SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 1345 (McCarty) - Private postsecondary education: California Private Postsecondary Education Act of 2009

Bill Summary:

Assembly Bill 1345 would establish and revise existing restrictions on private postsecondary school institutions from providing specified financial incentives, compensation, commission, bonus, or payment contingent upon quotas based on securing student enrollments, admissions, financial aid awards, or sales of educational materials.

Fiscal Impact:

• Bureau of Private Postsecondary Education (BPPE). Indeterminate, ongoing revenue loss (potentially $500,000 or more) from annual fees. The BPPE’s fiscal estimate is based on 80 accredited school samplings, based on the bill’s provisions. Minor IT impact but potential cost pressures to the extent existing maintenance resources cannot be redirected. Staff notes enforcement expenditures would need to be reimbursed to the Attorney General’s Office. However, BPPE notes that enforcement cases based on this prohibition are rare.
• Department of Justice. $6,000 in FY 2019-20, and $14,000 in FY 2020-21, and ongoing, for additional workload. The Licensing Section expects to receive two case referrals per year for disciplinary action, from the Bureau of Private Postsecondary Education. Beginning FY 2019-20 the Licensing Section’s Deputy Attorney General workload is estimated to increase by an additional 80 hours, and starting in FY 2020-21 and ongoing, an additional 160 hours. This bill would have an impact on the LSRF, however, these costs would be fully reimbursable through direct billing to the client agency. (Legal Services Revolving Fund)

Background:

Existing law, the California Private Postsecondary Education Act of 2009, provides, among other things, for student protections and regulatory oversight of private postsecondary institutions in the state. The BPPE is generally responsible for protecting students against fraud, misrepresentation, or other business practices at private postsecondary institutions; and for establishing and enforcing business and instructional quality standards. Under the California Private Postsecondary Act of 2009 (AB 48, Portantino, Chapter 310, Statutes of 2009), the Bureau must oversee private postsecondary institutions and can take formal actions, including closure, against an institution/school. The Bureau must also administer the Student Tuition Recovery Fund (STRF), which provides refunds to students affected by the possible closure of an institution/school, by the institutions' failure to refund or reimburse loan proceeds, or by the institutions' failure to pay students' restitution award. The BPPE also enables institutions to receive public funds through the federal Title IV financial aid programs.

According to the Senate Education Committee analysis of the bill:

Under a federal incentive compensation prohibition, postsecondary educational institutions that participate in Title IV programs are barred from providing incentive payments to any person or entity engaged in any student recruiting or admissions activities, or in making decisions regarding the award of student financial assistance based directly or indirectly upon success in securing enrollments or financial aid. Institutions agree that they will comply with the incentive compensation prohibition as a condition of their participation in the Title IV programs and their receipt of Title IV program funds.

A U.S. Government Accountability Office February 2010 report found Congress instituted this incentive compensation ban to eliminate abusive recruiting practices in which schools enrolled unqualified students who then received federal student aid funds. The report found that between 1998 and 2009, the United States Department of Education (USDE) determined that 32 schools had violated the incentive compensation ban and that prior to the implementation of safe harbor regulations in 2002, 18 schools were found to have incentive compensation violations over a period of 5 years. After the implementation of safe harbor regulations, 14 schools were found to have violations over a period of 7 years.

This bill seeks restrict the manner in which recruiters can, and cannot, be compensated, or upon which their employment can be conditioned.

Proposed Law:

AB 1345 would include the following provisions, among others:

• Deletes provisions that prohibit an institution from offering to compensate a student to act as an agent of the institution with regard to solicitation, referral or recruitment of any person for enrollment in the institution, except for token gifts under $100 as specified.
• Modifies provisions that prohibit an institution from compensating employees for certain activities on a commission basis by prohibiting an institution from directly or indirectly compensating, or conditioning a contract or any benefit under a contract with, any for specified persons on the basis of a commission, commission draw bonus, quota, or other similar method contingent upon recruitment, enrollment, admissions, or attendance of, or sales of education materials to, a student.
• Prohibits an institution from making employment contingent upon an employee meeting a quota of enrolling students, securing a specific amount of student financial aid, or selling educational materials directly to a student.
• Allows an institution to provide compensation or bonus compensation to an employee based on the number or percentage of students recruited by the employee who complete or graduate from the program in which the students were enrolled.
• Removes the exemption from existing compensation restrictions for institutions participating in federal student financial aid programs that allows payment of compensation to those involved in recruitment, admissions, or awarding of financial aid so long as those payments are in conformity with federal regulations governing an institution’s participation in federal aid.

Related Legislation:

• AB 1340 (Chiu, 2019) would require certain private postsecondary schools to report information about their graduates and match that information with Employment Development Department wage data, among other provisions. AB 1340 is pending on the committee’s suspense file.
• AB 1341 (Berman, 2019) would require the Attorney General (AG) to make certain determinations of a specified nonprofit institution prior to the Bureau verifying its exemption from the Act. AB 1341 is pending on the committee’s suspense file.
• AB 1342 (Bauer-Kahan, 2019) would require a nonprofit corporation that operates or controls a private postsecondary educational institution to obtain the AG’s approval before entering into certain agreements or transactions. AB 1342 is pending on the committee’s suspense file.
• AB 1343 (Eggman, 2019) would prohibit, beginning January 1, 2023, new enrollments at a private postsecondary educational institution, unless the institution meets one of two specified scenarios about the institution’s tuition revenue composition. AB 1343 is in the Senate Business, Professions, and Economic Development Committee.
• AB 1344 (Bauer-Kahan, 2019) would, effective July 1, 2022, require an out-of-state private postsecondary educational institution to provide the Bureau with specified information regarding whether or not a specified entity, has been subject to certain adverse state or federal actions in the previous 5 years before seeking authorization to operate in California. AB 1344 is pending on the committee’s suspense file.
• AB 1346 (Medina, 2019) expands the definition of “economic loss,” as it pertains to the Student Tuition Recovery Fund (STRF). AB 1346 is pending on the committee’s suspense file.

Staff Comments: As noted in previous policy committees’ analyses, the BPPE and the Act will come under sunset review oversight by the committees on BPED and Senate Education in late 2019.

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SENATE COMMITTEE ON EDUCATION

Senator Connie Leyva, Chair

2019 - 2020 Regular

Bill No: Hearing Date: July 10, 2019

Subject:

SUMMARY

This bill revises existing restrictions on private postsecondary school enrollment recruitment compensation to prohibit institutions from paying a person by means of a commission, bonus, quota, or other similar method contingent upon student recruitment, enrollment, admissions, attendance, financial aid, or sales of educational materials.

BACKGROUND

1. Establishes the California Private Postsecondary Act of 2009 and requires the bureau to, among other things, review, investigate and approve private postsecondary institutions, programs and courses of instruction and authorizes bureau to take formal actions against an institution/school to ensure compliance with the Act, including seeking closure of an institution/school if determined necessary. The Act also provides for specified disclosures and enrollment agreements for students, requirements for cancellations, withdrawals and refunds, and that bureau shall administer the Student Tuition Recovery Fund to provide refunds to students affected by the possible closure of an institution/school. Existing law repeals the act on January 1, 2021. (Education Code (EC) § 94800 et seq.)
2. Exempts the following institutions from the California Private Postsecondary Education Act:
   1. An institution offering programs solely for the purpose of personal entertainment, pleasure, or enjoyment.
   2. An institution offering educational programs sponsored by a bona fide trade, business, professional, or fraternal organization, solely for that organization’s membership.
   3. A postsecondary educational institution established, operated, and governed by the federal government or by the government in California.
   4. An institution offering either test preparation for postsecondary education admissions examinations, or continuing education or license examination preparation.
   5. An institution owned, controlled, and operated and maintained by a religious organization lawfully operating as a nonprofit religious corporation, limited to education relevant to the beliefs and practices of the church, religious denomination, or religious organization.
   6. An institution that does not award degrees and that solely provides educational programs for total charges of $2,500 or less when no part of the total charges is paid from state or federal student financial aid programs.
   7. A law school that is accredited by the Council of the Section of Legal Education and Admissions to the Bar of the American Bar Association or that is subject to the approval, regulation, and oversight of the Committee of Bar Examiners.
   8. A nonprofit school organized specifically to provide workforce development or rehabilitation services that is accredited by the Department of Rehabilitation.
   9. An institution that is accredited by the Accrediting Commission for Senior Colleges and Universities, Western Association of Schools and Colleges, or the Accrediting Commission for Community and Junior Colleges, Western Association of Schools and Colleges.
   10. Flight instruction providers or programs that provide flight instruction pursuant to Federal Aviation Administration regulations.
   11. An institution owned by a nonprofit community-based organization that does not award degrees and does not offer educational programs designed to lead to licensure, and that would not have been subject to oversight if it did not receive funding under the federal Workforce Innovation and Opportunity Act. (EC §94874)
3. States that as of January 1, 2016, an institution that is approved to participate in veterans’ financial aid programs that is not an independent institution of higher education shall not be exempt from the California Private Postsecondary Education Act. (EDC § 94874.2)
4. Requires institutions exempt from the California Private Postsecondary Education Act to still comply with laws relating to school closure and laws relating to fraud, abuse, and false advertising. (EDC § 94874.9)
5. Makes various findings and declarations regarding private postsecondary schools, including a finding that numerous reports and studies have concluded that California’s regulation of private postsecondary schools has consistently failed to ensure student protections or provide effective oversight of private postsecondary schools. (EC § 94801)
6. Defines “postsecondary education” as a formal institutional educational program whose curriculum is designed primarily for students who have completed or terminated their secondary education or are beyond the compulsory age of secondary education, including programs whose purpose is academic, vocational, or continuing professional education. (EDC § 94857)
7. Defines “private postsecondary educational institution” as a private entity with a physical presence in the state that offers postsecondary education to the public for an institutional charge. (EDC § 94858)
8. Defines “out-of-state private postsecondary educational institution” as a private entity without a physical presence in this state that offers distance education to California students for an institutional charge, regardless of whether the institution has affiliated institutions or institutional locations in California.
9. Includes in the definition of “public higher education” the California Community Colleges, the California State University, and the University of California; defines “independent institutions of higher education” as nonpublic higher education institutions that grant undergraduate degrees or graduate degrees and are accredited by an agency recognized by the United States Department of Education. (EDC § 66010)
10. Requires the bureau to adopt regulations establishing minimum operating standards for a private postsecondary educational institution that ensures all of the following:
    1. The content of each educational program can achieve its stated objective.
    2. The institution maintains specific written standards for student admissions for each educational program and those standards are related to the particular program.
    3. The facilities, instructional equipment, and materials are sufficient to enable students to achieve the educational program’s goals.
    4. The institution maintains a withdrawal policy and provides refunds.
    5. The directors, administrators, and faculty are properly qualified.
    6. The institution is financially sound and capable of fulfilling its commitments to students.
    7. That, upon satisfactory completion of an educational program, the institution gives students a document signifying the degree or diploma awarded.
    8. Adequate records and standard transcripts are maintained and are available to students.
    9. The institution is maintained and operated in compliance with all applicable laws.(EC § 94885)
11. Authorizes the bureau to grant approval to operate only after an applicant has presented sufficient evidence to the bureau, and the bureau has independently verified the information provided by the applicant through site visits or other methods deemed appropriate by the bureau, that the applicant has the capacity to satisfy the minimum operating standards; requires the BUREAU to deny an application for an approval to operate if the application does not satisfy those standards. (EC § 94887)
12. Provides that a standard approval to operate shall be valid for five years. (EC § 94888)
13. Requires the bureau to grant an institution that is accredited an approval to operate by means of its accreditation. (EC § 94890)
14. Requires an institution to seek approval from the BUREAU if it intends to make a substantive change to its approval to operate, such as changes in its education objectives, the addition of a new degree program, a change in ownership, or a change in name. (EC § 94893)
15. States that an institution is prohibited from doing any of the following:
    1. Use of the Great Seal of the State of California on a diploma.
    2. Promise or guarantee employment, or overstate the availability of jobs upon graduation.
    3. Advertise concerning job availability, degree of skill, or length of time required to learn a trade or skill unless the information is accurate and not misleading.
    4. Advertise, or indicate in promotional material, without including the fact that the educational programs are delivered by means of distance education.
    5. Advertise, or indicate in promotional material, that the institution is accredited if it is not.
    6. Solicit students for enrollment by causing an advertisement to be published in “help wanted” columns in a magazine, newspaper, or publication, or use “blind” advertising that fails to identify the institution.
    7. Offer to compensate a student to act as an agent of the institution with regard to the solicitation, referral, or recruitment of any person for enrollment in the institution.
    8. Pay any consideration to a person to induce that person to sign an enrollment agreement.
    9. Use a name in any manner improperly implying that the school is affiliated with a government agency, is a public institution, or grants degrees if it does not.
    10. In any manner make an untrue or misleading statement related to a test score, grade or record of grades, attendance record, record indicating student completion, placement, employment, salaries, or financial information.
    11. Willfully falsify, destroy, or conceal any document of record.
    12. Use the terms such as “approval” without stating clearly and conspicuously that approval to operate means compliance with state standards.
    13. Direct any individual to perform an unlawful act, to refrain from reporting unlawful conduct to the BPPE, or to engage in any unfair act to persuade a student not to complain.
    14. Compensate an employee involved in recruitment, enrollment, admissions, student attendance, or sales of educational materials to students on the basis of a commission, commission draw, bonus, quota, or other similar method related to the recruitment, enrollment, admissions, student attendance, or sales of educational materials to students.
    15. Require a prospective student to provide personal contact information in order to obtain, from the institution’s website, educational program information that is required to be contained in the school catalog.
    16. Offer an associate, baccalaureate, master’s, or doctoral degree without disclosing to prospective students prior to enrollment whether the institution or the degree program is unaccredited and any known limitation of the degree. (EC § 94897)
16. Requires an institution that offers an educational program in a profession, occupation, trade, or career field that requires state licensure to have an educational program approval from the appropriate state licensing agency to conduct that educational program in order that a student who completes the educational program is eligible to sit for any required licensure examination. (EC § 94899)
17. Requires an institution’s recruiters to be its employees. (EC § 94901)
18. Requires an enrollment agreement to be written in language that is easily understood. (EC § 94905)
19. Requires an institution to provide a prospective student with a school catalog containing various program information and policies. (EC § 94909)
20. Requires an institution to provide a prospective student with a School Performance Fact Sheet containing information including but not limited to completion rates, placement rates for each program, license examination passage rates, starting salary or wage information, and information about how to contact the BPPE. (EC § 94910)
21. Requires an institution to post its school catalog, School Performance Fact Sheet, and student brochures on its website. (EC § 94913)
22. Establishes the Student Tuition Recovery Fund (STRF) to relieve or mitigate economic loss suffered by a student while enrolled in an institution at the time that institution, location, or program was closed or discontinued. (EDC § 94923)
23. Requires an institution to annually report to the BPPE, as part of an annual report, and publish in its School Performance Fact Sheet, all of the following:
    1. The job placement rate for each program that is either designed, or advertised, to lead to a particular career, or advertised or promoted with any claim regarding job placement.
    2. The license examination passage rates for the immediately preceding two years for programs leading to employment requiring passage of a state licensing examination.
    3. Salary and wage information, consisting of the total number of graduates employed in the field and the annual wages or salaries of those graduates stated in increments of $5,000.
    4. If applicable, the most recent official three-year cohort default rate reported by the United States Department of Education for the institution and the percentage of enrolled students receiving federal student loans. (EC § 94929.5)
24. Requires the Director of Consumer Affairs to provide written updates to the Legislature describing the BPPE’s progress in protecting consumers and enforcing the provisions of the California Private Postsecondary Education Act. (EC § 94948)
25. Establishes the Office of Student Assistance and Relief for the purpose of advancing and promoting the rights of prospective students, current students, or past students of private postsecondary educational institutions. (EC § 94949.7)
26. Subjects the bureau to legislative oversight through the sunset review process, which provides for the California Private Postsecondary Education Act and the authority of the bureau to be automatically repealed as of January 1, 2021 unless a later enacted statute deletes or extends that date. (EC § 94950)

ANALYSIS

This bill:

1. Exempts nonprofit regionally accredited institutions that grant undergraduate or graduate degrees from being subject to the California Private Postsecondary Education Act.
2. Deletes provisions that prohibit an institution from offering to compensate a student to act as an agent of the institution with regard to solicitation, referral or recruitment of any person for enrollment in the institution, except for token gifts under $100 as specified.
3. Modifies provisions that prohibit an institution from compensating employees for certain activities on a commission basis by prohibiting an institution from directly or indirectly compensating, or conditioning a contract or any benefit under a contract with, any for the following persons on the basis of a commission, commission draw bonus, quota, or other similar method contingent upon recruitment, enrollment continued enrollment, admissions, or attendance of, or sales of education materials to , a student:
   1. A person involved in student recruitment, enrollment, continued enrollment, admissions, or attendance.
   2. A person involved in awarding financial aid based on the enrollment of a student.
   3. A person involved in sales of any educational materials to a student.
4. Allows an institution to provide compensation or bonus compensation to an employee based on the number or percentage of students recruited by the employee who complete or graduate from the program in which the students were enrolled.
5. Prohibits institutions for any of the specified persons from conditioning employment contingent upon quotas or other similar metrics related to continued enrollment, admissions, attendance, financial aid, or sales of educational materials.
6. Removes the exemption from existing compensation restrictions for institutions participating in federal student financial aid programs that allows payment of compensation to those involved in recruitment, admissions, or awarding of financial aid so long as those payments are in conformity with federal regulations governing an institution’s participation in federal aid.
7. Removes the exemption from existing compensation restrictions that allows an institution to pay compensation related to a particular student only if that student completes an educational program, as defined.
8. Defines “financial aid,” to mean any loan, grant, or award that is based on the enrollment of a student, provided by a federal or state government program, provided or arranged by the institution, or provided by or arranged by an entity to which the student was referred by the institution.

STAFF COMMENTS

1. Need for the bill. According to the author, “According to the Author, “AB 1345 seeks to strengthen current law regarding kickbacks, loopholes, and exemptions. This will ensure that college recruiters can no longer use high-pressure sales tactics with kickbacks and incentives to exploit and enroll students in their colleges.”

The Author states that “California law already strives to ban kickbacks, but loopholes and exemptions have weakened the law to the point of ineffectiveness. The loopholes include permitting recruiters to be given ‘token gifts’ for recruiting students; having anti-kickback prohibitions apply only to employees not independent contractors; and relying on federal bans on such compensation. Simply deleting the loopholes and exemptions will go a long way to eliminating the front-end, admissions, financial incentives that have caused so many ruined California lives.”

According to the Author, “After student loan scandals in the 1980s, Republican Secretary of Education Lamar Alexander proposed to prohibit commission-paid recruitment of students eligible for federal aid, a ban that Congress adopted in 1992. In the 2000s, however, the Bush Administration weakened the ban through loopholes and weak enforcement, prompting many for-profit colleges to test the boundaries of the restriction. The weakened ban, along with other weakened rules, contributed to a rapid increase in for-profit enrollment fueled by federal aid and, ultimately more than 100,000 student loan borrowers who allege that they were defrauded by the college where they enrolled. (Doug Lederman, For-Profits and the False Claims Act, InsideHigherEd, August 14, 2011.)”

1. Private for-profit sector. According to the Legislative Analyst’s Office (LAO), California’s higher education system (public and private) serves 3.7 million students (2016-17 academic year). Private for-profit colleges represent 9 percent of that enrollment among approximately 180 campuses. In comparison, California community colleges have the largest share of students at 59 percent with 114 campuses and the private nonprofit sector serving 10 percent of students spread amongst 700 campuses. The majority of degrees produced by private for-profit colleges are certificates and associate degrees, 61 percent of students are over the age of 25 and 57 percent are from historically underrepresented communities. Notably, the sector serves a significant portion of Californians.
2. Role of the bureau. The bureau is generally responsible for protecting consumers and students against fraud, misrepresentation, or other business practices at private postsecondary institutions that may lead to loss of students’ tuition and related educational funds; establishing and enforcing minimum standards for ethical business practices and the health and safety and fiscal integrity of postsecondary education institutions; and establishing and enforcing minimum standards for instructional quality and institutional stability for all students in all types of private postsecondary educational and vocational institutions.

The United States Department of Education (USDE) establishes that states are responsible for providing primary protection of consumers and students attending postsecondary educational institutions. The bureau approval not only authorizes institutions to operate and serve students in California but also enables institutions to receive public funds through the federal Title IV financial aid programs.

The bureau is responsible for oversight of private postsecondary educational institutions operating with a physical presence in California. Established by AB 48 (Portantino, Chapter 310, Statutes of 2009) after numerous legislative attempts to remedy the laws and structure governing regulation of private postsecondary institutions, the bill took effect January 1, 2010, to make many substantive changes that created a foundation for oversight and gave the bureau enforcement tools to ensure schools comply with the law.

AB 48 established the bureau’s authority to regulate private postsecondary institutions and enforce the provisions of the new Act and to respond to the major problems with the former laws governing the industry in California. The Act provides for prohibitions on false advertising and inappropriate recruiting and requires disclosure of critical information to students such as program outlines, graduation and job placement rates, and license examination information, and ensures colleges justify those figures. The Act also provides the bureau with enforcement powers necessary to protect consumers. The Act directs the bureau to:

• Create a structure that provides an appropriate level of oversight, including approval of private postsecondary educational institutions and programs;
• Establish minimum operating standards for California private postsecondary educational institutions to ensure quality education for students;
• Provide students a meaningful opportunity to have their complaints resolved;
• Ensure that private postsecondary educational institutions offer accurate information to prospective students on school and student performance; and,
• Ensure that all stakeholders have a voice and are heard in the operations and rulemaking process of BPPE.

1. Dual objectives. This bill seeks restrict the manner in which recruiters can and cannot be compensated or for which their employment can be condition upon. Additionally, it creates a new exemption from bureau oversight and regulation under the Act for any private nonprofit that is a regionally accredited college. In so doing, it exempts those colleges from certain regulations designed to monitor business practices of private colleges and identify deception associated with fraudulent or substandard degrees. These provisions may likely capture an out-of-state nonprofit institution with a physical branch in California. Arguably, this sector may appear to have acceptable business practices in comparison to others however, the decision to limit the state’s ability in protecting the interests of its students, particularly in the current political climate, warrants a larger policy discussion overall.

As noted in the Senate Business, Professions and Economic Development (BPED) committee analysis, the bureau and the Act will come under sunset review oversight by the committees on BPED and Senate Education beginning in late 2019, culminating in hearings, discussions, and legislation, a process that may provide a more appropriate venue for this change and allows for the Legislature to engage in a thorough review of the existing exemptions and potentially necessary new exemptions. For the reasons stated above staff recommends that the bill be amended to remove the exemption proposed in Education Code section 94874 (l)(1)(2)(3).

1. Other things to consider. Current state law prohibits institutions from compensating an employee based on a commission, bonus, quota or other similar method related to the recruitment, enrollment admissions, student attendance, or sales of educational materials to students. It also provides an exception for those institutions subject to and comply with federal regulations related to financial aid. This bill removes that exception thereby capturing institutions that are not otherwise subject to the specified state compensation restrictions. The opponents of this measure also argue that by striking the exception, it also prohibits in state law, tuition share agreements with third parties such as online program management companies. Through these agreements, the third party receives a share of tuition in exchange for all services provided. A USDE policy statement allows for these types of tuition share agreements. This bill could have boarder implications and it is not clear if that is what the bill is intended to do. Nonetheless, the outsourcing of the management of online programs is a discussion best suited for and merits a deeper evaluation during the sunset review process mentioned in comment 4) of this analysis.
2. Related activity at the federal level. Under the federal incentive compensation prohibition, postsecondary educational institutions that participate in Title IV programs are barred from providing incentive payments to any person or entity engaged in any student recruiting or admissions activities, or in making decisions regarding the award of student financial assistance based directly or indirectly upon success in securing enrollments or financial aid. Institutions agree that they will comply with the incentive compensation prohibition as a condition of their participation in the Title IV programs and their receipt of Title IV program funds.

According to a February 2010 report issued by the U.S. Government Accountability Office (GAO), Congress instituted this incentive compensation ban to eliminate abusive recruiting practices in which schools enrolled unqualified students who then received federal student aid funds. The report found that between 1998 and 2009, the United States Department of Education (USDE) determined that 32 schools had violated the incentive compensation ban and that prior to the implementation of safe harbor regulations in 2002, 18 schools were found to have incentive compensation violations over a period of 5 years. After the implementation of safe harbor regulations, 14 schools were found to have violations over a period of 7 years.

In addition to the 32 schools with substantiated violations between 1998 and 2009, 27 schools were identified through the use of USDE data, program reviews, Office of Inspector General audits, or independent audits as having potential violations of the incentive compensation ban during this time period. USDE entered into settlement agreements with 22 schools and many of the cases leading to settlement involved incentive payments made to school employees based on the number of students enrolled.

1. Greater clarity needed. Concerns have been raised from opponents that the bill includes undefined and board terms such as “other similar metrics” and “any benefit,” that could, among other things, limit the ability to manage any employee based on their performance. For purposes of providing clarity with how certain practices are prohibited the author wishes, staff agrees, that the bill be amended as follows:

§94897(m) (1) Directly or indirectly compensate, or pay a condition a contract or any benefit under a contract with, or condition the employment, by means any of the following persons on the basis of a commission, commission draw, bonus, quota, or other payment to any person engaged in student recruitment, or admission activities, or awarding of similar method contingent upon recruitment, enrollment, continued enrollment, admissions, attendance, financial aid, or attendance of, or financial aid or sales of educational materials to a student, of any of the following persons: directly to a student: if said payment or compensation is contingent upon quotas or the success of securing enrollments, admissions, awarding financial aid to a student or sales of educational materials directly to a student.

(A) A person involved in student recruitment, enrollment, continued enrollment, admissions, or attendance.

(B) A person involved in awarding financial aid based on the enrollment of a student.

(C) A person involved in sales of any educational materials to a student.

(2) This subdivision shall not prohibit an institution from providing compensation or bonus compensation to an employee based on the number or percentage of students recruited by the employee who complete or graduate from a program in which the students were enrolled. (As currently drafted in the bill)

(n) For any of the persons described in subparagraphs (A) to (C), inclusive, of paragraph (1) of subdivision (m), condition Make employment contingent upon an employee meeting a quota of enrolling students, securing a specific amount of student financial aid, or selling educational materials directly to a student. quotas or other similar metrics related to continued enrollment, admissions, attendance, financial aid, or sales of educational materials.

1. Double referral. This bill was previously heard by the Senate Business, Professions and Economic Development Committee which has jurisdiction over bills relating to business and professional practices and periodically conducts sunset review of various boards and licensing agencies, including the Bureau.
2. Related legislation.

AB 1341 (Berman, 2019) prohibits the Bureau for Private For-Profit Postsecondary Education (bureau) from verifying an exemption from bureau oversight for a non-profit that operated as a for-profit institution unless the Attorney General makes certain determinations. AB 1341 is also on the committee’s agenda today.

AB 1344 (Bauer-Kahan, 2019) expands existing requirements that out-of-state private postsecondary educational institutions register with, and report information to, the Bureau for Private Postsecondary Education (bureau) to include additional information regarding adverse actions and to authorize the bureau upon review to revoke an out-of-state school’s ability to enroll students in California, as specified. AB 1344 is also on the committee’s agenda today.

AB 1340 (Chiu, 2019) requires certain private postsecondary schools to report to the Bureau for Private Postsecondary Education information about their graduates and match that information with wage data from the Employment Development Department. It also requires the Bureau to make available on its website information regarding the earnings levels of graduates and student debt information. AB 1340 is also on the committee’s agenda today.

AB 1345 (McCarty, 2019) revises existing restrictions on private postsecondary school enrollment recruitment compensation to prohibit institutions from paying a person by means of a commission, bonus, quota, or other similar method contingent upon student recruitment, enrollment, admissions, attendance, financial aid, or sales of educational materials. AB 1345 is also on the committee’s agenda today.

AB 1346 (Medina, 2019) expands the definition of “economic loss,” as it pertains to the Student Tuition Recovery Fund (STRF), to include all amounts paid by a student to the institution, any amounts paid in connection with attending the institution, and all principal, interest, and charges of any kind for any loan incurred by the student to pay these amounts. AB 1346 is also on the committee’s agenda today.

AB 1342 (Bauer-Kahan, 2019) requires a nonprofit corporation that operates or controls a private postsecondary educational institution to obtain the Attorney General’s (AG) consent before entering into certain agreements or transactions, including an agreement or transaction to sell or convey its assets to, or to transfer control, responsibility, or governance of a material amount of its assets to, a for-profit corporation or mutual benefit corporation. AB 1342 was approved by this committee and is pending in Senate Appropriations Committee.

SUPPORT

California Faculty Association

Children’s Advocacy Institute

Faculty Association of California Community Colleges

The Century Foundation

The Institute for College Access and Success

Student Debt Crisis

National Student Legal Defense Network

Housing and Economic Rights Advocates

Center for Responsible Lending

Public Law Center

Consumer Federation of California

Public Advocates

Consumer Reports Advocacy

California Low-Income Consumer Coalition

Public Counsel

SEIU California

The Century Foundation

NextGen California

Veterans Education Success

OPPOSITION

2U, Inc.

American Career College, Inc.

California Northstate University

Ontario Health Education Company, Inc.

San Joaquin Valley College

UEI Colleges

West Coast University, Inc.

Zovio

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SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Steven Glazer, Chair

2019 - 2020 Regular

Bill No: AB 1345 Hearing Date: July 1, 2019

Subject: Private postsecondary education: California Private Postsecondary Education Act of 2009

SUMMARY: Prohibits a private postsecondary institution from directly or indirectly compensating, conditioning a contract or any benefit under a contract with, or conditioning the employment of, any person involved in certain activities on the basis of financial incentives that are contingent upon recruitment, enrollment, continued enrollment, admissions, attendance, financial aid, or sales of education materials to a student.

NOTE:

This bill is referred, second, to the Senate Committee on Education.

Existing law:

1. Establishes the California Private Postsecondary Education Act of 2009, until January 1, 2021, and requires the Bureau for Private Postsecondary Education (BPPE or Bureau) within the Department of Consumer Affairs (DCA) to, among other things, review, investigate and approve private postsecondary institutions, programs and courses of instruction pursuant to the California Private Postsecondary Education Act of 2009 (Act) and authorizes BPPE to take formal actions against an institution/school to ensure compliance with the Act to include closure of an institution/school, if determined necessary. The Act provides for specified disclosures and enrollment agreements for students, requirements for cancellations, withdrawals and refunds, and the BPPE is required to administer the Student Tuition Recovery Fund (STRF) to provide refunds to students affected by the possible closure of an institution/school. (Education Code (EC) § 94800 et seq.)
2. Establishes an Office of Student Assistance and Relief (Office) for the purpose of advancing and promoting the rights of prospective students, current students, or past students of private postsecondary educational institutions. Tasks the Office with: conducting outreach and providing information and assistance to students who have been affected by the unlawful activities or closure of an institution; serving as a primary point of contact to address the needs of private postsecondary education students and working in consultation with state and federal agencies, including, but not limited to, CSAC, the Office of the Chancellor of the California Community Colleges, the Department of Veterans Affairs, the federal Consumer Financial Protection Bureau, and the United States Department of Education. Authorizes the Office to provide outreach to students and prospective students to provide them with, among other information, information on making informed decisions in selecting postsecondary educational institutions, student rights regarding school performance disclosures, enrollment agreements, and cancellation and refund policies, how to contact the office and the bureau for assistance, student loan rights and assistance, and free nonprofit community based resources. (EC §§ 94949.7 - 94949.73)
3. Prohibits an institution from compensating an employee involved in recruitment, enrollment, admissions, student attendance, or sales of educational materials to students on the basis of a commission, commission draw, bonus, quota, or other similar method related to the recruitment, enrollment, admissions, student attendance, or sales of educational materials to students except: (EC § 94897)
4. If the educational program is scheduled to be completed in 90 days or less, the institution shall pay compensation related to a particular student only if that student completes the educational program.
5. For institutions participating in federal student financial aid programs, this does not prevent the payment of compensation to those involved in recruitment, admissions, or the award of financial aid if those payments are in conformity with federal regulations governing an institution's participation in the federal student financial aid programs.
6. Requires an institution’s recruiters to be its employees and requires an institution to issue identification to recruiters that they are required to have with them while recruiting that identify both the recruiter and the institution. (EC § 94901)
7. Federal law requires, that in order to be eligible for funding under the federal Higher Education Act Title IV student assistance programs, an educational program must lead to a degree at a nonprofit or public institution or it must prepare students for gainful employment in a recognized occupation. (20 U.S.C. 1001 et seq.)
8. Federal law prohibits an institution from providing any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance, except that this paragraph shall not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal student assistance. (20 U.S.C. Section 1094 (a)(20))
9. Exempts the following from oversight by the Bureau: (EC § 94874)
10. An institution that offers solely avocational or recreational educational programs.
11. An institution offering educational programs sponsored by a bona fide trade, business, professional, or fraternal organization, solely for that organization's membership.
12. A bona fide organization, association or council that offers preapprenticeship training programs on behalf of one or more Division of Apprenticeship Standards-approved labor-management or apprenticeship programs that is not on the Eligible Training Provider List (ETPL) currently but has met requirements for placement on the list, that is on the ETPL and that has not been removed from the ETPL for failure to meet performance standards.
13. A postsecondary educational institution established, operated, and governed by the federal government or by this state or its political subdivisions.
14. An institution offering either test preparation for examinations required for admission to a postsecondary educational institution or continuing education or license examination preparation, if the institution or the program is approved, certified, or sponsored by a government agency, other than BPPE, that licenses persons in a particular profession, occupation, trade, or career field, a state-recognized professional licensing body, such as the State Bar of California, that licenses persons in a particular profession, occupation, trade, or career field or a bona fide trade, business, or professional organization
15. An institution owned, controlled, and operated and maintained by a religious organization lawfully operating as a nonprofit religious corporation whose instruction is limited to the principles of that religious organization and the diploma or degree granted is limited to evidence of completion of that education. The institution is only eligible to offer degrees and diplomas in the beliefs and practices of the church, religious denomination, or religious organization and shall not award degrees in any area of physical science. Any degree or diploma granted by an institution owned, controlled, and operated and maintained by a religious organization lawfully operating as a nonprofit religious corporation shall contain on its face, in the written description of the title of the degree being conferred, a reference to the theological or religious aspect of the degree's subject area. The degree must reflect the nature of the degree title, such as "associate of religious studies," "bachelor of religious studies," "master of divinity," or "doctor of divinity."
16. An institution that does not award degrees and that solely provides educational programs for total charges of two thousand five hundred dollars ($2,500) or less when no part of the total charges is paid from state or federal student financial aid programs.
17. A law school that is accredited by the Council of the Section of Legal Education and Admissions to the Bar of the American Bar Association or a law school or law study program that is subject to the approval, regulation, and oversight of the Committee of Bar Examiners.
18. A nonprofit public benefit corporation that is qualified under Section 501(c)(3) of the United States Internal Revenue Code, is organized specifically to provide workforce development or rehabilitation services and is accredited by an accrediting organization for workforce development or rehabilitation services recognized by the Department of Rehabilitation.
19. An institution that is accredited by the Accrediting Commission for Senior Colleges (ACSC) and Universities, WASC, or the Accrediting Commission for Community and Junior Colleges (ACCJC).
20. Flight instruction providers or programs that provide flight instruction pursuant to Federal Aviation Administration (FAA) regulations and do not require students to enter into written or oral contracts of indebtedness and do not require or accept prepayment of instruction-related costs in excess of $2,500.
21. An institution owned, controlled, operated, and maintained by a community-based organization, that has programs on, or is applying for some or all of their programs to be on the ETPL, that is registered as a nonprofit entity, does not offer degrees or educational programs designed to lead to a specific job requiring licensure if BPPE approval is required for the student to be eligible for licensure; the institution would otherwise be exempt from BPPE oversight if not for the fact that it receives funding under the federal Workforce Innovation and Opportunity Act (WIOA). Requires an institution exempt pursuant to these requirements to provide the Employment Development Department (EDD) information and data necessary to comply with performance reporting requirements pursuant to WIOA and cannot charge participants.
22. Also provides an exemption from the Act and oversight by BPPE for one school located in Sacramento which meets the following requirements: the institution is accredited by the ACSC and WASC, or ACCJC and has been accredited by a USDE recognized accrediting agency for at least 10 years and has not been placed on probation or on monitoring or sanctioned; is headquartered in California and has operated continuously for at least 25 years; is privately held and was previously granted an approval to operate by the BPPE or the former Bureau and has not changed ownership since its last approval; has not filed for bankruptcy protection; maintains an equity ratio composite score of at least 1.5; derives at least 12.5 percent of its revenues from sources other than state or federal student assistance like veterans GI bill monies (Title 38) and state loan monies (CalGrant); does not have a cohort default rate over 13 percent for the most recent 3 years; has a graduation rate that exceeds 60 percent; has not been subject to any legal or regulatory actions by a state Attorney General that resulted in monetary settlement, fines or other documented violations; provides a pro rata refund of unearned institutional charges to students who complete 75 percent or less of the period of attendance; complies with other reasonable criteria established by the California State Approving Agency for Veterans Education (CSAAVE); and verifies its exemption with BPPE. (EC § 94947)

This bill:

1. Defines “financial aid” as any loan, grant, or award that is based on the enrollment of a student, provided by a federal or state government program, provided or arranged by the institution, or provided by or arranged by an entity to which the student was referred by the institution.
2. Specifies that a private postsecondary institution shall not directly or indirectly compensate, condition a contract or any benefit under a contract with, or condition the employment of the following persons on the basis of a commission, commission draw, bonus, quota system, or other incentive payment based in any part, directly or indirectly, on success in student recruitment, enrollment, continued enrollment, admissions, or attendance, or success in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student:
3. Any person involved in student recruitment, enrollment, continued enrollment, admissions, or attendance.
4. Any person involved in awarding financial aid based on the enrollment of a student.
5. Any person involved in sales of any educational materials to a student.
6. Deletes provisions authorizing an institution to award a token gift to a student for referring an individual, provided that the gift is not in the form of money, no more than one gift is provided annually to a student, and the gift's costs is no more than $100.
7. Prohibits an institution, for any person described in a)-c) above, to condition employment contingent upon quotas or other similar metrics related to continued enrollment, admissions, attendance, financial aid, or sales of education materials.
8. Creates a new exemption in the Act for an institution that meets all of the following criteria:
9. Grants undergraduate degrees, graduate degrees, or both.
10. Has been formed as a nonprofit corporation.
11. Is accredited by a regional accreditation agency recognized by the United States Department of Education.

FISCAL EFFECT:

This bill is keyed fiscal by Legislative Counsel. According to the Assembly Committee on Appropriations, the bill will result in absorbable costs to BPPE.

COMMENTS:

1. Purpose. The source of this bill is, as the Author advises, The Century Foundation and The Institute for College Access and Success (TICAS) which “put a package of bills together to address a variety of problems within the For-Profit College industry”.

According to the Author, “AB 1345 seeks to strengthen current law regarding kickbacks, loopholes, and exemptions. This will ensure that college recruiters can no longer use high-pressure sales tactics with kickbacks and incentives to exploit and enroll students in their colleges.”

The Author states that “California law already strives to ban kickbacks, but loopholes and exemptions have weakened the law to the point of ineffectiveness. The loopholes include permitting recruiters to be given ‘token gifts’ for recruiting students; having anti-kickback prohibitions apply only to employees not independent contractors; and relying on federal bans on such compensation. Simply deleting the loopholes and exemptions will go a long way to eliminating the front-end, admissions, financial incentives that have caused so many ruined California lives.”

According to the Author, “After student loan scandals in the 1980s, Republican Secretary of Education Lamar Alexander proposed to prohibit commission-paid recruitment of students eligible for federal aid, a ban that Congress adopted in 1992. In the 2000s, however, the Bush Administration weakened the ban through loopholes and weak enforcement, prompting many for-profit colleges to test the boundaries of the restriction. The weakened ban, along with other weakened rules, contributed to a rapid increase in for-profit enrollment fueled by federal aid and, ultimately more than 100,000 student loan borrowers who allege that they were defrauded by the college where they enrolled. (Doug Lederman, For-Profits and the False Claims Act, InsideHigherEd, August 14, 2011.)”

1. Background.

BPPE. BPPE is generally responsible for protecting consumers and students against fraud, misrepresentation, or other business practices at private postsecondary institutions that may lead to loss of students’ tuition and related educational funds; establishing and enforcing minimum standards for ethical business practices and the health and safety and fiscal integrity of postsecondary education institutions; and establishing and enforcing minimum standards for instructional quality and institutional stability for all students in all types of private postsecondary educational and vocational institutions.

The United States Department of Education (USDE) establishes that states are responsible for providing primary protection of consumers and students attending postsecondary educational institutions. BPPE approval not only authorizes institutions to operate and serve students in California but also enables institutions to receive public funds through the federal Title IV financial aid programs.

The BPPE is responsible for oversight of private postsecondary educational institutions operating with a physical presence in California. Established by AB 48 (Portantino, Chapter 310, Statutes of 2009) after numerous legislative attempts to remedy the laws and structure governing regulation of private postsecondary institutions, the bill took effect January 1, 2010, to make many substantive changes that created a foundation for oversight and gave the BPPE enforcement tools to ensure schools comply with the law.

AB 48 established BPPE’s authority to regulate private postsecondary institutions and enforce the provisions of the new Act and to respond to the major problems with the former laws governing the industry in California. The Act provides for prohibitions on false advertising and inappropriate recruiting and requires disclosure of critical information to students such as program outlines, graduation and job placement rates, and license examination information, and ensures colleges justify those figures. The Act also provides BPPE with enforcement powers necessary to protect consumers. The Act directs BPPE to:

• Create a structure that provides an appropriate level of oversight, including approval of private postsecondary educational institutions and programs;
• Establish minimum operating standards for California private postsecondary educational institutions to ensure quality education for students;
• Provide students a meaningful opportunity to have their complaints resolved;
• Ensure that private postsecondary educational institutions offer accurate information to prospective students on school and student performance; and,
• Ensure that all stakeholders have a voice and are heard in the operations and rulemaking process of BPPE.

BPPE is also tasked with actively investigating and combatting unlicensed activity, administering the STRF, and conducting outreach and education activities for students and private postsecondary educational institutions within the state. The STRF is an important tool to assist harmed students. STRF exists to relieve or mitigate economic loss suffered by students enrolled at non-exempt private postsecondary education institutions 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 Act.

Private postsecondary institutions play an important role in ensuring access to higher educational opportunities for California’s students. The landscape of schools that are now regulated under BPPE, and that have become central in California’s discussion of private postsecondary education, has evolved significantly in recent decades. The smaller, independent for-profit institutions that made up the bulk of the former-Bureau’s licensee population have shifted. Today, a large number of California students are being served by multi-campus, publicly-traded institutions with a national presence. These institutions also receive significant public funds; under federal law, up to 90 percent of revenues can come from the Title IV financial aid program and at least 10 percent of revenues must come from non-Title IV sources ("90/10 rule"); however, this can include state aid, veteran's aid, and private loans (among other sources). High-profile state and federal investigations have revealed deceptive and illegal practices by some institutions within the sector. Federal regulators responded by increasing student outcome and institutional accountability measures. Specifically, in California, BPPE’s approval can enable these institutions to access the Title IV program; USDE relies on the Bureau to provide oversight and student protection.

Students, the public, and quality private postsecondary educational institutions are best served by a well-functioning regulatory entity that effectively enforces the Act. BPPE has faced significant difficulties in implementing the law. It is important that California’s approval and oversight of an institution assures minimum quality and student protections.

Prohibitions and Deceptive Marketing. Under the federal incentive compensation prohibition, postsecondary educational institutions that participate in Title IV programs are barred from providing incentive payments to any person or entity engaged in any student recruiting or admissions activities, or in making decisions regarding the award of student financial assistance based directly or indirectly upon success in securing enrollments or financial aid. Institutions agree that they will comply with the incentive compensation prohibition as a condition of their participation in the Title IV programs and their receipt of Title IV program funds.

According to a February 2010 report issued by the U.S. Government Accountability Office (GAO), Congress instituted this incentive compensation ban to eliminate abusive recruiting practices in which schools enrolled unqualified students who then received federal student aid funds. The report found that between 1998 and 2009, USDE determined that 32 schools had violated the incentive compensation ban and that prior to the implementation of safe harbor regulations in 2002, 18 schools were found to have incentive compensation violations over a period of 5 years. After the implementation of safe harbor regulations, 14 schools were found to have violations over a period of 7 years.

In addition to the 32 schools with substantiated violations between 1998 and 2009, 27 schools were identified through the use of USDEdata, program reviews, Office of Inspector General audits, or independent audits as having potential violations of the incentive compensation ban during this time period. USDE entered into settlement agreements with 22 schools and many of the cases leading to settlement involved incentive payments made to school employees based on the number of students enrolled.

According to an August 2010 GAO report, Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices, “GAO was asked to conduct undercover testing to determine if for-profit colleges’ representatives engaged in fraudulent, deceptive, or otherwise questionable marketing practices, and to compare the tuitions of the for-profit colleges tested with those of other colleges in the same geographic region. GAO investigators posing as prospective students applied for admissions at 15 for-profit colleges in 6 states and Washington, D.C.. The colleges were selected based on several factors, including those that USDE advised received 89 percent or more of their revenue from federal student aid. GAO also entered information on four fictitious prospective students into education search websites to determine what type of follow-up contact resulted from an inquiry. GAO compared tuition for the 15 for-profit colleges tested with tuition for the same programs at other colleges located in the same geographic areas. Results of the undercover tests and tuition comparisons cannot be projected to all for-profit colleges.”

The report found that “4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO’s undercover applicants. Four undercover applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid—for example, one admissions representative told an applicant to fraudulently remove $250,000 in savings. Other college representatives exaggerated undercover applicants’ potential salary after graduation and failed to provide clear information about the college’s program duration, costs, or graduation rate despite federal regulations requiring them to do so. For example, staff commonly told GAO’s applicants they would attend classes for 12 months a year, but stated the annual cost of attendance for 9 months of classes, misleading applicants about the total cost of tuition. Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options. However, in some instances, undercover applicants were provided accurate and helpful information by college personnel, such as not to borrow more money than necessary.”

1. Related Legislation This Year. AB 1340 (Chiu) would require institutions regulated by the BPPE to report identifying, program enrollment, and loan debt information to BPPE. Authorizes BPPE to match student information with wage data provided by the EDD. Requires BPPE to make information available on its website when the Director of the DCA certifies that an updated information technology system is capable of processing data. (Status: This measure is currently pending in this Committee.)

AB 1341 (Berman) prohibits BPPE from approving an exemption for, or handling complaints for a nonprofit institution that the AG determines does not meet the definition of a nonprofit corporation. (Status: This measure is currently pending in this Committee.)

AB 1342 (Low) would require the state Attorney General to review and approve any sale of a nonprofit educational institution to a for-profit entity. (Status: This measure is currently pending in the Senate Committee on Appropriations.)

AB 1343 (Eggman) would prohibit a private postsecondary educational institution, beginning January 1, 2023, from enrolling residents of California who are not already enrolled as of that date, unless the institution meets one of two requirements: either no more than 85 percent of the institution's tuition revenue is derived from federal monies or the institution does not spend less than 50 percent of revenue on student instruction. (Status: This measure is currently pending in this Committee.)

AB 1344 (Bauer-Kahan) beginning July 1, 2021, would replace current requirements for the information out-of-state institutions are required to provide the Bureau if they enroll California students in online programs, with the same and expanded information requirements, specifically adding adverse actions to the list of information that has to be provided. It would also authorize the BPPE to place these out-of-state private postsecondary institutions on a probationary status and revoke authorization to enroll California students. (Status: This measure is currently pending in this Committee.)

AB 1346 (Medina) would expand the definition of economic loss to include all amounts paid by a student to the institution, any amounts paid in connection with attending the institution, and all principal, interest, and charges of any kind for any loan incurred by the student to pay these amounts and would expand STRF eligibility to expands eligibility to students residing in California and attending a campus of a Corinthian Colleges, Inc. (CCI), institution on or after January 1, 2010. (Status: This measure is currently pending in this Committee.)

1. Arguments in Support. According to the Institute for College Access and Success, the National Student Legal Defense Network, the Housing and Economic Rights Advocates, the Children’s Advocacy Institute, the Center for Public Interest Law, the Public Law Center, the Consumer Federation of California, Public Advocates, Consumer Reports Advocacy, California Low-Income Consumer Coalition, Veterans Legal Clinic, Public Counsel, SEIU California, the Century Foundation, NextGen California, and Veterans Education Success, “Restrictions on the ways in which recruiters can and cannot be paid can help prevent these abuses, but current rules are not strong enough. Current California law includes an exemption for schools that are subject to the federal rule, undermining the value of a state-specific rule. California can better protect students by creating its own, broader prohibition on colleges paying marketers in ways that reward deception. AB 1345 will accomplish this by closing existing loopholes in state law.”

The California Community Colleges Chancellor’s Office writes that “Students harmed by the fraudulent practices, low quality, and/or abrupt closure of for-profit colleges regularly come to the California Community Colleges to continue their education. It becomes increasingly difficult to ensure social and economic prosperity for these students when they arrive with non-transferrable credits, expired financial aid awards, and debt. This bill provides a mechanism to monitor the quality of for-profit colleges, while preventing harm to students.”

1. Arguments in Opposition. San Joaquin Valley College, Carrington College, and Ember Education argue that AB 1345 “will result in the prohibition of everyday activities that promote student success, to the common and meaningful benefit of students, employers, and the communities served by SJVC and Carrington College. The overly broad definitions in the bill cover nearly every employee and productive activity of not only our colleges, but any institution of higher education regardless of sector.” They cite examples of a school not being able to choose employees who meet with prospective students to help them make informed decisions about which college meets their goals, and a school not being able to compensate employees for ensuring that students that in school and graduate by providing services like tutoring or accountability calls.

The California Association of Private Postsecondary Schools argues that AB 1345 “uses broad and undefined terms to prohibit routine activities for ‘any person’ employed or under contract with the institution. The bill would prohibit compensation ‘directly or indirectly’ linked to activities such as ‘enrollment,’ ‘admissions,’ or ‘attendance.’ These are extremely broad terms that would likely capture all employees from President/CEO to instructors/professors. Since the bill also uses the terms ‘condition a contract or any benefit’ it could be read to limit all forms of compensations such as a 401K, profit sharing or routine year-end bonus.” CAPPS has offered amendments and states that it is continuing to work with the author to try and narrow the bill to achieve its core objective.

Universal Technical Institute, the Long Beach Area Chamber of Commerce, the Inland Empire Economic Partnership, the California Automotive Business Coalition, the Automotive Services Councils of California, and the Independent Automotive Professionals Association oppose AB 1345 unless it is amended. They argue that “it would depress student outcomes and hamper graduation rates by interfering with [UTI’s] ability to structure Admissions representative compensation contingent upon students’ successful graduation. As written, it would also hamper the ability to manage Admissions representatives’ level of customer service and student support. A decrease in the number of automotive and diesel technicians graduating from UTI, the nation’s and our state’s single largest source of trained transportation technicians, at a time when there is a severe shortage of skilled labor will negatively impact many businesses in the California transportation industry.”

1. Drafting Questions and Policy Comments.

Is a new exemption necessary? This bill specifies that regionally accredited nonprofit institutions are exempt from BPPE oversight and regulation under the Act. The exemptions in the Act, and attempts to create additional exemptions, have been an ongoing source of consideration for the Legislature. It was not until a hearing in the Senate that AB 48, which originally created the Act and established many current exemptions, was amended to include a “good schools” exemption, as institutions pushing for this exemption (based on criteria like length of operation under one owner and nonprofit status) argued that a similar recognition had been included in all legislation related to private postsecondary institution regulation since 1991 and should be continued.

Since the establishment of the Act in AB 48, exemptions have been provided for:

• One school in Sacramento
• Law schools approved by the Committee on Bar Examiners, which were exempt from the Act, but would have to receive Bureau approval in order to receive Title 38 veterans benefits monies (pursuant to legislation aimed at ensuring oversight for programs serving veterans), despite the fact that law schools in particular have been the source of scrutiny based on high rates of student debt, misleading employment figures and low state bar passage rates.
• Institutions owned by community-based organizations to ensure continued listing on the ETPL which requires an institution be BPPE approved

During the discussion surrounding the BPPE’s 2014 sunset bill, SB 1247 (Lieu, Chapter 840, Statutes of 2014), the Author submitted a letter to the Senate Journal requesting that the Legislature strike the exemption for WASC accredited institutions to remain exempt and asked that all exemptions provided for in the Act be thoroughly examined by the Legislature to determine the merits of their continuation.

Licensing requirements exist to protect the public from potentially harmful services rendered by unqualified businesses and individuals. The intent of licensure is not to punish good actors, nor to impose punitive requirements on businesses and individuals, but rather to establish a baseline measure of quality and competency and corresponding enforcement provisions for consequences of violating the regulatory framework. Exemptions in the Act may serve as an artificial measure of quality and in some cases, while the intention may have been to ensure that the BPPE’s workload is focused on those schools that require attention, it may not benefit the public and provide accountability for public monies utilized at these institutions.

It is unclear what the rationale is for the new exemption contained in this bill and the impacts of this change. Given that the BPPE and Act will come under sunset review oversight by the Legislature beginning in late 2019, culminating in hearings, discussions, and legislation, a process that may provide a more appropriate venue for this change and allows for the Legislature to engage in a thorough review of the existing exemptions and potentially necessary new exemptions, the Author should continue to work with interested parties to determine the potential impacts stemming from this change and to provide a clear rationale for this new exemption.

Does the bill potentially conflict with existing requirements in the Act specifying that an institution’s recruiters must be employees? The bill includes terms that are undefined and as such, could potentially cause confusion rather than provide clarity in how certain practices are prohibited. The bill prohibits an institution from conditioning employment “contingent upon quotas or other similar metrics”, yet it is unclear what similar metrics refers to.

Also, EC § 94901 specifies that an institution’s recruiters shall be employees. The current prohibitions on recruiting practices contained in the Act in EC § 94897, the focus of this bill, specify that an institution shall not “compensate an employee” involved in various practices. This bill replaces the term “employee” with “a person”, including a person who may be contracted by an institution, and also replaces “compensate” with “directly or indirectly compensate”, capturing individuals who are not specifically employees, without making conforming changes to other sections of the Act. The Author should continue to work with Legislative stakeholders and interested parties to determine whether there are unintended consequences or confusion that may arise from the changes to the current prohibitions on recruiting practices.

Is BPPE’s lack of robust and effective enforcement at issue or is clarity to current law truly preventing significant BPPE action? The law creating a new Act, with ample authority for a new Bureau to provide oversight of private postsecondary institutions in California, was passed ten years ago amidst concerns that without a functioning regulatory system in place in California, students would be left in the lurch to face the wild west of private postsecondary educational options.

Every discussion about BPPE, and its success in both protecting students and promoting quality educational programs, results in a listing of deficiencies in most categories. May 2019 data from BPPE showed just 14 citations were issued in 2017, 117 in 2018 and 59 in 2019 so far. A breakdown of 2019 complaints up through May 2019 indicates that a total of 3 were received for violations related to prohibited business practices; the specific violations, and whether there were violations of current recruiting prohibitions included in that number is not available.

BPPE faces an unacceptable backlog of complaints, including complaints made by students to BPPE that could be related to deceptive marketing activity a student was faced with. BPPE also demonstrates unacceptably low rates of meaningful enforcement that may protect vulnerable students. While any effort to strengthen BPPE attempts to assist students and take swift enforcement action is laudable, the Author may wish to continue working with Legislative stakeholders and interested parties to ensure that BPPE can take certain and decisive action based on the language contained in this bill.

SUPPORT AND OPPOSITION:

Support:

CA-AUP

California Association of Veteran Service Agencies

California Community Colleges Chancellor’s Office

California Faculty Association

California Industrial and Technology Education Association

California Low-Income Consumer Coalition

Center for Public Interest Law

Children’s Advocacy Institute

Consumer Federation of California

Consumer Reports Advocacy

Housing and Economic Rights Advocates

Institute for College Access and Success

John Burton Advocates for Youth

Legal Aid Foundation of Los Angeles

National Student Legal Defense Network

NextGen California

Public Advocates

Public Counsel

Public Law Center

SEIU California

The Century Foundation

Veterans Education Success

Veterans Legal Clinic

Opposition:

Ashford University

American Career College

Automotive Service Councils of California

California Association of Private Postsecondary Schools

California Automotive Business Coaltion

California Northstate University

Carrington College

Ember Education

Independent Automotive Professionals Association

Inland Empire Economic Partnership

Long Beach Area Chamber of Commerce

Professional Beauty Federation of California

San Joaquin Valley College

UEI Colleges

Universal Technical Institute, Inc.

West Coast University

Zovio

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1345

Author:(McCarty, et al.)

As Amended Ver:April 11, 2019

Majority vote

SUMMARY:

Prohibits an institution from providing financial incentives to any person, including a student, involved in student recruitment, enrollment, continued enrollment, admission, or attendance, or involved in awarding of financial aid based on the enrollment of a student, or in the sales of any education materials, based on succeeding in those activities, as specified.

Major Provisions

1. Defines "financial aid" to mean any loan, grant, or award that is based on the enrollment of a student, provided by a federal or state government program, provided or arranged by the institution, or provided by or arranged by an entity to which the student was referred by the institution.
2. Specifies that a private postsecondary institution shall not compensate, condition a contract or any benefit under a contract with, or condition the employment of any person involved in student recruitment, enrollment, continued enrollment, admissions, or attendance, or involved in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student by means of a commission, commission draw, bonus, quota system, or other incentive payment based in any part, directly or indirectly, on success in student recruitment, enrollment, continued enrollment, admissions, or attendance, or success in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student.
3. Deletes provisions authorizing an institution will to offer to compensate a student to act as an agent of the institution with regard to the solicitation, referral, or recruitment of any person for enrollment in the institution, except that an institution may award a token gift to a student for referring an individual, provided that the gift is not in the form of money, no more than one gift is provided annually to a student, and the gift’s cost is not more than $100.
4. Deletes a specific reference to the compensation of employees involved in recruitment and enrollment on the basis of commission, quota, bonus, or a similar method, and removes exemptions regarding completion and federal aid.

COMMENTS:

Please see Assembly Higher Education Committee and Assembly Business and Professions Committee respective committee analyses for a summary of major policy points.

According to the Author:

According to the author, "California law already strives to ban kickbacks, but loopholes and exemptions have weakened the law to the point of ineffectiveness. The loopholes include permitting students to be given ‘token gifts’ for recruiting students; having anti-kickback prohibitions apply only to employees and not to independent contractors; and relying on federal bans on such compensation. Simply deleting the loopholes and exemptions will go a long way to eliminating the front-end, admissions, financial incentives that have caused so many ruined California lives."

Arguments in Support:

A coalition representing student, veteran, civil rights, and higher education advocates jointly wrote in support of AB 1345, writing that, "…Restrictions on the ways in which recruiters can and cannot be paid can help prevent…abuses, but current rules are not strong enough. Current California law includes an exemption for schools that are subject to the federal rule, undermining the value of a state-specific rule. California can better protect students by creating its own, broader prohibition on colleges paying marketers in ways that reward deception. AB 1345 will accomplish this by closing existing loopholes in state law."

Arguments in Opposition:

The California Association of Private Postsecondary Schools (CAPPS) writes that AB 1345, "Current California (and federal law) makes it illegal to compensate an employee based on their admission / recruitment success. This is outlined specifically in Education Code 94897… that regulates private postsecondary schools under the BPPE. It’s unclear to our members why this existing law doesn’t satisfy the concerns of the author and sponsors."

FISCAL COMMENTS:

Absorbable costs to the California Bureau of Private Postsecondary Education (BPPE) at the California Department of Consumer Affairs, the state entity responsible for oversight of private postsecondary schools, to oversee these new requirements.

VOTES:

ASM HIGHER EDUCATION: 9-0-3

YES: Medina, Gloria, Bloom, Gabriel, Irwin, Gonzalez, Low, Santiago, Weber

ABS, ABST OR NV: Choi, Kiley, Patterson

ASM BUSINESS AND PROFESSIONS: 16-0-4

YES: Low, Bloom, Chen, Chiu, Dahle, Eggman, Gipson, Gloria, Grayson, Holden, Irwin, McCarty, Medina, Mullin, Quirk-Silva, Ting

ABS, ABST OR NV: Brough, Cunningham, Fong, Obernolte

ASM APPROPRIATIONS: 13-0-5

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Friedman, Gabriel, Eduardo Garcia, Maienschein, Petrie-Norris, Jones-Sawyer, Robert Rivas

ABS, ABST OR NV: Bigelow, Brough, Diep, Fong, Obernolte

UPDATED:

VERSION: April 11, 2019

CONSULTANT: Kevin J. Powers / HIGHER ED. / (916) 319-3960 FN: 0000363

Date of Hearing: May 1, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1345

Author:(McCarty) – As Amended Ver:April 11, 2019

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

SUMMARY:

This bill prohibits a private postsecondary school from providing financial incentives compensation to their employees, directly or directly, for student recruitment, enrollment, admissions, attendance, financial aid or sales of educational materials. Specifically, the bill bans the schools from providing an employee of the school with a commission, bonus or set quota for their activities.

FISCAL EFFECT:

Absorbable costs to the California Bureau of Private Postsecondary Education (BPPE) at the California Department of Consumer Affairs, the state entity responsible for oversight of private postsecondary schools, to oversee these new requirements.

COMMENTS:

1. Purpose. According to the authors:

Almost every abuse by the highest profile for-profits originates with high-pressure sales tactics motivated by bounties paid to salespeople for enrolling students, no matter whether the student is or is not prepared to succeed in the school. These recruiters are taught to target veterans, students of color and students from underprivileged backgrounds, and then are financial rewarded for their work based on how many students they recruit, and sometimes, the amount of tuition they get students to sign-up and pay for. Commission-paid salespeople in the for-profit college setting are more likely to lie to consumers in order to get the sale…California law already strives to ban kickbacks, but loopholes and exemptions have weakened the law to the point of ineffectiveness. The loopholes include permitting students to be given “token gifts” for recruiting students; having anti-kickback prohibitions apply only to employees and not to independent contractors; and relying on federal bans on such compensation.

1. Private Postsecondary Bill Package. This bills is a part of an Assembly bill package designed to provide more accountability and state oversight of private postsecondary institutions.

AB 1340 (Chiu) would recodify in state law the federal Gainful Employment rule so that it may be enforced by the BPPE. The bill is pending in this committee.

AB 1341 (Berman) would clarify that an institution of higher education is exempt only from the requirements imposed on out-of-state institutions if it meets the definition of a nonprofit corporation or public institution. The bill is pending in this committee.

AB 1342 (Low) would require the attorney general’s review and approval for any sale of a nonprofit educational institution to a for-profit entity. The bill is pending in this committee.

AB 1343 (Eggman) would prohibit a private postsecondary educational institution from enrolling residents of California, unless the institution meets either the requirement that no more than 85% of the institution’s tuition revenue is derived from student financial aid and loans, or not less than 50% of the institution’s tuition revenue is dedicated to student instruction. The bill is pending in this committee.

AB 1344 (Bauer-Kahan) would increase the BPPE’s oversight over out-of-state private postsecondary educational institutions operating online. The bill is pending in this committee.

AB 1346 (Medina) would expand the definition of economic loss, as it pertains to the Student Tuition Recovery Fund. The bill is pending in this committee.

Analysis Prepared by: Natasha Collins / APPR. / (916) 319-2081

Date of Hearing: April 23, 2019

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

ABPCA Bill Id:AB 1345

Author:(McCarty) – As Amended Ver:April 11, 2019

SUBJECT: Private postsecondary education: California Private Postsecondary Education Act of 2009.

SUMMARY: Revises existing restrictions on private postsecondary school enrollment recruitment compensation to prohibit institutions from paying a person by means of a commission, bonus, quota, or other similar method contingent upon student recruitment, enrollment, admissions, attendance, financial aid, or sales of educational materials.

EXISTING LAW:

1. Enacts the California Private Postsecondary Education Act to provide for the regulation and oversight of private postsecondary schools. (Education Code (EDC) §§ 94800 et al.)
2. Establishes the Bureau for Private Postsecondary Education (BPPE) in the Department of Consumer Affairs to regulate private postsecondary educational institutions under the California Private Postsecondary Education Act. (EDC § 94820)
3. Exempts the following institutions from the California Private Postsecondary Education Act:
   1. An institution offering programs solely for the purpose of personal entertainment, pleasure, or enjoyment.
   2. An institution offering educational programs sponsored by a bona fide trade, business, professional, or fraternal organization, solely for that organization’s membership.
   3. A postsecondary educational institution established, operated, and governed by the federal government or by the government in California.
   4. An institution offering either test preparation for postsecondary education admissions examinations, or continuing education or license examination preparation.
   5. An institution owned, controlled, and operated and maintained by a religious organization lawfully operating as a nonprofit religious corporation, limited to education relevant to the beliefs and practices of the church, religious denomination, or religious organization.
   6. An institution that does not award degrees and that solely provides educational programs for total charges of $2,500 or less when no part of the total charges is paid from state or federal student financial aid programs.
   7. A law school that is accredited by the Council of the Section of Legal Education and Admissions to the Bar of the American Bar Association or that is subject to the approval, regulation, and oversight of the Committee of Bar Examiners.
   8. A nonprofit school organized specifically to provide workforce development or rehabilitation services that is accredited by the Department of Rehabilitation.
   9. An institution that is accredited by the Accrediting Commission for Senior Colleges and Universities, Western Association of Schools and Colleges, or the Accrediting Commission for Community and Junior Colleges, Western Association of Schools and Colleges.
   10. Flight instruction providers or programs that provide flight instruction pursuant to Federal Aviation Administration regulations.
   11. An institution owned by a nonprofit community-based organization that does not award degrees and does not offer educational programs designed to lead to licensure, and that would not have been subject to oversight if it did not receive funding under the federal Workforce Innovation and Opportunity Act.

(EDC §94874)

1. States that as of January 1, 2016, an institution that is approved to participate in veterans’ financial aid programs that is not an independent institution of higher education shall not be exempt from the California Private Postsecondary Education Act. (EDC § 94874.2)
2. Requires institutions exempt from the California Private Postsecondary Education Act to still comply with laws relating to school closure and laws relating to fraud, abuse, and false advertising. (EDC § 94874.9)
3. Makes various findings and declarations regarding private postsecondary schools, including a finding that numerous reports and studies have concluded that California’s regulation of private postsecondary schools has consistently failed to ensure student protections or provide effective oversight of private postsecondary schools. (EDC § 94801)
4. Defines “postsecondary education” as a formal institutional educational program whose curriculum is designed primarily for students who have completed or terminated their secondary education or are beyond the compulsory age of secondary education, including programs whose purpose is academic, vocational, or continuing professional education. (EDC § 94857)
5. Defines “private postsecondary educational institution” as a private entity with a physical presence in the state that offers postsecondary education to the public for an institutional charge. (EDC § 94858)
6. Defines “out-of-state private postsecondary educational institution” as a private entity without a physical presence in this state that offers distance education to California students for an institutional charge, regardless of whether the institution has affiliated institutions or institutional locations in California.
7. Includes in the definition of “public higher education” the California Community Colleges, the California State University, and the University of California; defines “independent institutions of higher education” as nonpublic higher education institutions that grant undergraduate degrees or graduate degrees and are accredited by an agency recognized by the United States Department of Education. (EDC § 66010)
8. Requires the BPPE to adopt regulations establishing minimum operating standards for a private postsecondary educational institution that ensures all of the following:
   1. The content of each educational program can achieve its stated objective.
   2. The institution maintains specific written standards for student admissions for each educational program and those standards are related to the particular program.
   3. The facilities, instructional equipment, and materials are sufficient to enable students to achieve the educational program’s goals.
   4. The institution maintains a withdrawal policy and provides refunds.
   5. The directors, administrators, and faculty are properly qualified.
   6. The institution is financially sound and capable of fulfilling its commitments to students.
   7. That, upon satisfactory completion of an educational program, the institution gives students a document signifying the degree or diploma awarded.
   8. Adequate records and standard transcripts are maintained and are available to students.
   9. The institution is maintained and operated in compliance with all applicable laws.

(EDC § 94885)

1. Authorizes the BPPE to grant approval to operate only after an applicant has presented sufficient evidence to the bureau, and the bureau has independently verified the information provided by the applicant through site visits or other methods deemed appropriate by the bureau, that the applicant has the capacity to satisfy the minimum operating standards; requires the BPPE to deny an application for an approval to operate if the application does not satisfy those standards. (EDC § 94887)
2. Provides that a standard approval to operate shall be valid for five years. (EDC § 94888)
3. Requires the BPPE to grant an institution that is accredited an approval to operate by means of its accreditation. (EDC § 94890)
4. Requires an institution to seek approval from the BPPE if it intends to make a substantive change to its approval to operate, such as changes in its education objectives, the addition of a new degree program, a change in ownership, or a change in name. (EDC § 94893)
5. States that an institution is prohibited from doing any of the following:
   1. Use of the Great Seal of the State of California on a diploma.
   2. Promise or guarantee employment, or overstate the availability of jobs upon graduation.
   3. Advertise concerning job availability, degree of skill, or length of time required to learn a trade or skill unless the information is accurate and not misleading.
   4. Advertise, or indicate in promotional material, without including the fact that the educational programs are delivered by means of distance education.
   5. Advertise, or indicate in promotional material, that the institution is accredited if it is not.
   6. Solicit students for enrollment by causing an advertisement to be published in “help wanted” columns in a magazine, newspaper, or publication, or use “blind” advertising that fails to identify the institution.
   7. Offer to compensate a student to act as an agent of the institution with regard to the solicitation, referral, or recruitment of any person for enrollment in the institution.
   8. Pay any consideration to a person to induce that person to sign an enrollment agreement.
   9. Use a name in any manner improperly implying that the school is affiliated with a government agency, is a public institution, or grants degrees if it does not.
   10. In any manner make an untrue or misleading statement related to a test score, grade or record of grades, attendance record, record indicating student completion, placement, employment, salaries, or financial information.
   11. Willfully falsify, destroy, or conceal any document of record.
   12. Use the terms such as “approval” without stating clearly and conspicuously that approval to operate means compliance with state standards.
   13. Direct any individual to perform an unlawful act, to refrain from reporting unlawful conduct to the BPPE, or to engage in any unfair act to persuade a student not to complain.
   14. Compensate an employee involved in recruitment, enrollment, admissions, student attendance, or sales of educational materials to students on the basis of a commission, commission draw, bonus, quota, or other similar method related to the recruitment, enrollment, admissions, student attendance, or sales of educational materials to students.
   15. Require a prospective student to provide personal contact information in order to obtain, from the institution’s website, educational program information that is required to be contained in the school catalog.
   16. Offer an associate, baccalaureate, master’s, or doctoral degree without disclosing to prospective students prior to enrollment whether the institution or the degree program is unaccredited and any known limitation of the degree.

(EDC § 94897)

1. Requires an institution that offers an educational program in a profession, occupation, trade, or career field that requires state licensure to have an educational program approval from the appropriate state licensing agency to conduct that educational program in order that a student who completes the educational program is eligible to sit for any required licensure examination. (EDC § 94899)
2. Requires an institution’s recruiters to be its employees. (EDC § 94901)
3. Requires an enrollment agreement to be written in language that is easily understood. (EDC § 94905)
4. Requires an institution to provide a prospective student with a school catalog containing various program information and policies. (EDC § 94909)
5. Requires an institution to provide a prospective student with a School Performance Fact Sheet containing information including but not limited to completion rates, placement rates for each program, license examination passage rates, starting salary or wage information, and information about how to contact the BPPE. (EDC § 94910)
6. Requires an institution to post its school catalog, School Performance Fact Sheet, and student brochures on its website. (EDC § 94913)
7. Establishes the Student Tuition Recovery Fund (STRF) to relieve or mitigate economic loss suffered by a student while enrolled in an institution at the time that institution, location, or program was closed or discontinued. (EDC § 94923)
8. Requires an institution to annually report to the BPPE, as part of an annual report, and publish in its School Performance Fact Sheet, all of the following:
   1. The job placement rate for each program that is either designed, or advertised, to lead to a particular career, or advertised or promoted with any claim regarding job placement.
   2. The license examination passage rates for the immediately preceding two years for programs leading to employment requiring passage of a state licensing examination.
   3. Salary and wage information, consisting of the total number of graduates employed in the field and the annual wages or salaries of those graduates stated in increments of $5,000.
   4. If applicable, the most recent official three-year cohort default rate reported by the United States Department of Education for the institution and the percentage of enrolled students receiving federal student loans.

(EDC § 94929.5)

1. Requires the Director of Consumer Affairs to provide written updates to the Legislature describing the BPPE’s progress in protecting consumers and enforcing the provisions of the California Private Postsecondary Education Act. (EDC § 94948)
2. Establishes the Office of Student Assistance and Relief for the purpose of advancing and promoting the rights of prospective students, current students, or past students of private postsecondary educational institutions. (EDC § 94949.7)
3. Subjects the BPPE to legislative oversight through the sunset review process, which provides for the California Private Postsecondary Education Act and the authority of the BPPE to be automatically repealed as of January 1, 2021 unless a later enacted statute deletes or extends that date. (EDC § 94950)

THIS BILL:

1. Defines “financial aid” as any loan, grant, or award that is based on the enrollment of a student, provided by a federal or state government program, provided or arranged by the institution, or provided by or arranged by an entity to which the student was referred by the institution.
2. Strikes language prohibiting an institution from offering to compensate a student to act as an agent of the institution with regard to the solicitation, referral, or recruitment of any person for enrollment in the institution, except for gifts of up to $100.
3. Revises existing provisions to prohibit an institution from directly or indirectly compensating, conditioning a contract or any benefit under a contract with, or conditioning the employment of any person involved in student recruitment, enrollment, continued enrollment, admissions, or attendance, or involved in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student by means of a commission, commission draw, bonus, quota, or other similar method contingent upon recruitment, enrollment, continued enrollment, admissions, attendance, financial aid, or sales of educational materials to a student.

FISCAL EFFECT: Unknown; this bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the author. According to the author:

Almost every abuse by the highest profile for-profits originates with high-pressure sales tactics motivated by bounties paid to salespeople for enrolling students, no matter whether the student is or is not prepared to succeed in the school. These recruiters are taught to target veterans, students of color and students from underprivileged backgrounds, and then are financial rewarded for their work based on how many students they recruit, and sometimes, the amount of tuition they get students to sign-up and pay for. Commission-paid salespeople in the for-profit college setting are more likely to lie to consumers in order to get the sale. Further, non-profits such as Ashford University consistently discipline and terminate admissions counselors for failing to meet enrollment quotas according to an Attorney General complaint. Punishments enacted by managers at Ashford University include forcing admissions counselors to stand at their desks until obtaining a prospective student and dangling the key cards of terminated employees collected on a key ring in front of current employees as a reminder of their prospective fates in the event that enrollment quotas are not met. California law already strives to ban kickbacks, but loopholes and exemptions have weakened the law to the point of ineffectiveness. The loopholes include permitting students to be given “token gifts” for recruiting students; having anti-kickback prohibitions apply only to employees and not to independent contractors; and relying on federal bans on such compensation. Simply deleting the loopholes and exemptions will go a long way to eliminating the front-end, admissions, financial incentives that have caused so many ruined California lives.

Background.

History of Regulation of Private Postsecondary Educational Institutions. The modern iteration of the BPPE was established on January 1, 2010 through AB 48 (Portantino, Chapter 310, Statutes of 2009). Prior to the current BPPE, the state made multiple other attempts to regulate for-profit colleges and other private postsecondary schools; many of these efforts are regarded as having been largely unsuccessful. In the BPPE’s 2014 sunset review, statute was enacted stating that “the Legislature advises future policymakers to continually and carefully evaluate” the BPPE and its regulatory authority.

Private postsecondary schools were previously regulated by a division within the California Department of Education; however, by the end of the 1980s, the state had purportedly become regarded as the “diploma mill capital of the world.” This led to the enactment of the Private Postsecondary and Vocational Education Reform Act of 1989 (Reform Act), which was intended to “promote the effective integration of private postsecondary education into all aspects of California's educational system and to foster and improve the educational programs and services of these institutions while protecting the citizens of the state from fraudulent or substandard operations.” That year, the Legislature also enacted Maxine Waters School Reform and Student Protection Act, which first set a threshold for minimum job placement and graduation rates.

These two reforms, which were ultimately merged, created a new regulatory entity established as the Council on Private Postsecondary and Vocational Education (CPPVE). The CPPVE was given authority to approve and disapprove private postsecondary schools, and it used this power aggressively and at times controversially. In 1996, Columbia Pacific University engaged in litigation against the CPPVE for denying its application for approval. The CPPVE ultimately prevailed in this litigation, but the CPPVE was left with a public perception that it was overly belligerent in its regulation of educational institutions.

A review by the California Postsecondary Education Commission recommended that both the CPPVE and the Reform Act be permanently extended beyond their June 30, 1997 sunset date. However, the bill to extend that sunset date by five years (AB 2960, Firestone and Campbell) was vetoed by Governor Pete Wilson. The Governor’s veto message stated that he believed “many of the bad operators have left the state or gone out of business” and that the remaining schools “have described a pattern of reprisals and vindictiveness in dealing with the Council staff.” Governor Wilson wrote that he “would like to have more assurances that we are not making it impossible or unreasonably difficult for many small businesses to operate before I extend the life of the Council.”

Urgency legislation was introduced in 1997 (AB 71, Wright) to extend the Reform Act and respond to the Governor’s veto message by making numerous changes to how its provisions were carried out. In support of the bill, the California Postsecondary Education Commission stated that the Reform Act had “become a model for federal standards and other states, its regulation of private postsecondary education is a major improvement over the conditions that existed prior to its creation.” The bill was opposed by numerous schools that had been regulated by the CPPVE and who believed the Reform Act simply resulted in “costly overregulation over private institutions” that “discourages new schools from investing in California.”

AB 71 was signed into law extending the provisions of the Reform Act; however, the bill allowed the CPPVE to be repealed on its sunset date. In its place, the bill established a new Bureau for Private Postsecondary and Vocational Education (BPPVE) created within the Department of Consumer Affairs. The extension of the Reform Act transferred all of the CPPVE’s responsibilities for its implementation to the new BPPVE.

The creation of a new bureau, however, did not rectify concerns that the state was not appropriately overseeing private postsecondary schools. A 2000 audit of the Department of Consumer Affairs found that the BPPVE’s licensing process was “not prompt or consistent” and that its complaint resolution procedures were inadequate. Following a review by the recently established Joint Legislative Sunset Review Committee in 2002, the BPPVE was tasked with streamlining the Reform Act, making its regulatory processes more efficient, and improving its data collection and reporting systems.

In 2004, SB 1544 (Figueroa) was enacted to provide the BPPVE with an Enforcement Monitor to examine the bureau’s operations. The Enforcement Monitor’s resulting report stated that there had been a “twenty-year record of repeatedly identified, fundamental problems in every one of the Bureau’s key operations.” That year, Governor Arnold Schwarzenegger vetoed AB 711 (Correa), which would have added additional exempted schools to the Reform Act; in his veto message, the Governor stated that it “fell short of its objective to streamline functions of the Bureau.” In 2006, SB 1473 (Figueroa) was introduced to replace the Reform Act with new provisions within the Business and Professions Code and to recast the BPPVE; however, this bill was subsequently held on suspense.

That same year, legislation to extend the sunset on the Reform Act and the BPPVE was once again vetoed by the Governor. In his veto message, Governor Arnold Schwarzenegger commented that he “supported meaningful protections for students of California’s private postsecondary and vocational institutions” but that because SB 1473 failed to pass the Legislature, extending the sunset date on the BPPVE “does nothing to enhance protections for students, allows problems that have been well documented to continue to exist, and merely allows mediocrity for California’s students.” A second bill to extend the state’s regulation of private postsecondary schools through a modernization of the Reform Act, SB 823 (Perata), was also vetoed, and the Governor directed the Department of Consumer Affairs to take on the bureau’s oversight responsibilities while a better replacement for the Reform Act was negotiated.

Following the Governor’s vetoes, the Reform Act became inoperative on July 1, 2007 and the bureau was subjected to repealed. AB 1525 (Cook) was chaptered in 2007 to provide for a transition plan for business still pending before the BPPVE, and to give the Director of Consumer Affairs clear authority to take on the bureau’s responsibilities. That bill also created the Student Tuition Recovery Fund. Later bills extended some of AB 1525’s provisions.

In the years following the sunsetting of the BPPVE and the Reform Act, private postsecondary schools were subject to little or no oversight by the state. Finally, AB 48 (Portantino) was chaptered in 2009 to revive the state’s regulation of private postsecondary institutions. That bill reinstated the authority of the BPPVE, rebranded and recast as the BPPE, and established the California Private Postsecondary Education Act of 2009. The bill sought to institute a more efficient and effective oversight entity to carry out implementation of a stronger consumer protection act. The BPPE was ultimately restored full funding in late 2010.

The BPPE continues to be subject to significant scrutiny by the Legislature and advocates. SB 1247 (Lieu) was chaptered in 2014 to provide the BPPE with only a two year sunset extension before further review while making a number of reforms to the California Private Postsecondary Education Act. In the BPPE’s 2016 sunset review, staff outlined a number of ongoing issues relating to the operation of the bureau, ultimately providing no immediate recommendation as to whether the BPPE’s sunset should be extended and stating that “the Bureau has faced significant difficulties in implementing the law. It is important that California’s approval and oversight of an institution assures minimum quality and student protections.”

In 2016, the BPPE’s sunset date was again extended until January 1, 2021, with numerous reforms made in response to recent high-profile litigation and school closures. SB 1192 (Hill) established an Office of Student Assistance and Relief “for the purpose of advancing and promoting the rights of prospective students, current students, or past students of private postsecondary educational institutions.” The bill also expanded the BPPE’s authority to oversee out-of-state private postsecondary schools serving students in California, requiring registration and basic approval standards. Finally, the bill required approved institutions under investigation by entities other than the BPPE to report that investigation and its nature within 30 days.

The BPPE will next undergo sunset review in 2020. It is anticipated that the success of the new Office of Student Assistance and Relief and the effects of recent changes in management will be discussed, and the BPPE will be expected to demonstrate how it has improved its operates sufficiently to be a strong regulator on behalf of California students. Until then, the framework that has been put into place through careful oversight by the Legislature is cause for optimism that the BPPE is well-equipped to exercise its current responsibilities and expand into new opportunities for safeguarding the interests of Californians.

Criticism of For-Profit Colleges. Many educational programs run by for-profit entities offer coursework preparing students for careers not well served by nonprofit or public institutions. However the inherent profit motive behind these institutions’ stewardship of the societal values of higher education has long resulted in concern. This general apprehension about the capacity for certain private postsecondary schools to profit through the exploitation of vulnerable students has been the root purpose for regulation by the BPPE and its predecessors. The public prosecution and closure of various high-profile “bad actor” schools over the years has contributed substantially to the cause for furthering regulatory vigilance.

In 2016, California Attorney General Kamala D. Harris announced that a $1.1 billion judgment had at last been obtained against the long-vilified Corinthian Colleges, Inc. – which by that time had long closed down its campuses and filed for bankruptcy. The Attorney General’s complaint publicized how Corinthian, through its Everest, Heald, and Wyotech campuses, had for years made fraudulent statements to prospective students about job placement rates, available programs, and affiliation with the United States military.

The Attorney General’s complaint revealed that Corinthian had described its target demographic as “isolated,” “impatient,” individuals with “low self-esteem,” who have “few people in their lives who care about them” and who are “stuck” and “unable to see and plan well for future.” The average the average tuition for an associate’s degree at a Corinthian school was $40,000. Following the closure of Corinthian’s campuses, thousands of students were left with crippling debt without having received a quality education.

Corinthian is not regarded as being a rare exception in the world of for-profit education. In 2015, Marinello Schools of Beauty abruptly closed down campuses throughout California after the United States Department of Education cut off the institution’s access to federal student aid for “knowingly requesting federal aid for students based on invalid high-school diplomas, underawarding Title IV aid to students, charging students for excessive overtime.” In late 2018, another abrupt closure was announced by the Education Corporation of America (ECA) and its Brightwood College campuses following federal student aid restrictions and a notice from its accreditor that recognition for its campuses would be suspended.

Rollback of Federal Protections. During President Barack Obama’s second term, the White House announced that it was taking bold steps to increase federal oversight of for-profit colleges and protect students from predatory institutions. One such rule was the Department of Education’s “Gainful Employment” rule, which required colleges to track their students’ performance in the workforce after graduation. Under the Gainful Employment rule, career training programs that fail to adequately place graduates in jobs would be cut off from federal funding. This rule was intended to prevent for-profit colleges from overpromising job opportunities to students in exchange for saddling them with debt that they are subsequently unable to pay back.

By the end of President Obama’s second term, the Department of Education was robustly exercising its oversight and enforcement authority over the for-profit college sector. The Gainful Employment rule was challenged in court and was ultimately upheld in 2015, and the Department of Education ramped up its investigations into potentially problematic educational programs. However, in 2017, the Trump Administration took over the White House, and almost immediately began to reverse the progress that the Obama Administration was considered to have made.

According to recent reporting by the New York Times, an active investigation by the Department of Education into a large chain of private postsecondary schools was essentially halted after President Trump’s Secretary of Education, Betsy DeVos, named a former dean of that school as supervisor of the investigation team. Other individuals with prior affiliations with for-profit schools have also been appointed to senior positions within the Department. Reports indicate that the for-profit college investigation team has been curtailed from approximately a dozen attorneys and investigators to just three.

In addition to scaling back of investigations, Secretary DeVos announced the Department of Education’s intention to roll back several Obama-era regulations impacting higher education. In October 2017, Attorney General Xavier Becerra signed onto a multistate against the Department of Education for illegally delaying the implementation of the Gainful Employment Rule, in violation of the Administrative Procedure Act. In August 2018, a Notice of Proposed Rulemaking was announced to formally rescind the Gainful Employment rule.

An October 2018 CalMatters article titled California’s for-profit college watchdog fails to police as feds back down stated that “as the Trump administration pulls back from regulating the sector, consumer advocates argue, the states’ role becomes even more critical.” The article identifies the BPPE as the entity best suited to take on the oversight responsibilities that Secretary DeVos has taken steps to abdicate. The article does recognize that BPPE’s historical shortcomings—including its complaint backlogs—represent a challenge to effectuating new requirements. However, recent displays of progress with the BPPE showcase a bureau whose leadership is up to the task of regulating institutions through a student-centered approach, and inheriting responsibility for the Obama Administration’s protections in California may be an ideal fit.

Recruitment Tactics. Because the financial motivations of for-profit colleges often result in aggressive efforts to secure a growth in student enrollment, many institutions have been accused of taking whatever steps are possible to enroll more tuition-paying students. The example of the Corinthian Colleges litigation reveals how some institutions employ unscrupulous tactics to convince vulnerable populations to enroll in courses. This problem is exacerbated when schools compensate recruiters who are themselves financially motivated to enroll as many students as possible through bounty or commission-style compensation schemes.

The National Association for College Admissions Counseling’s Principles of Good Practice features a ban on commission-paid recruiting. The policy states that member institutions will not offer or accept any reward or remuneration from a secondary school, college, university, agency, or organization for placement or recruitment of students in the United States. The policy further states that members will be compensated in the form of a fixed salary, rather than commissions or bonuses based on the number of students recruited, and will not contract with secondary school personnel for remunerations for referred students.

The California Private Postsecondary Education Act already prohibits certain types of recruitment compensation, including payment based on commission, commission draw, bonus, quota, or similar methods. This bill would enhance those restrictions to broaden the prohibited modes of compensation. It is the author’s belief that doing so would further deter school recruitment practices from preying unethically upon students who are not best served by enrolling in a program.

Current Related Legislation. AB 1340 (Chiu) would recodify in state law the federal Gainful Employment rule so that it may be enforced by the BPPE. This bill is pending in the Assembly Business and Professions Committee.

AB 1341 (Berman) would clarify that an institution of higher education is only exempt from the requirements imposed on out-of-state institutions if it meets the definition of a nonprofit corporation or public institution. This bill is pending in the Assembly Business and Professions Committee.

AB 1342 (Low) would require the Attorney General’s review and approval for any sale of a nonprofit educational institution to a for-profit entity. This bill is pending in the Assembly Judiciary Committee.

AB 1343 (Eggman) would prohibit a private postsecondary educational institution from enrolling residents of California, unless the institution meets either the requirement that no more than 85 percent of the institution’s tuition revenue is derived from student financial aid and loans, or not less than 50% of the institution’s tuition revenue is dedicated to student instruction. This bill is pending in the Assembly Business and Professions Committee.

AB 1344 (Bauer-Kahan) would increase the BPPE’s oversight over out-of-state private postsecondary educational institutions operating online. This bill is pending in the Assembly Business and Professions Committee.

AB 1346 (Medina) would expand the definition of economic loss, as it pertains to the Student Tuition Recovery Fund. This bill is pending in the Assembly Appropriations Committee.

Prior Related Legislation. SB 1192 (Hill, Chapter 593, Statutes of 2016) extended the operation of the BPPE and established the Office of Student Assistance and Relief.

AB 1619 (Berman) of 2017 would have required the BPPE to prohibit institutions from enrolling new students in an educational program that receives a fail rating for two out of three consecutive years, or receives a combination of zone or fail ratings for four consecutive years, based on the federal debt-to-earnings rates. The provisions in this bill were ultimately replaced with provisions dealing with a different topic.

AB 1611 (McCarty) of 2017 would have required certain debt-dependent programs to submit information to the BPPE upon the repeal or suspension of specified federal regulations. This bill was held under submission on the Assembly Appropriations Committee’s suspense file.

ARGUMENTS IN SUPPORT:

The Institute for College Access & Success (TICAS) supports this bill. According to TICAS, “restrictions on the ways in which recruiters can and cannot be paid can help prevent these abuses, but current rules are not strong enough. Current California law includes an exemption for schools that are subject to the federal rule, undermining the value of a state-specific rule. California can better protect students by creating its own, broader prohibition on colleges paying marketers in ways that reward deception. AB 1345 will accomplish this by closing existing loopholes in state law.”

ARGUMENTS IN OPPOSITION:

The California Association of Private Postsecondary Schools (CAPPS) opposes the bill. CAPPS states that “unfortunately, as currently written, the bill contains a number of definitional flaws that make the bill unworkable. Not to mention, Federal and State law already address the concerns this bill attempts to resolve.” CAPPS argues that “at best this bill is written incorrectly and was not intended to capture so many individuals and everyday activities. If this language was intended, it is an unprecedented attempt to micromanage an institution’s ability to compensate their employees and contractors.”

REGISTERED SUPPORT:

California Association of Veteran Service Agencies
California Low-Income Consumer Coalition
Center for Public Interest Law
The Century Foundation
Children’s Advocacy Institute
Consumer Federation of California
Consumer Reports
Housing and Economic Rights Advocates
The Institute for College Access and Success
Public Advocates
Public Counsel
Public Law Center
Service Employees International Union
Veterans Education Success
Veterans Legal Clinic

REGISTERED OPPOSITION:

California Association of Private Postsecondary Schools
Ember Education
Professional Beauty Federation of California

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301

Date of Hearing: April 9, 2019

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 1345 (

Author:McCarty) – As Introduced Ver:February 22, 2019

[Note: This bill is doubled referred to the Assembly Committee on Business and Professions and will be heard by that Committee as it relates to issues under its jurisdiction.]

SUBJECT: Private postsecondary education: California Private Postsecondary Education Act of 2009

SUMMARY: Prohibits an institution from providing financial incentives to any person, including a student, involved in student recruitment, enrollment, continued enrollment, admission, or attendance, or involved in awarding of financial aid based on the enrollment of a student, or in the sales of any education materials, based on succeeding in those activities, as specified. Specifically, this bill:

1. Defines “financial aid” to mean any loan, grant, or award that is based on the enrollment of a student, provided by a federal or state government program, provided or arranged by the institution, or provided by or arranged by an entity to which the student was referred by the institution.
2. Specifies that a private postsecondary institution shall not compensate, condition a contract or any benefit under a contract with, or condition the employment of any person involved in student recruitment, enrollment, continued enrollment, admissions, or attendance, or involved in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student by means of a commission, commission draw, bonus, quota system, or other incentive payment based in any part, directly or indirectly, on success in student recruitment, enrollment, continued enrollment, admissions, or attendance, or success in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student.
3. Deletes provisions authorizing an institution will to offer to compensate a student to act as an agent of the institution with regard to the solicitation, referral, or recruitment of any person for enrollment in the institution, except that an institution may award a token gift to a student for referring an individual, provided that the gift is not in the form of money, no more than one gift is provided annually to a student, and the gift’s cost is not more than one hundred dollars ($100).
4. Deletes a specific reference to the compensation of employees involved in recruitment and enrollment on the basis of commission, quota, bonus, or a similar method, and removes exemptions regarding completion and federal aid.

EXISTING LAW:

1. Establishes the California Private Postsecondary Education Act of 2009 (Act) until January 1, 2021, and requires BPPE, within the Department of Consumer Affairs (DCA) to, in part, review, investigate and approve private postsecondary institutions (or institutions), programs and courses of instruction pursuant to the Act and authorizes BPPE to take formal actions against an institution/school to ensure compliance with the Act and even seek closure of an institution/school if determined necessary. The Act requires unaccredited degree granting institutions to be accredited by an accrediting agency recognized by the U.S. Department of Education (USDE) by 2020. The Act also provides for specified disclosures and enrollment agreements for students, requirements for cancellations, withdrawals and refunds, and that the BPPE shall administer the STRF to provide refunds to students affected by the possible closure of an institution/school. (Education Code (EDC) Section 94800 et. seq.)
2. Prohibits certain types of conduct by regulated for-profit institutions, including offering to compensate a student to act as an agent of the institution for the purposes of enrollment or recruitment of students, except as specified, and compensating an employee involved in recruitment and enrollment on the basis of commission, quota, bonus, or a similar method, as specified. (EDC Section 94897)

FISCAL EFFECT: Unknown

COMMENTS: Need for the bill. According to the author, “Almost every abuse by the highest profile for-profits originates with high-pressure sales tactics motivated by bounties paid to salespeople for enrolling students, no matter whether the student is or is not prepared to succeed in the school. These recruiters are taught to target veterans, students of color and students from underprivileged backgrounds, and then are financial rewarded for their work based on how many students they recruit, and sometimes, the amount of tuition they get students to sign-up and pay for.”

“Commission-paid salespeople in the for-profit college setting are more likely to lie to consumers in order to get the sale. Further, non-profits such as Ashford University consistently discipline and terminate admissions counselors for failing to meet enrollment quotas according to an Attorney General complaint. Punishments enacted by managers at Ashford University include forcing admissions counselors to stand at their desks until obtaining a prospective student and dangling the key cards of terminated employees collected on a key ring in front of current employees as a reminder of their prospective fates in the event that enrollment quotas are not met.”

“California law already strives to ban kickbacks, but loopholes and exemptions have weakened the law to the point of ineffectiveness. The loopholes include permitting students to be given “token gifts” for recruiting students; having anti-kickback prohibitions apply only to employees and not to independent contractors; and relying on federal bans on such compensation. Simply deleting the loopholes and exemptions will go a long way to eliminating the front-end, admissions, financial incentives that have caused so many ruined California lives.”

Background. The Center for Responsible Lending (CRL) released their college scorecard in January of 2019. The CRL’s scorecard, an update from their 2017 State of the For-Profits project, analyzed data from the fall 2018 release of the College Scorecard by the USDE. An assessment of California undergraduates found:

1. 54.3% low-income enrollment at for-profit colleges, compared to 33.1% for all nonprofit undergraduate institutions in the state.
2. 15% African American enrollment at for-profit colleges, compared to 5.4% African Americans for all nonprofit undergraduate institutions.
3. 63% female enrollment compared to 54% at all nonprofit institutions in California.
4. 36.6% completion rate in six years at for-profit colleges in California, compared to a 63.3% at public universities and a 64.4% completion rate at nonprofit institutions.
5. 64.8% students borrowing at for-profit colleges, compared to 38.7 percent at public universities and 53.7% at nonprofit institutions.
6. $31,345 dollar median graduation debt at for-profit institutions, compared to $16,136 dollar median debt at public institutions and $23,565 at nonprofit institutions.
7. 10.1% loan default rate at for-profit, compared to a 4.2% default rate at public institutions and a 4.5% rate at nonprofit institutions.

The Brookings Institution conducted a study on student loan default in January of 2018, analyzing new data on student debt and repayment released by the USDE in October 2017. Previously available data was limited to borrowers only, followed students for a relatively short period (three to five years) after entering repayment, and had only limited information on student characteristics and experiences. The 2017 data allowed a comprehensive assessment of student debt and default from the moment first-time students enter college, to when they are repaying loans up to 20 years later, for two cohorts of first-time entrants (in 1995-96 and 2003-04). Among the report’s findings were:

1. Trends for the 1996 entry cohort show that cumulative default rates continue to rise between 12 and 20 years after initial entry. Applying these trends to the 2004 entry cohort suggests that nearly 40 percent of borrowers may default on their student loans by 2023.
2. The new data show the importance of examining outcomes for all entrants, not just borrowers, since borrowing rates differ substantially across groups and over time. For example, for-profit borrowers default at twice the rate of public two-year borrowers (52 percent versus 26 percent after 12 years), the rate of default among all for-profit entrants is nearly four times that of public two-year entrants (47 percent versus 13 percent).
3. Trends over time are most alarming among for-profit colleges; out of 100 students who started college at a for-profit, 23 defaulted within 12 years of starting college in the 1996 cohort compared to 43 in the 2004 cohort (compared to an increase from just 8 to 11 students among entrants who never attended a for-profit).

Best practices. The National Association for College Admissions Counseling (NACAC) includes the ban on commission-paid recruiting in its mandatory Principles of Good Practice. The policy states that member institutions will not offer or accept any reward or remuneration from a secondary school, college, university, agency, or organization for placement or recruitment of students in the United States. The policy further states that members will be compensated in the form of a fixed salary, rather than commissions or bonuses based on the number of students recruited, and will not contract with secondary school personnel for remunerations for referred students

Arguments in support. A coalition representing student, veteran, civil rights, and higher education advocates jointly wrote in support of AB 1345, writing that, “…California has a troubled history with predatory programs taking advantage of students by misrepresenting student outcomes and making promises they could not keep in order to persuade them to enroll. Although perhaps the most notorious example in California’s history was the now-closed Corinthian Colleges, students are still being harmed by these practices. For example, in its current case against Ashford University, the California Attorney General quotes an admissions supervisor who said, ‘I had worked in the sales industry for many years. But Ashford had the most aggressive sales floor I have ever seen.’ Recruiters were forced to stand at their desks if they missed their targets, and one manager ‘even saved the key cards of terminated Admissions staff on a keyring, which she rattled in front of reports to remind them of their obligations to hit their metrics or else.’”

“Restrictions on the ways in which recruiters can and cannot be paid can help prevent these abuses, but current rules are not strong enough. Current California law includes an exemption for schools that are subject to the federal rule, undermining the value of a state-specific rule. California can better protect students by creating its own, broader prohibition on colleges paying marketers in ways that reward deception. AB 1345 will accomplish this by closing existing loopholes in state law.”

Arguments in opposition. The California Association of Private Postsecondary Schools (CAPPS) writes that AB 1345, “….removes the federally approved non-monetary gift allowance (no more than $100 dollars in value) which was created to resolve conflict situations such as providing lunch for students who voluntarily help with school functions such as job fairs and other functions. Striking this provision when there are no reported issues from any State or Federal oversight regarding any abuse of this section is both puzzling and illogical.”

“Current California (and federal law) makes it illegal to compensate an employee based on their

admission / recruitment success. This is outlined specifically in Education Code 94897… that regulates private postsecondary schools under the BPPE. It’s unclear to our members why this existing law doesn’t satisfy the concerns of the author and sponsors.”

“AB 1345 in 94897(m) broadens the current definitions to prohibit ‘any benefit’ for ‘any person’ that is involved in the schools’ ‘recruitment’, ‘enrollment’, ‘continued enrollment’ and ‘attendance.’ Using these broad definitions, a school could not compensate a third-party company who helps market a school. A school could not compensate any employee for ensuring students stay in school and graduate. A school could not provide a retirement benefit for employees who have a role in the items listed above. This bill goes on to state that no ‘incentive payment’ may be provided to ‘any person’ if that person is ‘directly or indirectly’ involved in ‘student recruitment’, ‘continuing enrollment’, ‘attendance’ and other items. Again, these definitions could capture nearly every employee and/or contractor.”

Committee comments. Opposition concerns regarding the drafting of Section 94897(m) highlight problems with making elements of (m) based, “…directly or indirectly, on success…” The committee recommends the following amendments to clarify that Section 94897(m) is based upon preventing institutions from placing contingencies upon their employees. The recommended amendments read:

m) Compensate, condition a contract or any benefit under a contract with, or condition the employment of any person involved in student recruitment, enrollment, continued enrollment, admissions, or attendance, or involved in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student, directly or indirectly, by means of a commission, commission draw, bonus, quota system, or other incentive payment based in any part, directly or indirectly, on success in student, or other similar method contingent upon, recruitment, enrollment, continued enrollment, admissions, or attendance, or success in awarding financial aid based on the enrollment of a student, or in sales of any educational materials to a student.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Veteran Service Agencies
California Conference of the American Association of University Professors
California Low-Income Consumer Coalition
Center for Public Interest Law
Children's Advocacy Institute
Consumer Federation of California
Consumer Reports Advocacy
Housing and Economic Rights Advocates
Public Advocates, Inc.
Public Counsel
Public Law Center
SEIU California
The Century Foundation
The Institute for College Access and Success
Veterans Education Success
Veterans Legal Clinic

Opposition

California Association of Private Postsecondary Schools

Analysis Prepared by: Kevin J. Powers / HIGHER ED. / (916) 319-3960