(1)The California Private Postsecondary Education Act of 2009 provides for the regulation of private postsecondary educational institutions by the Bureau for Private Postsecondary Education in the Department of Consumer Affairs. The act also establishes the Student Tuition Recovery Fund and requires the bureau to adopt regulations governing the administration and maintenance of the fund, including requirements relating to assessments on students and student claims against the fund, and establishes that the moneys in this fund are continuously appropriated to the bureau for specified purposes.

This bill would appropriate the sum of $1,300,000 from the Student Tuition Recovery Fund to the Attorney General for the purposes of providing grants to eligible nonprofit community service organizations to assist eligible students affected by the closure of Corinthian Colleges, Inc., as defined, with loan discharge and other student loan-related requests and tuition recovery-related claims, and to pay an amount not to exceed $150,000 for the reasonable administrative costs of the Attorney Generals office related to these grants, as specified. The bill would require the bureau to notify the Attorney General of all unlawful Corinthian Colleges closures within 15 days of the effective date of these provisions. The bill would require the Attorney General to, among other things, within 90 days of the notification, solicit grant applications from eligible nonprofit community service organizations, select one or more of these organizations deemed to be qualified, and set additional terms and conditions of the grants as necessary. The bill would provide that any unused funds are to be returned to the Attorney General for return to the Student Tuition Recovery Fund, except that, upon the approval of the Attorney General, an eligible nonprofit community service organization may expend those unused funds to provide assistance to students who were enrolled at an institution approved to operate by the bureau and who were harmed by the unlawful closure of that institution. The bill would set a schedule for how grant funds are to be distributed. The bill would require the grantee to submit specified information to the Attorney General on a quarterly basis, and require the Attorney General to make these reports available to the Legislature and the bureau upon request. The bill would require the Attorney General to provide the Legislature and the bureau a final report summarizing all the information submitted to it by grantees, promptly following the time when all funds are expended by the grantees, or by January 1, 2019, whichever is earlier. The bill would authorize the Attorney General to contract with another qualified entity to perform the Attorney Generals duties under these provisions.

(2)This bill would, until July 1, 2020, authorize state agencies that provide licensure to consider for licensure students who were 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 institutions closure.

(3)The Cal Grant Program prohibits an applicant from receiving Cal Grant awards totaling in excess of the amount equivalent to the award level for a total of 4 years of full-time attendance in an undergraduate program, except as provided.

This bill would partially exempt from this limitation on Cal Grant awards a student who was enrolled and received a Cal Grant award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(4)The California National Guard Education Assistance Award Program authorizes the renewal of California National Guard Education Assistance Awards, for a maximum of the greater of either 4 years of full-time equivalent enrollment or the duration for which the qualifying member would otherwise be eligible pursuant to the Cal Grant Program, if specified conditions are met.

This bill would partially exempt from this limitation on California National Guard Education Assistance Awards a student who was enrolled and received a California National Guard Education Assistance Award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(5)This bill would declare that it is to take effect immediately as an urgency statute.

(1)The California Private Postsecondary Education Act of 2009 provides for the regulation of private postsecondary educational institutions by the Bureau for Private Postsecondary Education in the Department of Consumer Affairs. The act also establishes the Student Tuition Recovery Fund and requires the bureau to adopt regulations governing the administration and maintenance of the fund, including requirements relating to assessments on students and student claims against the fund, and establishes that the moneys in this fund are continuously appropriated to the bureau for specified purposes.

This bill would appropriate the sum of $1,300,000 from the Student Tuition Recovery Fund to the Attorney General for the purposes of providing grants to eligible nonprofit community service organizations to assist eligible students affected by the closure of Corinthian Colleges, Inc., as defined, with loan discharge and other student loan-related requests and tuition recovery-related claims, and to pay an amount not to exceed $150,000 for the reasonable administrative costs of the Attorney Generals office related to these grants, as specified. The bill would require the bureau to notify the Attorney General of all unlawful Corinthian Colleges closures within 15 days of the effective date of these provisions. The bill would require the Attorney General to, among other things, within 90 days of the notification, solicit grant applications from eligible nonprofit community service organizations, select one or more of these organizations deemed to be qualified, and set additional terms and conditions of the grants as necessary. The bill would provide that any unused funds are to be returned to the Attorney General for return to the Student Tuition Recovery Fund, except that, upon the approval of the Attorney General, an eligible nonprofit community service organization may expend those unused funds to provide assistance to students who were enrolled at an institution approved to operate by the bureau and who were harmed by the unlawful closure of that institution. The bill would set a schedule for how grant funds are to be distributed. The bill would require the grantee to submit specified information to the Attorney General on a quarterly basis, and require the Attorney General to make these reports available to the Legislature and the bureau upon request. The bill would require the Attorney General to provide the Legislature and the bureau a final report summarizing all the information submitted to it by grantees, promptly following the time when all funds are expended by the grantees, or by January 1, 2019, whichever is earlier. The bill would authorize the Attorney General to contract with another qualified entity to perform the Attorney Generals duties under these provisions.

(2)This bill would, until July 1, 2017, 2020, authorize state agencies that provide licensure to consider for licensure students who were 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 institutions closure.

(3)The Cal Grant Program prohibits an applicant from receiving Cal Grant awards totaling in excess of the amount equivalent to the award level for a total of 4 years of full-time attendance in an undergraduate program, except as provided.

This bill would partially exempt from this limitation on Cal Grant awards a student who was enrolled and received a Cal Grant award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(4)The California National Guard Education Assistance Award Program authorizes the renewal of California National Guard Education Assistance Awards, for a maximum of the greater of either 4 years of full-time equivalent enrollment or the duration for which the qualifying member would otherwise be eligible pursuant to the Cal Grant Program, if specified conditions are met.

This bill would partially exempt from this limitation on California National Guard Education Assistance Awards a student who was enrolled and received a California National Guard Education Assistance Award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(5)This bill would declare that it is to take effect immediately as an urgency statute.

(1)The California Private Postsecondary Education Act of 2009 provides for the regulation of private postsecondary educational institutions by the Bureau for Private Postsecondary Education in the Department of Consumer Affairs. The act also establishes the Student Tuition Recovery Fund and requires the bureau to adopt regulations governing the administration and maintenance of the fund, including requirements relating to assessments on students and student claims against the fund, and establishes that the moneys in this fund are continuously appropriated to the bureau for specified purposes.

This bill would appropriate the sum of $1,300,000 from the Student Tuition Recovery Fund to the Attorney General for the purposes of providing grants to eligible nonprofit community service organizations to assist eligible students affected by the closure of Corinthian Colleges, Inc., as defined, with loan discharge and other student loan-related requests and tuition recovery-related claims, and to pay an amount not to exceed $150,000 for the reasonable administrative costs of the Attorney Generals office related to these grants, as specified. The bill would require the bureau to notify the Attorney General of all unlawful Corinthian Colleges closures within 15 days of the effective date of these provisions. The bill would require the Attorney General to, among other things, within 90 days of the notification, solicit grant applications from eligible nonprofit community service organizations, select one or more of these organizations deemed to be qualified, and set additional terms and conditions of the grants as necessary. The bill would provide that any unused funds are to be returned to the Attorney General for return to the Student Tuition Recovery Fund, except that, upon the approval of the Attorney General, an eligible nonprofit community service organization may expend those unused funds to provide assistance to students who were enrolled at an institution approved to operate by the bureau and who were harmed by the unlawful closure of that institution. The bill would set a schedule for how grant funds are to be distributed. The bill would require the grantee to submit specified information to the Attorney General on a quarterly basis, and require the Attorney General to make these reports available to the Legislature and the bureau upon request. The bill would require the Attorney General to provide the Legislature and the bureau a final report summarizing all the information submitted to it by grantees, promptly following the time when all funds are expended by the grantees, or by January 1, 2019, whichever is earlier. The bill would authorize the Attorney General to contract with another qualified entity to perform the Attorney Generals duties under these provisions.

(2)This bill would, until July 1, 2017, authorize state agencies that provide licensure to consider for licensure students who were 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 institutions closure.

(3)The Cal Grant Program prohibits an applicant from receiving Cal Grant awards totaling in excess of the amount equivalent to the award level for a total of 4 years of full-time attendance in an undergraduate program, except as provided.

This bill would partially exempt from this limitation on Cal Grant awards a student who was enrolled and received a Cal Grant award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(4)The California National Guard Education Assistance Award Program authorizes the renewal of California National Guard Education Assistance Awards, for a maximum of the greater of either 4 years of full-time equivalent enrollment or the duration for which the qualifying member would otherwise be eligible pursuant to the Cal Grant Program, if specified conditions are met.

This bill would partially exempt from this limitation on California National Guard Education Assistance Awards a student who was enrolled and received a California National Guard Education Assistance Award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(5)This bill would declare that it is to take effect immediately as an urgency statute.

(1)The California Private Postsecondary Education Act of 2009 provides for the regulation of private postsecondary educational institutions by the Bureau for Private Postsecondary Education in the Department of Consumer Affairs. The act also establishes the Student Tuition Recovery Fund and requires the bureau to adopt regulations governing the administration and maintenance of the fund, including requirements relating to assessments on students and student claims against the fund, and establishes that the moneys in this fund are continuously appropriated to the bureau for specified purposes.

This bill would appropriate the sum of $1,300,000 from the Student Tuition Recovery Fund to the Attorney General for the purposes of providing grants to eligible nonprofit community service organizations to assist eligible students affected by the closure of Corinthian Colleges, Inc., as defined, with loan discharge and other student loan-related requests and tuition recovery-related claims, and to pay an amount not to exceed $150,000 for the reasonable administrative costs of the Attorney Generals office related to these grants, as specified. The bill would require the bureau to notify the Attorney General of all unlawful Corinthian Colleges closures within 15 days of the effective date of these provisions. The bill would require the Attorney General to, among other things, within 90 days of the notification, solicit grant applications from eligible nonprofit community service organizations, select one or more of these organizations deemed to be qualified, and set additional terms and conditions of the grants as necessary. The bill would set a schedule for how grant funds are to be distributed. The bill would require the grantee to submit specified information to the Attorney General on a quarterly basis, and require the Attorney General to make these reports available to the Legislature and the bureau upon request. The bill would require the Attorney General to provide the Legislature and the bureau a final report summarizing all the information submitted to it by grantees, promptly following the time when all funds are expended by the grantees, or by January 1, 2019, whichever is earlier. The bill would authorize the Attorney General to contract with another qualified entity to perform the Attorney Generals duties under these provisions.

(2)This bill would, until July 1, 2017, authorize state agencies that provide licensure to consider for licensure students who were 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 institutions closure.

(3)The Cal Grant Program prohibits an applicant from receiving Cal Grant awards totaling in excess of the amount equivalent to the award level for a total of 4 years of full-time attendance in an undergraduate program, except as provided.

This bill would partially exempt from this limitation on Cal Grant awards a student who was enrolled and received a Cal Grant award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(4)The California National Guard Education Assistance Award Program authorizes the renewal of California National Guard Education Assistance Awards, for a maximum of the greater of either 4 years of full-time equivalent enrollment or the duration for which the qualifying member would otherwise be eligible pursuant to the Cal Grant Program, if specified conditions are met.

This bill would partially exempt from this limitation on California National Guard Education Assistance Awards a student who was enrolled and received a California National Guard Education Assistance Award at a California campus of Heald College, and who was unable to complete an educational program offered by the campus due to its closure.

(5)This bill would declare that it is to take effect immediately as an urgency statute.

ASSEMBLY THIRD READING

ATR Bill Id:AB 2581

Author:(Medina)

As Amended Ver:May 27, 2016

2/3 vote (Urgency)

SUMMARY: Provides financial and other assistance to students of Heald, Everest, and WyoTech campuses in California, which were owned by Corinthian Colleges, Inc. (CCI) and closed unlawfully on April 27, 2015. Specifically, this bill:

1. Establishes numerous findings and declarations, including Legislative intent that grant funds be made available from Student Tuition Recovery Fund (STRF) to assist former students of CCI in obtaining federal and private loan discharge and other financial aid related relief, that the amount of funds available be calculated by multiplying the number of students (13,000) enrolled at the time of the institution's unlawful closure by $100, and 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.
2. Restores up to two years of Cal Grant and National Guard Education Assistance awards for students who enrolled at Heald 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) of his or her intent to use this restoration by July 1, 2018.
3. 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.
4. Provides $1.3 million from STRF to the Attorney General (AG) to provide grants to eligible nonprofit community service organizations (CSOs) in order to assist eligible CCI students by relieving or mitigating the economic and educational opportunity loss incurred by those students. Authorizes $150,000 for AG administrative costs.
5. Declares this bill an urgency statute to take effect immediately.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Based on very similar legislation last year, General Fund costs for Cal Grant restoration for affected students for two years was estimated at $9.6 million one-time ($7.9 to restore one year and $1.7 to restore the second year).
2. One-time $1.3 million appropriation from the STRF, including up to $150,000 for the AG's administrative costs.

COMMENTS: Background on CCI. CCI institutions (Heald, WyoTech, and Everest) 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 (Title IV: Pell Grants and Federal Loans).

In October of 2013, AG Kamala Harris filed a lawsuit against CCI (that contained a range of allegations about deceptive marketing and job-placement claims, in violation of a 2007 judgment. In August of 2014, the California State Approving Agency for Veterans Education (CSAAVE) withdrew institutional approval at all institutions owned and operated in California by CCI. The 23 campuses (Heald, WyoTech and Everest) were prohibited from receiving GI bill benefits. In order to continue using Title 38 benefits, veteran students were required to transfer/enroll in a CSAAVE eligible school.

On April 14, 2015, the United States Department of Education (USDE) announced a $30 million fine against Heald's Salinas and Stockton campuses for fraudulent placement and other advertising (CCI appealed this fine). The decision effectively barred all Heald campuses from receiving federal funds for new enrollments. On April 16, 2015, the California Student Aid Commission (CSAC) permanently terminated Heald's eligibility for the Cal Grant program (Everest and WyoTech were already not eligible). On April 17, 2015, the Bureau for Private Postsecondary Education (BPPE) issued an emergency decision prohibiting Everest and WyoTech campuses from enrolling new students. CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015.

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.

Background on relief options for students.

1. STRF. The STRF, administered by the BPPE, is funded by students enrolled in institutions regulated by the BPPE and provides for reimbursement to students for economic loss due to the closure or illegal activity of a regulated institution. According to BPPE, California students enrolled in a California WyoTech and Everest campus within 120 days of closure 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. Unlike federal loan forgiveness, STRF provides for partial refunds if students transfer some of their credits to another institution.

In 2015, USDE took action to expand the closed school loan discharge eligibility to students enrolled as far back as June 20, 2014. The USDE action made California veteran students eligible for closed school loan discharge. BPPE has not yet taken such a similar action.

For the CCI students that are eligible for STRF (enrolled within 120 days of closure) 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.

1. Federal loan forgiveness. The USDE has announced expanded loan forgiveness options for CCI students who were affected by the closure or by the unlawful practices of the institution. As it currently stands, the following students are eligible to apply for student loan discharge: 1) students who can show that CCI violated state law (Heald students in most programs between 2010 and 2014 have been deemed eligible by USDE to apply through an expedited loan forgiveness pathway; Everest and WyoTech students in most programs between 2010 and 2013, an expedited application pathway is pending); and, 2) students who were enrolled after June 20, 2014. The USDE has indicated additional eligibility and financial aid relief may be established.

On March 25, 2016, USDE announced it had received 11,740 closed school loan forgiveness claims, and, as of March 1, 2016, granted relief for 6,838 students; and has received 11,000 borrower defense claims (8,501 from CCI students) and has approved 2,048. Rough estimates place the number of students eligible for loan forgiveness at about 350,000 students. Since the time of CCI closure, USDE has sent email communications to over 54,000 former-Heald students to inform them of their loan discharge eligibility; the average open rate for these email campaigns is approximately 40%. USDE is in the process of starting similar email campaigns for former WyoTech and Everest students.

Local assistance grants. CSOs are currently working to assist 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). Unfortunately, funding cuts to these programs have reduced the ability of local organizations to meet student demand for services. This bill would provide $1.3 million in funding to local community based organizations to provide services to students.

Prior Legislation and Governor's Veto. AB 573 (Medina) of 2015 was substantially similar to this bill. In vetoing AB 573, Governor Brown stated, in part, that USDE "has taken the matter of loan discharge seriously. In recent months, it has greatly eased the burden of filings for many students, and its work to provide a simple, swift and fair process for students continues. 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."

Author's statement. According to the author, "This bill will provide vital funding to local organizations to help students with the loan forgiveness and tuition recovery process. Since Governor Brown's veto of AB 573, only a fraction of students eligible for loan discharge and tuition recovery have submitted claims; of those who have submitted claims, even fewer students have had claims successfully approved. This is clear evidence that existing efforts by USDE and BPPE are insufficient to ensure students receive the benefits to which they are entitled."

According to the author, "helping California students cancel as much of their student debt burden as possible will be good for these students, cost the state of California very little, and provide benefits now and in the future to California’s economy."

The author further notes that this bill "will restore California education grant eligibility for students by providing up to 2 years of restoration in the Cal Grant and California National Guard Educational Assistance programs. This will ensure approximately 3,400 Heald students are not harmed by the award year limitations in these programs." In response to the Governor's veto statement, the author and other members of the Legislature are concurrently working to request this provision be included in the Budget Act.

Analysis Prepared by: Laura Metune / HIGHER ED. / (916) 319-3960 FN: 0003153

Date of Hearing: May 4, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2581

Author:(Medina) – As Amended Ver:April 18, 2016

Urgency: Yes State Mandated Local Program: No Reimbursable: No

SUMMARY:

The bill provides financial and other assistance to students of Heald, Everest, and WyoTech campuses in California, which were owned by Corinthian Colleges, Inc. (CCI) and closed unlawfully on April 27, 2015. Specifically, this bill:

1. Restores up to two years of Cal Grant and National Guard Education Assistance awards for students who enrolled at Heald 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. An eligible student must notify the California Student Aid Commission (CSAC) of his or her intent to use this restoration by July 1, 2018.
2. Authorizes, until July 1, 2020, a state agency providing 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.
3. Appropriates $1.3 million from Student Tuition Recovery Fund (STRF) to the Attorney General (AG) to provide grants, as specified, to eligible nonprofit community service organizations (CSOs) in order to assist eligible CCI students by relieving or mitigating the economic and educational opportunity loss incurred by those students. The AG may use up to $150,000 of this appropriation for administrative costs.
4. Requires that any unused funds per (3) be returned to the STRF, except upon approval of the AG, these funds may be used by nonprofits to assist students, who were enrolled by any other private postsecondary institution that was approved to operate in California, and were harmed by the closure of that institution.

FISCAL EFFECT:

1. Based on very similar legislation last year, General Fund costs for Cal Grant restoration for affected students for two years was estimated at $9.6 million one-time ($7.9 to restore one year and $1.7 to restore the second year).
2. One-time $1.3 million appropriation from the STRF, including up to $150,000 for the AG's administrative costs.

COMMENTS:

1. Background. CCI institutions (Heald, WyoTech, and Everest) 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 (Title IV: Pell Grants and Federal Loans). CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015.

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.

1. Relief for Students.
   1. STRF. The STRF is funded by students enrolled in institutions regulated by the Bureau for Private Postsecondary Education (BPPE) and provides for reimbursement to students for economic loss due to the closure or illegal activity of a regulated institution. According to BPPE, California students enrolled in a California WyoTech and Everest campus within 120 days of closure 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 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.

• 1. Federal Loan Forgiveness. On March 25, 2016, USDE announced it had received 11,740 closed school loan forgiveness claims, and, as of March 1, 2016, granted relief for 6,838 students; and has received 11,000 borrower defense claims (8,501 from CCI students) and has approved 2,048. Rough estimates place the number of students eligible for loan forgiveness at about 350,000 students.

1. Prior Legislation. Last year, AB 573 (Medina), which was substantially similar to this bill, was vetoed. The Governor stated, in part, that USDE "has taken the matter of loan discharge seriously. In recent months, it has greatly eased the burden of filings for many students, and its work to provide a simple, swift and fair process for students continues. 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."
2. Purpose. According to the author, "this bill will provide vital funding to local organizations to help students with the loan forgiveness and tuition recovery process. Since Governor Brown's veto of AB 573, only a fraction of students eligible for loan discharge and tuition recovery have submitted claims; of those who have submitted claims, even fewer students have had claims successfully approved. This is clear evidence that existing efforts by USDE and BPPE are insufficient to ensure students receive the benefits to which they are entitled."

According to the author, "helping California students cancel as much of their student debt burden as possible will be good for these students, cost the state of California very little, and provide benefits now and in the future to California’s economy."

Analysis Prepared by: Chuck Nicol / APPR. / (916) 319-2081

Date of Hearing: April 12, 2016

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Rudy Salas, Chair

ABPCA Bill Id:AB 2581

Author:(Medina) – As Amended Ver: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 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:

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 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:
   1. 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;
   2. 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,
   3. 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.
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:
    1. The number of eligible students served;
    2. A detailed summary of services provided;
    3. The number of STRF claims referred to the BPPE;
    4. The number of federal loan forgiveness claims filed, approved, denied and pending;
    5. 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,
    6. 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:
    1. Within 30 days of the grantee entering into a grant agreement, 50% will be distributed;
    2. Upon submission of the grantee’s second quarterly report, an additional 25% will be distributed; and,
    3. Upon submission of the grantee’s third quarterly report, the remaining 25% will be distributed.
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 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 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 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. Loans discharged as of March 1, 2016 for CCI institutions, including WyoTech and Everest, amounts to more than $90 million.

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 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 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 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.”

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, 20172020, 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 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

*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

Date of Hearing: April 5, 2016

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 2581 (

Author:Medina) – As Introduced Ver:February 19, 2016

SUBJECT: Higher education: campus closures: Corinthian Colleges, Inc

SUMMARY: Provides financial and other assistance to students of Heald, Everest, and WyoTech campuses in California, which were owned by Corinthian Colleges, Inc. (CCI) and closed unlawfully on April 27, 2015. Specifically, this bill:

1. Establishes numerous findings and declarations, including Legislative intent that grant funds be made available from STRF to assist former students of CCI in obtaining federal and private loan discharge and other financial aid related relief, that the amount of funds available be calculated by multiplying the number of students (13,000) enrolled at the time of the institution’s unlawful closure by $100, and 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.
2. Restores up to two years of Cal Grant and National Guard Education Assistance awards for students who enrolled at Heald 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) of his or her intent to use this restoration by July 1, 2018.
3. 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.
4. Provides $1.3 million from STRF to the Attorney General (AG) to provide grants to eligible nonprofit community service organizations (CSOs) in order to assist eligible CCI students by relieving or mitigating the economic and educational opportunity loss incurred by those students. Authorizes $150,000 for AG administrative costs.
5. The bill establishes the following program parameters:
   1. Grant agreements must ensure funds are used for the exclusive purpose of assisting eligible students with federal and private loan discharge and other financial aid relief, and that students eligible to claim recovery through STRF are referred to BPPE. Grants may be used for CSOs to screen student requests for assistance in order to determine if students meet eligibility requirements. Services provided by CSOs may include outreach and education, screening requests for assistance, referring students for additional legal assistance through pro bono referral programs, and legal services.
   2. An eligible CSO must satisfy all of the following:
      1. The CSO is a 501(c)(3) tax-exempt organization in good standing with the Internal Revenue Service and in compliance with all applicable laws and requirements;
      2. The CSO demonstrates expertise in assisting students with, and currently provides free direct legal services to students 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,
      3. The CSO does not charge students for services.
   3. An eligible student is defined as a student who was enrolled at CCI and who has been screened by the CSO and determined to be eligible for debt relief from USDE or other student financial aid relief.
   4. Requires BPPE to notify the Attorney General (AG) of all unlawful CCI closures, as specified, within 15 days of the passage of this bill.
   5. Requires the AG to, within 90 days of the notification, solicit grant applications, select grantees, and notify BPPE of the recipient organizations, as specified. The AG is authorized to enter into contract with another qualified entity to perform these duties.
   6. Requires, 30 days of selection, the CSO must enter into a grant agreement with the AG. Provides that unused funds must be returned to STRF. Authorizes the AG to terminate the grant agreement for material breach, and to require repayment of funds. Requires the AG to provide the grantee a notice and reasonable opportunity to resolve the breach.
   7. Authorizes a CSO to give priority to low-income students if demand exceeds available grant funds.
   8. Requires a CSO to report to the AG quarterly through the grant period on all of the following:
      1. The number of eligible students served pursuant to the grant agreement.
      2. A detailed summary of services provided to those students.
      3. The number of STRF claims referred to the bureau.
      4. The number of federal loan forgiveness claims filed and the number of those claims approved, denied, and pending.
      5. The number of students screened by the nonprofit community service organization who were determined ineligible for assistance with debt relief, a summary of reasons for ineligibility, and a summary of any services or referral information provided to those students.
      6. Any other information that is deemed appropriate by the AG.
   9. Requires the AG to make reports available to the Legislature and BPPE upon request.
   10. Requires the AG to provide the Legislature and BPPE a final report summarizing the information reported by the CSOs following the expenditure of all funds, or by January 1, 2019, whichever is earlier.
   11. Provides that funds shall be distributed to preapproved CSOs as follows:
       1. Fifty percent shall be distributed to the grantee within 30 days of the grantee entering into a grant agreement;
       2. Twenty-five percent shall be distributed to the grantee upon the submission of the grantee's second quarterly report.
       3. Twenty-five percent shall be distributed to the grantee upon the submission of the grantee's third quarterly report.
   12. Provides emergency rulemaking authority for implementation of this program.
   13. Declares this bill an urgency statute to take effect immediately.

EXISTING LAW:

1. Establishes the BPPE within the Department of Consumer Affairs with the primary function of providing protection of students/consumers through the regulation and oversight of private postsecondary educational institutions. BPPE oversight activities are funded by licensing fees paid by regulated institutions. Existing law also provides for a variety of exemptions from oversight by the Bureau for specific types of institutions, including institutions accredited by the Western Association of Schools and Colleges (WASC). However, pursuant to SB 1247 (Lieu), Chapter 840, Statutes of 2014, all for-profit institutions serving veterans and receiving federal Title 38 funds, regardless of accreditation status, are required to obtain BPPE approval by January 1, 2016. (Education Code Section 94800 et seq.)
2. Establishes the STRF, administered by the BPPE, to relieve or mitigate economic loss suffered by students enrolled at a non-exempt private postsecondary education institution due to the institutions' closure, the institutions' failure to pay refunds or reimburse loan proceeds, or the institutions' failure to pay students' restitution award for a violation of the Private Postsecondary Education Act. STRF is capped in statute at $25 million. Institutions are required to assess students an amount established in regulation by the BPPE and remit fund to the BPPE for STRF. In 2010, that amount was established at $2.50 per $1,000 of tuition charged. In 2013, that amount was reduced to $0.50 per $1,000. In 2015, this amount was reduced to $0.00, as the STRF had exceeded the statutory cap (STRF is currently at approximately $28 million). (Education Code Sections 94923 to 94925)

FISCAL EFFECT: Unknown. Based on the Senate Appropriations Committee analysis of prior similar legislation:

1. Restoration of Financial Aid Award Years: Approximately $9.6 million to restore Cal Grant awards for affected students for two years ($7.9 to restore one year and $1.7 to restore the second year). (General Fund)
2. Local Assistance Grants: $1.3 million appropriation from the STRF. (Special funds)

COMMENTS: Background on CCI. CCI institutions (Heald, WyoTech, and Everest) 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 (Title IV: Pell Grants and Federal Loans).

In October of 2013, AG Kamala Harris filed a lawsuit against CCI (that contained a range of allegations about deceptive marketing and job-placement claims, in violation of a 2007 judgment. In August of 2014, the California State Approving Agency for Veterans Education (CSAAVE) withdrew institutional approval at all institutions owned and operated in California by CCI. The 23 campuses (Heald, WyoTech and Everest) were prohibited from receiving GI bill benefits. In order to continue using Title 38 benefits, veteran students were required to transfer/enroll in a CSAAVE eligible school.

On April 14, 2015, the USDE announced a $30 million fine against Heald's Salinas and Stockton campuses for fraudulent placement and other advertising (CCI appealed this fine). The decision effectively barred all Heald campuses from receiving federal funds for new enrollments. On April 16, 2015, the California Student Aid Commission (CSAC) permanently terminated Heald's eligibility for the Cal Grant program (Everest and WyoTech were already not eligible). On April 17, 2015, the BPPE issued an emergency decision prohibiting Everest and WyoTech campuses from enrolling new students. CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015.

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.

Background on relief options for students.

1. STRF. The STRF, administered by the BPPE, is funded by students enrolled in institutions regulated by the BPPE and provides for reimbursement to students for economic loss due to the closure or illegal activity of a regulated institution. According to BPPE, California students enrolled in a California WyoTech and Everest campus within 120 days of closure 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. Unlike federal loan forgiveness, STRF provides for partial refunds if students transfer some of their credits to another institution.

In 2015, USDE took action to expand the closed school loan discharge eligibility to students enrolled as far back as June 20, 2014. The USDE action made California veteran students eligible for closed school loan discharge. BPPE has not yet taken such a similar action.

For the CCI students that are eligible for STRF (enrolled within 120 days of closure) 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.

1. Federal loan forgiveness. The USDE has announced expanded loan forgiveness options for CCI students who were affected by the closure or by the unlawful practices of the institution. As it currently stands, the following students are eligible to apply for student loan discharge: 1) students who can show that CCI violated state law (Heald students in most programs between 2010 and 2014 have been deemed eligible by USDE to apply through an expedited loan forgiveness pathway; Everest and WyoTech students in most programs between 2010 and 2013, an expedited application pathway is pending); and, 2) students who were enrolled after June 20, 2014. The USDE has indicated additional eligibility and financial aid relief may be established.

On March 25, 2016, USDE announced it had received 11,740 closed school loan forgiveness claims, and, as of March 1, 2016, granted relief for 6,838 students; and has received 11,000 borrower defense claims (8,501 from CCI students) and has approved 2,048. Rough estimates place the number of students eligible for loan forgiveness at about 350,000 students. Since the time of CCI closure, USDE has sent email communications to over 54,000 former-Heald students to inform them of their loan discharge eligibility; the average open rate for these email campaigns is approximately 40%. USDE is in the process of starting similar email campaigns for former WyoTech and Everest students.

Local assistance grants. CSOs are currently working to assist 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). Unfortunately, funding cuts to these programs have reduced the ability of local organizations to meet student demand for services. This bill would provide $1.3 million in funding to local community based organizations to provide services to students, including:

1. Outreach and education for students and borrowers to understand their options. For example, the Legal Aid Foundation of Los Angeles (LAFLA) hosted two loan workshops for over 60 students following the closure of Marinello, in order to help students complete understand their rights and options.
2. Case intake and evaluation services to determine the particular facts of a student's situation and provide advice about next steps. For example, students often have multiple loans. Their rights depend on the types of loans they have. Even within government loan programs (FFEL, Direct, Consolidation, or Parent Plus), rights depend on the history of the loans, who holds the loan, and the date loans were taken out. Private loan rights also depend on the terms of the loan and the applicable state law.
3. Assistance and representation to ensure relief for students, once a student's rights and options are determined. For example, according to LAFLA:
   1. For Federal Loans:

Statutory loan discharges. Closed school, false certification, unpaid refund, and disability discharges generally require extensive corroborating evidence that must be obtained from USDE, schools (if they still exist), BPPE, and other sources. Although closed school and disability discharges usually require less evidence, most students are confused and daunted by the complicated discharge applications.

Defense-to-repayment relief. Borrowers may request a cancellation of their federal loans if their schools engaged in state law violations. To obtain this relief, they must produce sufficient evidence to make a prima facie case under state law. While USDE has provided a streamlined process for some Heald students, little guidance has been provided regarding the procedures, evidence, and standards required for these claims for different types of loans for WyoTech, Everest and other institutions where students were defrauded.

Options after default. If a borrower is in default, he/she may be able to get out of default and obtain an affordable repayment plan through consolidation or rehabilitation. But only certain loans are eligible for consolidation and rehabilitation. For example, if a loan has been reduced to a judgment, the borrower will not be able to get out of default through consolidation or rehabilitation unless the judgment is set aside. LAFLA works to negotiate vacation of the judgment.

Income-based repayment plans. Borrowers must get out of default before they can obtain income-dependent repayment plans. In addition, some loans, such as Parent PLUS loans, are not eligible for the income-based repayment plans, but can eligible for one type of income-dependent repayment plan after consolidation.

Pro-per assistance. CSOs help clients complete and submit their own applications, including through clinics, when the process is sufficiently accessible. If the process is too complicated, CSOs will represent the borrower.

• 1. In private loans borrowers have fewer options. CSOs evaluate all private loan cases for potential defenses, which include statutes of limitation, defenses-to-repayment based on school misconduct (if a holder notice is included in the promissory note), etc. If borrowers have a defense, CSOs help them to assert it through demand letters and, if necessary, litigation. CSOs also defend borrowers who are served with private student loan collection lawsuits. CSOs can assist students who are being harassed by private collection agencies.

1. Follow-up and appeals are often necessary, for even the simplest of cases. For example, according to LAFLA, a CCI client received a denial from the loan servicer for his closed school loan discharge application because the servicer had "no record of the school closing." An appeal was filed and, after negotiations with the loan servicer's general counsel, the servicer fixed the problem and granted the discharge. The servicer also went back and reopened all cases involving CCI students.

Prior Legislation and Governor's Veto. AB 573 (Medina, 2015) was substantially similar to this bill. In vetoing AB 573, Governor Brown stated, in part, that USDE "has taken the matter of loan discharge seriously. In recent months, it has greatly eased the burden of filings for many students, and its work to provide a simple, swift and fair process for students continues. 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."

Author's statement. According to the author, "this bill will provide vital funding to local organizations to help students with the loan forgiveness and tuition recovery process. Since Governor Brown's veto of AB 573, only a fraction of students eligible for loan discharge and tuition recovery have submitted claims; of those who have submitted claims, even fewer students have had claims successfully approved. This is clear evidence that existing efforts by USDE and BPPE are insufficient to ensure students receive the benefits to which they are entitled."

According to the author, "helping California students cancel as much of their student debt burden as possible will be good for these students, cost the state of California very little, and provide benefits now and in the future to California’s economy."

The author further notes that this bill "will restore California education grant eligibility for students by providing up to 2 years of restoration in the Cal Grant and California National Guard Educational Assistance programs. This will ensure approximately 3,400 Heald students are not harmed by the award year limitations in these programs." Committee staff understands, in response to the Governor's veto statement, the author and other members of the Legislature are concurrently working to request this provision be included in the Budget Act.

Arguments in support. According to The Institute for College Access and Success (TICAS), very few eligible students have received loan relief from USDE. Among Heald students, whom have had an expedited relief process available since June of 2015, only 16% (when looking at the best possible interpretation of the available figures) have received discharge under closed school or borrower defense provisions. In California, while BPPE reports having contacted 80% of former STRF-eligible students, only 7% have applied for STRF relief. According to TICAS, "to put these low shares into further perspective, a California Superior Court last week concluded that every former Corinthian student in California since 2010 deserves restitution due to the company's unlawful and predatory practices." TICAS notes that there is no evidence that students are foregoing relief because they do not need it; many eligible students are not aware that relief is available. Further, TICAS notes that many students do not receive relief because the process for determining eligibility and applying for relief is complex. According to TICAS, AB 2581 would facilitate students' access to relief by providing funding to nonprofit organizations that can conduct on-the-ground outreach and provide the assistance that the students need.

Possible amendments. Since the closure of CCI, two other California colleges have closed unlawfully and abruptly. In July of 2015, Four D College shutdown; according to BPPE data, 620 students were enrolled at the time of closure. Only 55 former-Four D students have filed STRF claims, and only 17 have had claims approved. On February 4, 2016, Marinello Schools of Beauty ceased operations. The closure affected approximately 3,200 students in California that are likely eligible for STRF and federal Closed School loan discharge.

Currently this bill requires unused grant funds to be returned to the STRF. Instead, the author and committee may wish to authorize CSOs, with the approval of the AG, to use grant funding to provide assistance to students affected by other school closures. Additionally, the author and committee may wish to update the findings and declarations to reflect the most recent CCI student loan eligibility and application data available from USDE.

BPPE Sunset Review. BPPE is currently undergoing the Sunset Review process. The issue 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 within DCA/BPPE to work with students and CSOs to provide 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.

REGISTERED SUPPORT / OPPOSITION:

Support

California Federation of Teachers

Center for Public Interest Law

Children's Advocacy Institute

Consumer Federation of California

Consumers Union of United States, Inc.

East Bay Community Law Center

Faculty Forward Network

Housing and Economic Rights Advocates

Legal Aid Foundation of Los Angeles

The Institute for College Access and Success

Public Advocates

Public Counsel

Public Law Center

Veterans Legal Clinic

Opposition

None on File

Analysis Prepared by: Laura Metune / HIGHER ED. / (916) 319-3960