to set program length by what is
needed for employment and not what will maximize
financial aid.
Schools argue that the current ratio of 1.25 to 1.00
(assets to liabilities) is too high and should be
reduced.
The proponents maintain that the current ratio of 1.25 to
1.00 is good public policy because: (a) the current
ratio gauges the ability of a school to meet its
short-term financial obligations such as payment of
student refunds; (b) failure to meet the current ratio
triggers a monitoring process and no school has been
closed solely for missing the current ratio standard;
and (c) some standard for monitoring fiscal stability
is required and the current ratio is defensible; the
federal formulate requiring 1.00 to 1.00 does not
consider prepaid expenses and inventory as assets; and
d) the standard guideline for the current ratio for
business in general is 2.00 to 1.00.
Some schools prefer the disclosure of completion and
placement data but do not want to meet standards for
actual job placement of students.
Students attend a vocational school to receive realistic
skills for job placement. The standards in current
law require a school to place 39 to 40 students out of
every 100 students starting a program. This is not an
unreasonable expectation. No school in California has
been closed due to failure to meet performance
standards, but the standards have encouraged schools
to increase placement activities and modify curricula
to better meet employer needs. California's
completion and placement standards mirror the average
completion and placement rates for proprietary schools
nationally. If there are no performance standards
there is little incentive for a school to be concerned
about how many of its students graduate and find jobs.
SUPPORT
California Postsecondary Education Commission
California State University
Consumers Union
Council for Private Postsecondary and Vocational Education
Curtis Publications, Inc.
Legal Aid Foundation of Los Angels
Mueller College
Public Counsel Law Center
Honorable Maxine Waters, Member of Congress
OPPOSITION
California Academy of Higher Education
California Association of Private Postsecondary Schools
Coleman College
Independent Law School Association
Internet Education Centers
MTI Business College, Inc.
The Institute for Advanced Study of Human Sexuality