BILL ANALYSIS
SENATE COMMITTEE ON BILL NO: AB
71
BUSINESS AND PROFESSIONS AUTHOR: R.
Wright
Senator Richard G. Polanco, Chairman As Amended: 7/8/97
HEARING DATE: July 8, 1997 FISCAL: Yes
SUBJECT: Private postsecondary education: reconstituting the
regulatory framework.
DIGEST:
Existing law:
(1) The existing Private Postsecondary and Vocational Education
Reform Act of 1989, until July 18, 1997, establishes various
requirements and standards for the approval of private
postsecondary educational institutions to operate in California
and to award degrees and diplomas.
This bill would repeal and reenact those provisions and in doing
so would make numerous substantive changes.
(2) The existing act establishes the Council for Private
Postsecondary and Vocational Education with specified duties
and responsibilities.
This bill would repeal and reenact those provisions, and in
doing so would make numerous substantive changes. The bill
would create a Bureau for Private Postsecondary and Vocational
Education in the Department of Consumer Affairs, operative
January 1, 1998.
(3) Under the existing act, it is a crime, punishable as
specified, for any person or business entity, regardless of the
form of organization, to willfully violate specified provisions
of the act.
This bill, in addition, would make it a crime, punishable as
specified, for any person or business entity, regardless of the
form of organization, to willfully violate specified provisions
governing refunds to students and requiring each institution to
provide prospective students with information concerning the
institution's general performance standards. Thus, because the
bill would expand the scope of an existing crime, it would
impose a state-mandated local program.
(4) Under the existing act, if the council has evidence that an
institution has violated specified provisions governing
prohibited activities and determines that immediate action is
necessary to protect students, prevent misrepresentations to the
public, or prevent the loss of public funds or tuition and
other money paid by students, the council is authorized to
suspend the approval of an institution to operate. In addition,
after notice and, if requested by the institution, a hearing, if
the council concludes that grounds exist for the suspension or
revocation of the institution's approval to operate, the council
may order probation and a penalty, or may condition the
institution's approval to operate as the council deems
appropriate.
This bill, in addition, would authorize any party aggrieved by
the bureau's final decision to seek judicial review, as
specified.
(5) The bill, among other things, also would (a) provide for
registration of institutions that exclusively offer intensive
English language programs; (b) provide for registration,
standards and evaluation procedures for institutions offering
license examination preparation services; (c) revise the method
for calculating student tuition refunds; (d) reenact and revise
various provisions governing student protections; and (e) revise
the act to provide for notices and alternative dispute
resolutions, as specified.
(6) The bill would continue in existence the Private
Postsecondary and Vocational Education Administration Fund and
the Student Tuition Recovery Fund, both of which are
continuously appropriated funds. Thus, the bill would make
appropriations for the purposes of these funds.
(7) Under the existing act, the California Postsecondary
Education Commission was required, prior to September 1, 1995,
to review and evaluate, among other things, the implementation
of the act and the effectiveness of certain provisions of the
act and to report to the Legislature on the results of this
review and evaluation.
This bill would require the commission to conduct this review
and evaluation on or before January 1, 2001, and to report to
the Legislature, as specified, every 5 years.
(8) The bill would state that its provisions are severable.
(9) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated
by the state. Statutory provisions establish procedures for
making that reimbursement. This bill would provide that no
reimbursement is required by this act for a specified reason.
FISCAL EFFECT:
Unknown. The June 16 version was a fiscal bill, and it is
assumed that the (proposed) amended version will.
COMMENTS:
1. Summary and background.
The following summary and background information was derived
from the Senate Education Committee analysis of this bill.
Summary
This bill deletes the sunset of the Private Postsecondary and
Vocational Education Reform Act of 1989, and makes numerous
substantial and technical amendments to the Act. The bill would
transfer the duties and operations of the Council to a newly
created Bureau for Private Postsecondary and Vocational
Education in the State Department of Consumer Affairs (DCA).
Historical 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.
2. Current law expires July 18, 1997; stop-gap legislation is
needed to continue the Council.
The Governor signed AB 1164, extending the current law through
July 18, 1997. Absent enactment of another extension to bridge
the gap from July through December, there will be no law in
effect from July 1, 1997 to January 1, 1998, and 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
institutions to be regulated by the states in order to be
eligible for financial aid. Clarification is still pending, but
the committee and the Governor's office are in possession of a
letter from U.S. Secretary of Education Richard Riley to
Congresswoman Maxine Waters that expresses grave concerns about
California abdicating its responsibility to ensure adequate
regulation and consumer protection in the area of private
postsecondary and vocational education.
3. Support and opposition.
The following comments reflect general support and opposition
positions relative to the June 16, 1997, version of the bill.
While the proposed amendments are intended to ameliorate the
remaining opposition, not all parties had an opportunity to
review and comment on the proposed amendments, or see a bill in
print, prior to the preparation of this analysis. Accordingly,
some issues may remain unresolved, and various interested
parties can be expected to offer comment with respect to
specific provisions at the Business and Professions Committee
hearing.
General Perspectives
Supporters of this legislation maintain that 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. The
Governor's administration put forth the concept that the
jurisdiction and functions of the Council be transferred to the
Department of Consumer Affairs.
Fees and Program Costs
Some schools have argued 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 (and the new
Bureau) are self-supporting, and the determination of fee levels
is a zero sum exercise, dependent on the actual level of
activity envisioned for the Bureau. However, it is estimated
that the current (i.e., June 16) provisions of AB 71 will reduce
the Agency's budget by over $1.7 million. The proposed
amendments provide for a 5 percent fee reduction on January 1,
1998.
Refunds
Schools argued 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.
The proposed amendments alter the June 16 version of these
provisions.
Schools argued 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 formula
requiring a 1.00 : 1.00 ratio 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.
Completion of Training and Job Placement
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. The proposed amendments
alter the June 16 version of these provisions.
Sunset Review
The bill provides for periodic evaluation review to be conducted
by the California Postsecondary Education Commission. However,
considering the new statutory scheme being proposed within the
Department of Consumer Affairs, is this the appropriate
evaluation mechanism? Boards, but not bureaus, within the DCA
are subject to periodic sunset review by the Joint Legislative
Sunset Review Committee pursuant to SB 2086 (McCorquodale,
1994). Given the magnitude of the issue, the committee may wish
to consider including the new bureau in the SB 2086 sunset
review process.
4. Review of major provisions limited to B&P Committee scope.
It is important to note that this analysis focuses on the
aspects of this bill that fall within the purview of the
Business and Professions Committee or between the purview of
this committee and the Senate Education Committee. For a
complete treatment of all the issues and provisions in this
bill, it may be useful for the reader also to review previous
analyses.
Comment number 5, below, treats the specific provisions of the
bill as it is proposed to be amended in committee.
This bill deletes the sunset of the Private Postsecondary and
Vocational Education Reform Act of 1989. The bill would
transfer the duties and operations of the Council to a newly
created Bureau for Private Postsecondary and Vocational
Education in the State Department of Consumer Affairs. There
are numerous substantive and technical provisions, as follows:
Exemptions from regulation and oversight; changes affecting all
regulated schools; changes affecting degree-granting
institutions; changes affecting non-degree-granting
institutions;
transition plan regarding employees, regulations, and agency
funds; incorporation of DCA jurisdiction and enforcement
authority (B&P Code general provisions) with respect to private
postsecondary education institutions.
5. Analysis of proposed amendments.
On July 3, the committee received an extensive package of draft
amendments, which was simultaneously submitted to Legislative
Counsel. While the bill will not be in print for this hearing,
the Legislative Counsel draft is included in the B&P Committee
members' background materials.
According to the Senate Education Committee and the author's
office, the package is a joint work product of a representative
group of school industry and consumer advocates whose intent was
to mitigate remaining concerns and produce a consensus document.
However, as noted above, while the proposed amendments are
intended to ameliorate the remaining opposition, not all parties
had an opportunity to review and comment on the proposed
amendments, or see a bill in print, prior to the preparation of
this analysis. The features of the bill (as proposed to be
amended) are highlighted below:
Pro-Rata Tuition Refunds
Unless exempt, all approved schools are required to provide a
pro rata refund to students who withdraw from a course.
Degree granting institutions are only required to provide a pro
rata refund up to the 60% point of a course.
An institution's non-degree programs would be subject to a 100%
pro rata refund rule, unless the institution meets specified
criteria related to completion and placement.
Compliance would be monitored by DCA pursuant to attestation by
Certified Public Accountants.
Schools would be required to disclose their refund policy, but
could not state that DCA had endorsed the program.
Completion and Placement
With respect to the calculation formula for student placement,
the definition of placement would be modified to exclude
students who decide not to work in favor of continuing their
education and students who are in possession of a valid INS I-20
form upon completion.
The formula would be modified to accommodate placement in
part-time employment if that was the student's objective, under
specified conditions.
The formula would be modified to accommodate placement of
students who complete 75% of their program and obtain employment
in their chosen field.
The amendments propose various standards and conditions of
probation with respect to schools that fail to meet the
prescribed completion and placement requirements.
Occupational Degrees
All occupational degree programs must be at least two years in
duration, lasting no less than 17 months.
Institutions must disclose that the units a student earns toward
the degree probably will not be transferable to another
postsecondary educational institution, and related disclosures.
DCA will develop regulations relative to semester or quarter
credit hours necessary to receive the degree.
Mandatory completion and placement rates will apply to any
certificate program subsumed within that degree program.
Advisory Board
The DCA Director shall appoint an advisory board comprising
equal numbers of representatives of schools, students, and
employers. The committee may wish to amend this provision to
provide for Legislative appointments to the advisory board.
Disclosures, Notice of Student Rights, Contract Requirements
Provisions in current law regarding disclosure by recruiters,
presigning disclosures, notice of student rights, notice of
cancellation and requirements for contract provisions are
maintained.
Similar provisions are put in place (via the proposed
amendments) with respect to registered institutions. See
comment on "Registration Categories" below.
Such provisions do not apply with respect to students enrolled
in nondegree programs where a third party such as JTPA, ROC/P,
or Private Industry Council is paying 100% of the costs, if the
third party payor and the educational institution agree.
Reapproval
Institutional approval period shall be up to five years for
degree schools and up to four years for nondegree schools,
unless DCA determines that a shorter approval prettied is
warranted. Reapproval process will only involve reporting of
new or changed circumstances.
Registration Categories
As amended, the bill would create registration categories
(registration involves a lesser standard of review than
full-scale review and approval) for certain types of programs,
including: intensive English language programs; short-term
seminars; employment related programs that cost less than $2,000
and are less than 250 hours in duration; license exam
preparation courses. None of these programs can receive federal
student aid.
For the $1,000 to $2,000 programs, students in such programs
would be eligible for the Student Tuition Recovery Fund, pro
rata refund, disclosure of completion and placement statistics.
DCA would have discretionary authority to conduct initial site
visit for registration.
For short-term seminars and license exam preparation courses,
the school would be required to have a refund policy which it
must disclose to students.
For Intensive English Programs (IEP), special refund rules apply
for two years and then sunset; DCA to conduct a study on the
impact of the refund rule on students and institutions involved
in these programs.
For license exam preparation courses, schools would be
prohibited from enrolling students who would not meet legal
qualifications for licensure (e.g., substantially related felony
convictions).
Prohibition on schools' use of word "approved."
Requirements for specified disclosures and notices to students
(including the right to file a complaint with DCA), written
contract or registration form, prohibitions against
misrepresentation and false advertising.
Violations make school subject to the same sanctions as all
other institutions.
Miscellaneous Provisions
Consumers would be able to obtain information from DCA regarding
validated complaints about a school.
Continuing education programs approved, certified, or sponsored
by professional organizations or government agencies would be
exempt from this law.
Fees paid by schools would be reduced by five percent on January
1, 1998.
The bill mandates a 50/50 percent split between administration
and enforcement with respect to the bureau's budget.
The bill authorizes the DCA Director to purchase annuity
contracts for bureau employees under specified conditions (see
page 27, June 16 version).
6. Need for further work to accomplish conversion to Business
and Professions Code.
The present regulatory scheme resides in the Education Code.
Aside from incorporating the new bureau into the DCA's authority
in the Business and Professions Code, this bill modifies the
present regulatory scheme in the context of the Education Code
as well.
It will be necessary (whether via this bill or another vehicle)
to convert these provisions to Business and Professions Code
provisions, and to conform the structure and operation of the
new bureau with other, similarly structured DCA programs
(generally technical amendments), for purposes of operation and
enforcement by the DCA Director.
Appointment of Executive Director
Among the Business and Professions Code and DCA considerations
is the appointment of an executive director (typically known as
a "bureau chief" in the DCA context) for the new bureau. The
bill provides for the executive to be appointed by the bureau,
presumably exempt from civil service, as is the case with other
bureau chiefs. Given the highly visible and contentious nature
of the issues, and the Legislature's need for ongoing
involvement, the committee may wish to amend this bill to
require Senate confirmation of the executive director.
There is precedent in current law for Senate confirmation of a
DCA bureau chief. Business and Professions Code Section 9882.2
provides for the Governor to appoint, subject to Senate
confirmation, the chief of the Bureau of Automotive Repair,
which is the largest of the DCA bureaus. This section could
serve as the model for the appointment of the executive of the
new bureau.
The committee may wish to consider incorporating these
amendments in this bill or in a subsequent vehicle, along with
the sunset review amendment suggested in comment number 3,
above.
Support and Opposition:
Note: Following is a list of support and opposition with
respect to the 6/16 version of this bill, as reflected in the
Senate Education Committee analysis.
Support:
Aperitifs Bar Management Services
Association of California Accredited Law Schools
Bet Tzedek Legal Services
California Pacific University
California Postsecondary Education Commission
California State University
California Western School of Law
Consumers Union
Council for Private Postsecondary and Vocational Education
Curtis Publications, Inc.
East Los Angeles Office of Legal Aid Foundation
Integrative Therapy School
Legal Aid Foundation of Los Angeles
License Information Service
Medical Institute
Mexican American Legal Defense and Educational Fund (MALDEF)
Mueller College National Training Institute, Inc.
New Bridge International College
Public Counsel Law Center
San Francisco College of Osteopathic Medicine
Southwestern University School of Law
Valley Travel College
Honorable Maxine Waters, Member of Congress
Western Center on Law & Poverty, Inc.
Several individual letters
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
Consultant:
Michael V. Abbott