BILL ANALYSIS
SENATE RULES COMMITTEE AB 71
Office of Senate Floor Analyses
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THIRD READING
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Bill No: AB 71
Author: Wright (D)
Amended: 7/16/97 in Senate
Vote: 21
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SENATE EDUCATION COMMITTEE : 8-1, 6/18/97
AYES: Greene, Alpert, Dills, Hayden, Hughes, O'Connell,
Sher, Vasconcellos
NOES: Haynes
NOT VOTING: Knight, McPherson, Monteith, Watson
SENATE BUSINESS & PROFESSIONS COMMITTEE : 8-0, 7/8/97
AYES: Johannessen, Ayala, Greene, Kelley, Lee, O'Connell,
Rosenthal, Polanco
NOT VOTING: Craven
SENATE APPROPRIATIONS COMMITTEE : Not available at time of
writing
ASSEMBLY FLOOR : 41-34, 5/22/97 - See last page for vote
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SUBJECT : Private postsecondary education
SOURCE : Author
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DIGEST : 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).
This bill is double joined to SB 819 (Calderon) which
extends the operation of the act and the Council for
Private Postsecondary and Vocational Education to January
1, 1998.
ANALYSIS : 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 DCA. 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 (Business and
Professions Code general provisions) with respect to
private postsecondary education institutions.
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. The features of the bill
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.
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
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
The Senate will confirm the appointment of the director of
the new bureau.
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.
Effective January 1, 1998, application fees for approval
and reapproval for schools to operate and the annual fees
charged are to be reduced by 5% for institutions whose
annual gross income is over $1,000,000; by 10% for
institutions whose gross annual income is between $100,000
and $1,000,000; and by 15% for institutions whose gross
annual income is under $100,000.
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.
The bill requires that the bureau undergo the same "sunset
review" process that other bureaus and commissions are
subject to by the Joint Legislative Committee on Sunset
Review. That review has to occur every four years.
In addition, the new act has a sunset clause of January 1,
2005.
The provisions of this bill are now contingent upon the
passage of SB 819 (Calderon), which would extend the
current law and Council for Private Postsecondary and
Vocational Education to January 1, 1998, at which time the
new law would take effect.
Comments
Summary and background
The following summary and background information was
derived from the Senate Education Committee analysis of
this bill.
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 85% of the schools are
non-degree-granting and 15% grant degrees. Approximately
21% 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:
(a) 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.
(b) 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.
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.
NOTE: Finally, it should be noted that it is the intention
of all parties, following the enactment of AB 71 and SB 819
by midnight on July 18, to begin work this summer on the
final legislation necessary to move the entire body of law
relative to these institutions -- now found in the
Education
Code -- to the Business and Professions Code. This will
allow conformance to all of the procedures and policies
that are unique to the Department of Consumer Affairs, and
constitute the "clean-up" bill to AB 71, to the extent that
it is necessary and desirable.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 7/17/97)
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 and Poverty, Inc.
Several individual letters
ARGUMENTS IN SUPPORT: 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.
ASSEMBLY FLOOR :
AYES: Alquist, Aroner, Baca, Bowen, Brown, Cardenas,
Cardoza, Davis, Ducheny, Escutia, Figueroa, Gallegos,
Havice, Hertzberg, Honda, Keeley, Knox, Kuehl, Lempert,
Machado, Martinez, Mazzoni, Migden, Murray, Napolitano,
Ortiz, Papan, Perata, Scott, Shelley, Strom-Martin,
Sweeney, Thomson, Torlakson, Villaraigosa, Vincent,
Washington, Wayne, Wildman, Wright, Bustamante
NOES: Ackerman, Alby, Ashburn, Baldwin, Battin, Baugh,
Bordonaro, Bowler, Brewer, Firestone, Floyd, Frusetta,
Goldsmith, House, Kaloogian, Kuykendall, Leach, Leonard,
Margett, McClintock, Miller, Morrissey, Morrow, Olberg,
Oller, Pacheco, Poochigian, Prenter, Pringle, Richter,
Runner, Takasugi, Thompson, Woods
NOT VOTING: Aguiar, Caldera, Campbell, Cunneen, Granlund
NC:sl 7/17/97 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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