Date of Hearing: May 15, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1346

Author:(Medina) – As Amended Ver:April 01, 2019

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

SUMMARY:

This bill expand 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. It also expands eligibility to certain students enrolled at Corinthian Colleges Inc. (CCI).

FISCAL EFFECT:

Yes

COMMENTS:

1. Purpose. According to the author:

STRF’s definition of “economic loss” is unjustly narrow and prevents students from recovering the true cost of their loss …AB 1346 will expand the definition of “economic loss” to allow students to recover losses beyond tuition expenses, including housing, transportation, and childcare, as well as any expenses incurred by the student as a result of the closed school, such as transcript fees or the cost of services related to debt relief. This way, these students won’t be subject to demoralizing debt collection and lawsuits from private student loan collectors for a worthless education. To recover these losses, AB 1346 will require the student to show that the non-tuition expenses were related to attendance at the private for-profit school that closed, by providing documentation of such expenses.

1. Background. The BPPE was created in 2009 under the Department of Consumer Affairs to oversee most of the state’s private postsecondary schools, including nationally accredited schools, unaccredited schools and various specialized schools. The BPPE was charged with ensuring minimum educational quality standards, providing students with an effective complaint resolution process and preventing public deception associated with fraudulent or substandard degrees. The BPPE also is tasked with administering the STRF, which may provide refunds for economic loss to students affected by the closure of an institution.

STRF was traditionally funded by a fee private institutions would collect from resident students. The amount of the fee is designated in the California Code of Regulations, Section 76120, and currently is set at $0. Current law requires the amount in the STRF is not to exceed $25 million at any time and if the fund reaches that limit, required the BPPE to stop collecting STRF fees. As of January 2019, the balance of the STRF is about $26 million.

A student paying the fee also is eligible to access STRF refunds for economic loss resulting from the closure of an institution. Current law defines economic loss, for the purposes of STRF, to include the sum of the student’s tuition, all other institutional charges, the cost of equipment and materials required for the educational program and interest on any student loan used to pay for such charges.

This bill expands the definition of economic loss such that potentially more STRF funds may be accessed by students and adds a group of CCI students formerly unable to access the funds.

Most students affected by recent school closures have access to the fund; however, a group of CCI students who enrolled between 2010 and 2014 and attended CCI’s Heald College and distance education courses are not eligible. This bill extends STRF eligibility to this group.

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) recodifies 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) clarifies 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) requires 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) prohibits 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) increases the BPPE’s oversight over out-of-state private postsecondary institutions operating online. The bill is pending in this committee.

AB 1345 (McCarty) prohibits a private postsecondary school from providing financial incentives or compensation to their employees, directly or indirectly, for student recruitment, enrollment, admissions, attendance, financial aid or sales of educational materials. The bill passed out of this committee on May 1, 2019.

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

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1346

Author:(Medina, et al.)

As Amended Ver:September 6, 2019

Majority vote

SUMMARY:

This bill expands the definition of economic loss to include all cash or other consideration paid by the student to an institution, all expenses related to private or government student loans in connection with the student's attendance, and all third-party payments paid to the student or to the institution in connection with the student's attendance at the institution, as specified, and expands Student Tuition Recovery Fund (STRF) eligibility to students residing in California and attending a campus of a Corinthian Colleges, Inc. (CCI), institution on or after January 1, 2010 and who would be eligible but for the Corinthian College's exemption from the act, or a student of a Corinthian College who was enrolled as of June 20, 2014, or withdrew within 120 days of that date, as specified.

The Senate Amendments:

Senate amendments clarified the definition of "economic loss," and made clarifications to CCI student eligibility.

COMMENTS:

CCI institutions offered a range of programs, including 8-12 month certificate programs, with tuition and fees that from $13,100-$21,338, 24-month associate's degree programs with tuition and fees that ranged from $33,120 and $42,820, and bachelor's degree programs that were between $60,096 and $75,384. According to a 2014 complaint filed by the Consumer Financial Protection Bureau (CFPB), most students attending CCI were low-income, or the first in their families to seek an education beyond high school. In 2012, CCI reported that 85% of its students had family incomes of less than $45,000 a year. An estimated 57% of CCI students had household incomes of $19,000 or less, and 35% of CCI students had a household income of less than $10,000.

Most students attending CCI received federal financial aid; according to CCI's filing with the Securities and Exchange Commission (SEC), CCI received 84.8% of net revenue from federal financial aid. According to the allegations in a CFPB complaint, in order to meet the 90/10 rule, CCI increased tuition in order to create "funding gaps" so that students would be required to take out private loans to pay for their education. CCI offered students the company's own "Genesis" loans to cover the funding gaps. According to CFPB, by 2014 the outstanding balance of Genesis loans totaled $560 million.

According to the Author:

According to the author, "STRF's definition of 'economic loss' is unjustly narrow and prevents students from recovering the true cost of their loss. Currently, the definition of "economic loss" is limited to tuition, books, and other charges paid directly to the school. AB 1346 will expand the definition of 'economic loss' to allow students to recover losses beyond tuition expenses…this way, these students won't be subject to demoralizing debt collection and lawsuits from private student loan collectors for a worthless education. To recover these losses, AB 1346 will require the student to show that the non-tuition expenses were related to attendance at the private for-profit school that closed, by providing documentation of such expenses."

Arguments in Support:

A coalition representing student, veteran, civil rights, and higher education advocates jointly wrote that, "Californians have been disproportionately affected by the sudden closure of schools including CCI, Westwood College, Marinello Schools of Beauty, ITT Technical Institute, and most recently Brightwood Colleges. California's STRF program is designed to protect and assist students who have been harmed in the event of a school closure. The intent of STRF is to allow the student to recover the economic losses they have suffered due to the negligence of the school, but the amount is currently limited to the cost of tuition and institutional costs."

"The true cost of attendance, as defined under federal law, far exceeds the cost of tuition and institutional costs. By limiting the definition of 'economic loss' to tuition and other direct costs of enrollment, STRF fails to recognize much of the financial harm students have experienced. Many of the students targeted by for-profit colleges are first-generation college students, single parents, foster youth, and veterans – groups that are ill-positioned to absorb such a loss and that are particularly harmed by an insufficient safety net…Giving harmed Californians a fresher start would better position them to restart their college educations at a more reputable school, in order to earn the college credentials needed by them and the state."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

According to the Senate Appropriations Committee, BPPE would require a total of eight positions, as well as associated costs of $1.2 million for the first year, $1.04 million for the second year, and $600,000 ongoing, to update regulations, application forms, and outreach programs, and to expand workshops for STRF.

VOTES:

ASM HIGHER EDUCATION: 12-0-0

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

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ASSEMBLY FLOOR: 77-0-3

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Cooley, Eduardo Garcia, Patterson

SENATE FLOOR: 40-0-0

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dahle, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

UPDATED:

VERSION: September 6, 2019

CONSULTANT: Kevin J. Powers / HIGHER ED. / (916) 319-3960 FN: 0002330

 THIRD READING  

Bill No: AB 1346

Author: Medina (D), Bauer-Kahan (D), Berman (D), Chiu (D), Eggman (D), Low (D) and McCarty (D), et al.

Amended: 9/6/19 in Senate

Vote: 21

SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 7/1/19

AYES: Glazer, Archuleta, Dodd, Galgiani, Hill, Leyva, Pan, Wilk

NO VOTE RECORDED: Chang

SENATE EDUCATION COMMITTEE: 7-0, 7/10/19

AYES: Leyva, Wilk, Chang, Durazo, Glazer, McGuire, Pan

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/30/19

AYES: Portantino, Bates, Bradford, Durazo, Hill, Jones, Wieckowski

ASSEMBLY FLOOR: 77-0, 5/22/19 - See last page for vote

SUBJECT: Postsecondary education: California Private Postsecondary Education Act of 2009: Student Tuition Recovery Fund

SOURCE: Legal Aid Foundation of Los Angeles

The Institute for College Access and Success

DIGEST:

This bill expands 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 expands Student Tuition Recovery Fund (STRF) eligibility to students residing in California and attending a campus of a Corinthian Colleges, Inc. (CCI), institution on or after January 1, 2010.

Senate Floor Amendments of 9/6/19 make technical clarifications and remove chaptering conflicts

ANALYSIS:

Existing law:

1. Establishes the STRF, administered by the Bureau for Private Postsecondary Education (BPPE), to relieve or mitigate economic loss suffered by students enrolled at a non-exempt private postsecondary education institution due to the institutions' closure, the institutions' failure to pay refunds or reimburse loan proceeds, or the institutions' failure to pay students' restitution award for a violation of the Private Postsecondary Education Act (Act). Provides that the STRF shall not exceed $25 million. Institutions are required to assess students an amount established in regulation by BPPE and remit fund to BPPE for STRF. In 2010, that amount was established at $2.50 per $1000 of tuition charged. In 2013, that amount was reduced to $0.50 per $1000. In 2015, this amount was reduced to $0.00, as the STRF had exceeded the statutory cap (STRF is currently at approximately $28 million). (EC §§ 94923 – 94925)
2. Defines “economic loss”, for purposes of STRF, as the sum of the student’s tuition, all other institutional charges, the cost of equipment and materials required for the educational program, interest on any student loan used to pay for such charges, collection costs, penalties, and any license or examination fees the student paid to the institution but is unable to recover. Economic loss shall also include the amount the institution collected and failed to pay to third parties on behalf of the student for license fees or any other purpose. Economic loss does not include STRF assessments, unless the student is entitled to a full, room and board, supplies, transportation, application fees, or nonpecuniary damages such as inconvenience, aggravation, emotional distress, or punitive damages. Economic loss does not include legal fees, attorney fees, court costs, or arbitration fees. Authorizes BPPE to further define “economic loss” to include loss of educational opportunity. (EC § 94923 (f))
3. Specifies various disclosure and reporting requirements around completion, placement, licensure and salary of students/graduates and establishes various definitions for this purpose. Requires that the information used to substantiate the reported job placement, license passage, and completion rates be documented and maintained by the institution for five years from the date of the publication of the rates and authorizes this information to be retained by the institution in an electronic format. Requires institutions to submit an annual report to BPPE that includes specified information. (EC §§ 94928-94929.9)

This bill expands 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 expands STRF eligibility to expands eligibility to students residing in California and attending a campus of a CCI, institution on or after January 1, 2010.

Background

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. 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. 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. 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-BPPE’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.

Corinthian Colleges, Inc. CCI institutions offered a range of programs, including 8-12 month certificate programs, with tuition and fees that from $13,100-$21,338, 24-month associate's degree programs with tuition and fees that ranged from $33,120 and $42,820, and bachelor's degree programs that were between $60,096 and $75,384. According to a 2014 complaint filed by the Consumer Financial Protection Bureau (CFPB), most students attending CCI were low-income, or the first in their families to seek an education beyond high school. In 2012, CCI reported that 85% of its students had family incomes of less than $45,000 a year. An estimated 57% of CCI students had household incomes of $19,000 or less, and 35% of CCI students had a household income of less than $10,000.

Most students attending CCI received federal financial aid; according to CCI’s filing with the Securities and Exchange Commission (SEC), CCI received 84.8% of net revenue from federal financial aid. According to the allegations in a CFPB complaint, in order to meet the 90/10 rule, CCI increased tuition in order to create “funding gaps” so that students would be required to take out private loans to pay for their education. CCI offered students the company’s own “Genesis” loans to cover the funding gaps. According to CFPB, by 2014 the outstanding balance of Genesis loans totaled $560 million.

CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015.

Due to broad exemptions in the Act, over 13,000 students enrolled in Heald College (owned by CCI) at the time of the institution’s unlawful closure were not eligible for STRF. Further, as a result of the requirement in the Act that schools under BPPE oversight have a physical presence in the state, a number of California students enrolled in Everest Online (owned by CCI but housed outside of California) were not eligible for STRF.

SB 1192 (Hill, Chapter 593, Statutes of 2016) made several modifications to the STRF in response to lessons learned from the closure of CCI schools, and also provided that a student who was enrolled at a California campus of CCI, or was a California student enrolled in an online program offered by an out-of-state campus of a CCI institution, who also meets all of the other eligibility requirements, if the student was enrolled as of June 20, 2014, is eligible for STRF.

In March 2016, the California Attorney General (AG) obtained a default judgment for illegal and deceptive business practices against CCI that provides for $820 million in restitution to all California residents who attended any CCI college on or after January 1, 2010. The AG, however, was not able to collect and pay this restitution to students, due to CCI’s bankruptcy. As a result, all CCI students covered by this judgment are now eligible for relief under STRF, except for Heald College and distance education students who enrolled before June 20, 2014. AB 1346 expands the STRF eligibility for CCI students who were residing in California and attending a campus of a CCI institution on or after January 1, 2010.

FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, BPPE would require a total of eight positions, as well as associated costs of $1.2 million for the first year, $1.04 million for the second year, and $600,000 ongoing, to update regulations, application forms, and outreach programs, and to expand workshops for STRF.

SUPPORT: (Verified 9/6/19)

Legal Aid Foundation of Los Angeles (co-source)

The Institute for College Access and Success (co-source)

CA-AAUP

California Community Colleges Chancellor's Office

California Faculty 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

National Student Legal Defense Network

NextGen California

Public Advocates, Inc.

Public Counsel

Public Law Center

SEIU California

The Century Foundation

Veterans Education Success

Veterans Legal Clinic

OPPOSITION: (Verified 9/6/19)

None received

ARGUMENTS IN SUPPORT: 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, Inc., Consumer Reports Advocacy, California Low-Income Consumer Coalition, Veterans Legal Clinic, Public Counsel, SEIU California, the Century Foundation, NextGen California, and Veterans Education Success, write in support of AB 1346, stating, “Giving harmed Californians a fresher start would better position them to restart their college educations at a more reputable school, in order to earn the college credentials needed by them and the state.”

The Legal Aid Foundation of Los Angeles argues that “the costs of attending college far exceed the costs of tuition and books. Being a full-time student is a full-time job, requiring not only a sacrifice of time, but also other associated expenses, including housing, child care, and transportation. These costs often cannot be met by federal financial aid alone, requiring students to take on additional private student loans or pay out-of-pocket in order to cover all of the costs necessary for school. In addition, many of these students quit their jobs to attend school full-time, or forego other career opportunities.

“They are deserving of more complete financial relief from STRF. This bill would ensure that borrowers eligible for STRF receive more complete financial relief by amending the definition of ‘economic loss’ to include ALL student loans, private and federal; all cash paid by the student; and all third-party and government funding, regardless of whether those funds were paid directly to the school.”

ASSEMBLY FLOOR: 77-0, 5/22/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Cooley, Eduardo Garcia, Patterson

Prepared by: Sarah Mason / B., P. & E.D. /

9/9/19 18:40:17

**** END ****

 THIRD READING  

Bill No: AB 1346

Author: Medina (D), Bauer-Kahan (D), Berman (D), Chiu (D), Eggman (D), Low (D) and McCarty (D), et al.

Amended: 4/1/19 in Assembly

Vote: 21

SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 7/1/19

AYES: Glazer, Archuleta, Dodd, Galgiani, Hill, Leyva, Pan, Wilk

NO VOTE RECORDED: Chang

SENATE EDUCATION COMMITTEE: 7-0, 7/10/19

AYES: Leyva, Wilk, Chang, Durazo, Glazer, McGuire, Pan

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/30/19

AYES: Portantino, Bates, Bradford, Durazo, Hill, Jones, Wieckowski

ASSEMBLY FLOOR: 77-0, 5/22/19 - See last page for vote

SUBJECT: Postsecondary education: California Private Postsecondary Education Act of 2009: Student Tuition Recovery Fund

SOURCE: Legal Aid Foundation of Los Angeles

The Institute for College Access and Success

DIGEST:

This bill expands 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 expands Student Tuition Recovery Fund (STRF) eligibility to students residing in California and attending a campus of a Corinthian Colleges, Inc. (CCI), institution on or after January 1, 2010.

ANALYSIS:

Existing law:

1. Establishes the STRF, administered by the Bureau for Private Postsecondary Education (BPPE), to relieve or mitigate economic loss suffered by students enrolled at a non-exempt private postsecondary education institution due to the institutions' closure, the institutions' failure to pay refunds or reimburse loan proceeds, or the institutions' failure to pay students' restitution award for a violation of the Private Postsecondary Education Act (Act). Provides that the STRF shall not exceed $25 million. Institutions are required to assess students an amount established in regulation by BPPE and remit fund to BPPE for STRF. In 2010, that amount was established at $2.50 per $1000 of tuition charged. In 2013, that amount was reduced to $0.50 per $1000. In 2015, this amount was reduced to $0.00, as the STRF had exceeded the statutory cap (STRF is currently at approximately $28 million). (EC §§ 94923 – 94925)
2. Defines “economic loss”, for purposes of STRF, as the sum of the student’s tuition, all other institutional charges, the cost of equipment and materials required for the educational program, interest on any student loan used to pay for such charges, collection costs, penalties, and any license or examination fees the student paid to the institution but is unable to recover. Economic loss shall also include the amount the institution collected and failed to pay to third parties on behalf of the student for license fees or any other purpose. Economic loss does not include STRF assessments, unless the student is entitled to a full, room and board, supplies, transportation, application fees, or nonpecuniary damages such as inconvenience, aggravation, emotional distress, or punitive damages. Economic loss does not include legal fees, attorney fees, court costs, or arbitration fees. Authorizes BPPE to further define “economic loss” to include loss of educational opportunity. (EC § 94923 (f))
3. Specifies various disclosure and reporting requirements around completion, placement, licensure and salary of students/graduates and establishes various definitions for this purpose. Requires that the information used to substantiate the reported job placement, license passage, and completion rates be documented and maintained by the institution for five years from the date of the publication of the rates and authorizes this information to be retained by the institution in an electronic format. Requires institutions to submit an annual report to BPPE that includes specified information. (EC §§ 94928-94929.9)

This bill expands 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 expands STRF eligibility to expands eligibility to students residing in California and attending a campus of a CCI, institution on or after January 1, 2010.

Background

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. 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. 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. 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-BPPE’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.

Corinthian Colleges, Inc. CCI institutions offered a range of programs, including 8-12 month certificate programs, with tuition and fees that from $13,100-$21,338, 24-month associate's degree programs with tuition and fees that ranged from $33,120 and $42,820, and bachelor's degree programs that were between $60,096 and $75,384. According to a 2014 complaint filed by the Consumer Financial Protection Bureau (CFPB), most students attending CCI were low-income, or the first in their families to seek an education beyond high school. In 2012, CCI reported that 85% of its students had family incomes of less than $45,000 a year. An estimated 57% of CCI students had household incomes of $19,000 or less, and 35% of CCI students had a household income of less than $10,000.

Most students attending CCI received federal financial aid; according to CCI’s filing with the Securities and Exchange Commission (SEC), CCI received 84.8% of net revenue from federal financial aid. According to the allegations in a CFPB complaint, in order to meet the 90/10 rule, CCI increased tuition in order to create “funding gaps” so that students would be required to take out private loans to pay for their education. CCI offered students the company’s own “Genesis” loans to cover the funding gaps. According to CFPB, by 2014 the outstanding balance of Genesis loans totaled $560 million.

CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015.

Due to broad exemptions in the Act, over 13,000 students enrolled in Heald College (owned by CCI) at the time of the institution’s unlawful closure were not eligible for STRF. Further, as a result of the requirement in the Act that schools under BPPE oversight have a physical presence in the state, a number of California students enrolled in Everest Online (owned by CCI but housed outside of California) were not eligible for STRF.

SB 1192 (Hill, Chapter 593, Statutes of 2016) made several modifications to the STRF in response to lessons learned from the closure of CCI schools, and also provided that a student who was enrolled at a California campus of CCI, or was a California student enrolled in an online program offered by an out-of-state campus of a CCI institution, who also meets all of the other eligibility requirements, if the student was enrolled as of June 20, 2014, is eligible for STRF.

In March 2016, the California Attorney General (AG) obtained a default judgment for illegal and deceptive business practices against CCI that provides for $820 million in restitution to all California residents who attended any CCI college on or after January 1, 2010. The AG, however, was not able to collect and pay this restitution to students, due to CCI’s bankruptcy. As a result, all CCI students covered by this judgment are now eligible for relief under STRF, except for Heald College and distance education students who enrolled before June 20, 2014. AB 1346 expands the STRF eligibility for CCI students who were residing in California and attending a campus of a CCI institution on or after January 1, 2010.

FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, BPPE would require a total of eight positions, as well as associated costs of $1.2 million for the first year, $1.04 million for the second year, and $600,000 ongoing, to update regulations, application forms, and outreach programs, and to expand workshops for STRF.

SUPPORT: (Verified 8/30/19)

Legal Aid Foundation of Los Angeles (co-source)

The Institute for College Access and Success (co-source)

CA-AAUP

California Community Colleges Chancellor's Office

California Faculty 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

National Student Legal Defense Network

NextGen California

Public Advocates, Inc.

Public Counsel

Public Law Center

SEIU California

The Century Foundation

Veterans Education Success

Veterans Legal Clinic

OPPOSITION: (Verified 8/30/19)

None received

ARGUMENTS IN SUPPORT: 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, Inc., Consumer Reports Advocacy, California Low-Income Consumer Coalition, Veterans Legal Clinic, Public Counsel, SEIU California, the Century Foundation, NextGen California, and Veterans Education Success, write in support of AB 1346, stating, “Giving harmed Californians a fresher start would better position them to restart their college educations at a more reputable school, in order to earn the college credentials needed by them and the state.”

The Legal Aid Foundation of Los Angeles argues that “the costs of attending college far exceed the costs of tuition and books. Being a full-time student is a full-time job, requiring not only a sacrifice of time, but also other associated expenses, including housing, child care, and transportation. These costs often cannot be met by federal financial aid alone, requiring students to take on additional private student loans or pay out-of-pocket in order to cover all of the costs necessary for school. In addition, many of these students quit their jobs to attend school full-time, or forego other career opportunities.

“They are deserving of more complete financial relief from STRF. This bill would ensure that borrowers eligible for STRF receive more complete financial relief by amending the definition of ‘economic loss’ to include ALL student loans, private and federal; all cash paid by the student; and all third-party and government funding, regardless of whether those funds were paid directly to the school.”

ASSEMBLY FLOOR: 77-0, 5/22/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Cooley, Eduardo Garcia, Patterson

Prepared by: Sarah Mason / B., P. & E.D. /

9/1/19 11:33:45

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 1346 (Medina) - Postsecondary education: California Private Postsecondary Education Act of 2009: Student Tuition Recovery Fund

Bill Summary:

Assembly Bill 1346 would expand the definition of what is considered an “economic loss”, and would allow a student of a Corinthian Colleges Inc. to receive payment from the Student Tuition Recovery Fund (STRF). 

Fiscal Impact:

The Bureau would require a total of 8.0 positions, 4.0 two-year limited-term, and 4.0 ongoing, as well as associated costs of $1.2 million for the first year, $1.04 million for the second year, and $600,000 ongoing, to update regulations, application forms, and outreach programs, and to expand workshops for STRF.

• 4.0 two-year, limited-term Associate Governmental Program Analysts (AGPA) to assist on the new eligibility criteria for Corinthian Colleges, Inc. students that may have been previously denied, and to reach out to potentially eligible students under the new provisions.
• 4.0 permanent/full time AGPAs to handle the anticipated increase in workload of processing and enforcing investigations associated with the new criteria for Student Tuition Recovery Fund applications.
• Ongoing costs for outreach, including travel to geographic areas that impacted Corinthian College, Inc. students as well as providing Student Tuition Recovery Fund workshops.
• One-time costs to update the video on the Student Tuition Recovery Fund application and materials relating to Student Tuition Recovery Fund information regarding eligibility as economic loss and the new eligibility parameters for Corinthian College, Inc. students.

The STRF must not be above $25 million at any time (EC §94925). The Budget Act of 2019 provides $24.0 million is in the STRF.

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 also administers 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 current definition of “economic loss” includes pecuniary loss (student’s total tuition, institutional charges, equipment and materials for the educational program, any interst on student loans to pay for charges) and excludes room and board, transportation, application fees, inconvenience, or legal fees, attorney fees, court costs, or arbitration (EC §94923).

At the time of Heald College’s (owned by Corinthian Colleges) closure, over 13,000 students were enrolled. In March 2016, the Attorney General obtained a default judgment against Corinthian Colleges that provides for $820 million in restitution to all California residents who attended any Corinthian college on or after January 1, 2010. However, due to Corinthian’s bankruptcy, students covered by this judgment did not receive any funds, and are now eligible for relief under STRF, except for Heald College and distance students who enrolled before June 20, 2014. This bill expands STRF eligibility for former Corinthian students residing in California and attending a Corinthian College campus on or after January 1, 2010.

Proposed Law:

AB 1346 would expand the definition of “economic loss” to include all amounts paid by the student to the institution, any amounts paid in connection with attending the institution, and all principal, interest, and charges of any kind for a loan incurred by a student to pay these amounts.  Economic loss must also include the amount the institution collected from and failed to refund to third parties on behalf of the student.  Economic loss does not include Student Tuition Recovery Fund assessments, unless the student is entitled to a full refund or nonpecuniary damages such as inconvenience, aggravation, emotional distress, or punitive damages. Clarifies that economic loss does not include legal fees, attorney fees, court costs, or arbitration fees unless awarded to the student pursuant to a court or arbitrator award and the student is eligible for payment from the STRF.

The bill would make eligible for payment from the STRF a student who was enrolled at a California campus of a Corinthian Colleges, Inc., institution or was a California student enrolled in an online program offered by an out-of-state campus of a Corinthian Colleges, Inc., institution, residing in California and attending a campus of a Corinthian Colleges, Inc., institution on or after January 1, 2010. 

Related Legislation:

• AB 1340 (Chiu, 2019) would require certain private postsecondary schools to report to the bureau information about their graduates and match that information with wage data from the EDD. 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 1341 (Berman, 2019) would require bureau oversight for a nonprofit that operated as a for-profit institution unless the Attorney General makes certain determinations. AB 1341 is pending in the Senate Appropriations Committee.
• AB 1342 (Bauer-Kahan, 2019) would require a nonprofit corporation that operates or controls a private postsecondary educational institution to obtain the Attorney General’s consent before entering into certain agreements or transactions. AB 1342 is pending on the Senate Appropriations Committee suspense file.
• AB 1343 (Eggman, 2019) would have, beginning January 1, 2023, prohibited 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 in the Senate Appropriations Committee.
• AB 1345 (McCarty, 2019) would revise existing restrictions on private postsecondary school enrollment recruitment compensation. The bill would exempt nonprofit, regionally accredited institutions that grant undergraduate or graduate degrees, or both, from the Act. AB 1345 is in the Senate Appropriations Committee.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Connie Leyva, Chair

2019 - 2020 Regular

Bill No: Hearing Date: July 10, 2019

Subject:

SUMMARY

This bill 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.

BACKGROUND

Existing law:

1. Establishes the California Private Postsecondary Education Act until January 1, 2021, and requires the Bureau of Private Postsecondary Education (Bureau), within the Department of Consumer Affairs) to review, investigate and approve private postsecondary institutions, programs and courses of instruction. (Education Code § 94800 et. seq.)
2. Authorizes the Bureau to take formal actions against an institution/school and seek closure of an institution/school if determined necessary. Existing law requires unaccredited degree-granting institutions to be accredited by an accrediting agency recognized by the United States Department of Education by 2020. Existing law provides for specified disclosures and enrollment agreements for students, requirements for cancellations, withdrawals and refunds, and requires the Bureau to administer the STRF to provide refunds to students affected by the possible closure of an institution/school. (EC § 94800 et. seq.)
3. Authorizes a California student of a Corinthian Colleges, Inc. institution who meets all of the other eligibility requirements, including that the student was enrolled as of June 20, 2014, or withdrew within 120 days of that date, to receive payment from the STRF. (EC § 94923)
4. Defines “economic loss,” for the purposes of a student’s loss that may be relieved or mitigated through the STRF, to include but not be limited to:
   1. Pecuniary loss, which is:
      1. The sum of the student’s tuition.
      2. All other institutional charges.
      3. The cost of equipment and materials required for the educational program.
      4. Interest on any student loan used to pay for such charges.
      5. Collection costs.
      6. Penalties.
      7. Any license or exam fees the student paid to the institution but it unable to recover.
   2. The amount the institution collected and failed to pay to third parties on behalf of the student for license fees or any other purpose. (EC § 94923)
5. Prohibits “economic loss” from including:
   
   1. STRF assessments, unless the student is entitled to a full refund, as specified.
      
   2. Room and board.
      
   3. Supplies.
      
   4. Transportation.
      
   5. Application fees.
      
   6. Non-pecuniary damages (inconvenience, aggravation, etc).
      
   7. Legal fees, attorney fees, court costs, or arbitration. (EC § 94923)
      
6. Prohibits the amount in the STRF from not exceeding $25 million at any time, and requires the Bureau, if it has temporarily stopped collecting STRF assessments because STRF has approached the $25 million limit, to resume collecting STRF assessments when the fund falls below $20 million. (EC § 94925)
   
7. Provides that an otherwise eligible student who enrolled during a period when institutions were not required to collect STRF assessment is eligible for STRF payments despite not having paid any STRF assessment. (EC § 94925)
   
8. Requires each qualifying institution to collect an assessment of zero dollars per $1,000 of institutional charges from each student in an educational program who is a California resident or is enrolled in a residency program. Provides that the assessment is zero collars for institutional charges of $1,000 or less. (California Code of Regulations, Title 5, § 76120)

ANALYSIS

This bill:

1. Expands the definition of “economic loss” to include:
   
   1. All amounts paid by the student to the institution.
      
   2. Any amounts paid in connection with attending the institution.
      
   3. All principal, interest, and charges of any kind for a loan incurred by a student to pay these amounts.
      
2. Deletes the prohibition on the consideration of room and board, supplies, transportation, and application fees in determining economic loss.
   
3. Provides an exception to the prohibition against economic loss including legal fees, attorney fees, court costs, or arbitration to allow for these things to be considered an economic loss if those costs are awarded to the student pursuant to a court or arbitrator award and the student is eligible for payment from the STRF.
   
4. Expands eligibility for relief through the STRF for students who attended a Corinthian College, from including only students who were enrolled as of June 20, 2014, or withdrew within 120 days of that date or any greater period determined by Bureau, to include students who resided in California and attended a campus of a Corinthian Colleges, Inc. institution on or after January 1, 2010.
   
5. Replaces gendered possessive pronouns (his, hers) with gender-neutral possessive pronouns (the student’s).

STAFF COMMENTS

1. Need for the bill. According to the author, “Surrounding the many recent high-profile private for-profit school closures in California, like Corinthian Colleges, Inc., ITT Technical Institute, and most recently Brightwood Colleges, investigations and other legal actions have shown that there is a pattern of abuse at profit-driven institutions. Students are routinely enrolled in these institutions under false and misleading promises, which leave the student with massive debts and far worse off than they were prior to enrolling. When a school closes or a student is otherwise unable to complete or use their education due to problems with the school, the student is faced with a number of hurdles. First and foremost is the fact that the student’s educational path is disrupted. Secondly, the student is worried about existing debts, outstanding loans, and any other expenses incurred as a result of attending the school. STRF’s definition of ‘economic loss’ is unjustly narrow and prevents students from recovering the true cost of their loss. Currently, the definition of ‘economic loss’ is limited to tuition, books, and other charges paid directly to the school. However, the costs of attending college far exceed the costs of tuition and books alone. Many students give up their jobs and take out private loans to cover other associated expenses, including housing, childcare, and transportation.”
   
2. Bureau for Private Postsecondary Education (Bureau). The Bureau is responsible for oversight of private postsecondary educational institutions that serve California students, including approval of institutions and programs, establishment of minimum operating standards, administration of a complaint resolution process, and ensuring that institutions provide accurate information to prospective students on school and student performance. The Bureau is also tasked with actively investigating and combatting unlicensed activity, administering the STRF, and conducting outreach and education activities for students and within the state.
3. Student Tuition Recovery Fund (STRF) and economic loss. The STRF, administered by the Bureau, 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 law. Students enrolled in institutions that are exempt from, or not under Bureau oversight, are not eligible for STRF.
   
   The definition of “economic loss” excludes many elements that represent a student’s total cost of attendance. As noted by the author, many students take on additional debt in order to cover other expenses like rent, transportation, and childcare. This bill expands the definition of “economic loss” to better reflect the true cost of attendance (not just costs paid directly to the institution). This is consistent with recent efforts to expand financial aid to include the total costs of attendance.
   
4. Corinthian Colleges. Over 13,000 students enrolled in Heald College (owned by Corinthian Colleges) at the time of the institution’s unlawful closure were not eligible for STRF due to broad exemptions in statute. Further, as a result of the then-requirement (at the time of those school closure) that schools under Bureau oversight have a physical presence in the state, a number of California students enrolled in Everest Online (owned by Corinthian but housed outside of California) were not eligible for STRF. Subsequently, statutes were changed to extend eligibility for STRF to a student who was enrolled at a California campus of a Corinthian Colleges, or was a California student enrolled in an online program offered by an out-of-state campus of a Corinthian institution, who also meets all of the other eligibility requirements, if the student was enrolled as of June 20, 2014.
   
   In March 2016, the California Attorney General obtained a default judgment for illegal and deceptive business practices against Corinthian Colleges that provides for $820 million in restitution to all California residents who attended any Corinthian college on or after Jan. 1, 2010. The Attorney General, however, was not able to collect and pay this restitution to students, due to Corinthian’s bankruptcy. As a result, all Corinthian students covered by this judgment are now eligible for relief under STRF, except for Heald College and distance education students who enrolled before June 20, 2014. This bill expands the STRF eligibility for former Corinthian students who were residing in California and attending a campus of a Corinthian Colleges institution on or after January 1, 2010.
5. Sufficient STRF to cover expansion? This bill expands eligibility to additional students for relief through the STRF. As of January 18^th, 2019, the balance of the STRF is $26,143,000 (which exceeds its statutory maximum of $25 million).
   
6. Fiscal impact. According to the Assembly Appropriations Committee, this bill would impose one-time and ongoing Special Fund costs ranging from in the mid hundreds of thousands up to $1 million to the Bureau.
   
7. Related legislation. AB 1340 (Chiu) requires institutions regulated by the Bureau to report identifying, program enrollment, and loan debt information. Authorizes the Bureau to match student information with wage data provided by the Employment Development Department (EDD). Requires the Bureau to make information available on its website when the Director of the Department of Consumer Affairs (DCA) certifies that an updated information technology system is capable of processing data. AB 1340 is scheduled to be heard in this Committee on July 10.

AB 1341 (Berman) prohibits the Bureau 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. AB 1342 is scheduled to be heard in this Committee on July 10.

AB 1342 (Low) requires the state Attorney General to review and approve any sale of a nonprofit educational institution to a for-profit entity. AB 1342 is scheduled to be heard in the Senate Appropriations Committee on July 8.

AB 1343 (Eggman) 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. This bill is pending in the Senate Business and Professions 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 Bureau to place these out-of-state private postsecondary institutions on a probationary status and revoke authorization to enroll California students. AB 1344 is scheduled to be heard in this Committee on July 10.

AB 1345 (McCarty) 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. AB 1345 is scheduled to be heard in this Committee on July 10.

1. Prior legislation. AB 573 (Medina) would have provided financial and other assistance to students impacted by the recent closing of all Heald, Everest, and WyoTech campuses in California, which were owned by Corinthian Colleges, Inc. AB 573 was vetoed by Governor Brown, whose veto message read:

I am sympathetic to the many students who were enrolled at Corinthian Colleges when the company abruptly shuttered its doors earlier this year. I signed SB 150, which prevents students whose loans have been discharged from being penalized a second time with a significant tax bill on the value of the loan discharge, which they can ill afford to pay.

The U.S. Department of Education has taken the matter of loan discharge seriously. In recent months, it has greatly eased the burden of filings for many students, and its work to provide a simple, swift and fair process for students continues. As such, it appears premature to create an attorney grant program, especially one that provides little direction on how funds should be used.

While the bill's provisions to extend Cal Grant eligibility for Heald students are well-intentioned, I am not comfortable creating new General Fund costs outside of the budget process, particularly given the Cal Grant augmentations already included in this year's budget. For these reasons, I am returning this bill without my signature.

SUPPORT

California Low-Income Consumer Coalition

Center for Responsible Lending

Children’s Advocacy Institute, Center for Public Interest Law

Consumer Federation of California

Consumer Reports Advocacy (formerly Consumers Union)

Housing and Economic Rights Advocates

National Student Legal Defense Network

NextGen California

Public Advocates

Public Counsel

Public Law Center

SEIU California

Student Debt Crisis

The Century Foundation

The Institute for College Access and Success

Veterans Education Success

Veterans Legal Clinic

OPPOSITION

None received

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Steven Glazer, Chair

2019 - 2020 Regular

Bill No: AB 1346 Hearing Date: July 1, 2019

Subject: Postsecondary education: California Private Postsecondary Education Act of 2009: Student Tuition Recovery Fund

SUMMARY:

Expands 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 expands 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.

NOTE:

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

Existing law:

1. Establishes the Act 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. Establishes various fair business practices and prohibits an institution from engaging in certain activities such as false advertising, promising or guaranteeing employment. (EC § 94897)
4. Requires institutions offering educational programs designed to lead to positions in a profession, occupation, trade or career field requiring licensure to exercise reasonable care to determine if a student will not be able to obtain licensure at the time of his or her graduation and requires an institution to provide a written copy of requirements for licensure. (EC § 94905 (a))
5. Requires institutions, prior to enrollment, to provide a prospective student with certain information about the institution and Bureau, including a description’s of the student’s right and responsibilities with respect to the STRF and a statement describing the purpose and operation of STRF and requirements for filing a STRF claim. (EC § 94909 (a) (14))
6. Requires an institution, in making consumer loans to students, to comply with the Federal Truth in Lending Act. (EC § 94918)
7. Establishes the STRF, administered by the Bureau, to relieve or mitigate economic loss suffered by students enrolled at a non-exempt private postsecondary education institution due to the institutions' closure, the institutions' failure to pay refunds or reimburse loan proceeds, or the institutions' failure to pay students' restitution award for a violation of the Act. Provides that the STRF shall not exceed $25 million. Institutions are required to assess students an amount established in regulation by the Bureau and remit fund to the Bureau for STRF. In 2010, that amount was established at $2.50 per $1000 of tuition charged. In 2013, that amount was reduced to $0.50 per $1000. In 2015, this amount was reduced to $0.00, as the STRF had exceeded the statutory cap (STRF is currently at approximately $28 million). (EC §§ 94923 – 94925)
8. Defines “economic loss”, for purposes of STRF, as the sum of the student’s tuition, all other institutional charges, the cost of equipment and materials required for the educational program, interest on any student loan used to pay for such charges, collection costs, penalties, and any license or examination fees the student paid to the institution but is unable to recover. Economic loss shall also include the amount the institution collected and failed to pay to third parties on behalf of the student for license fees or any other purpose. Economic loss does not include STRF assessments, unless the student is entitled to a full, room and board, supplies, transportation, application fees, or nonpecuniary damages such as inconvenience, aggravation, emotional distress, or punitive damages. Economic loss does not include legal fees, attorney fees, court costs, or arbitration fees. Authorizes the Bureau to further define “economic loss” to include loss of educational opportunity. (EC § 94923 (f))
9. Requires an institution, at least 30 days prior to closing, to notify BPPE in writing of its intention to close which shall be accompanied by a closure plan that includes a plan for providing teach-outs of educational programs. Provides that if no teach-out plan is contemplated, or for students who do not wish to participate in a teach-out, the plan shall include arrangements for making refunds within 45 days from the date of closure, or for institutions that participate in federal student financial aid programs arrangements for making refunds and returning federal student financial aid program funds. Requires an institution, if it is a participant in federal student financial aid programs, to provide students information concerning these programs and institutional closures. Requires the closure plan to include a plan for the disposition of student records. (EC § 94926)
10. Requires an institution, prior to closing, to provide BPPE with pertinent student records, including transcripts. Provides that if the institution is an accredited institution, the Bureau shall be provided with a plan for the retention of records and transcripts, approved by the institution’s accrediting agency, that provides information as to how a student may obtain a transcript or any other information about the student’s coursework and degrees completed. Specifies that these provisions apply to all private postsecondary institutions, including those exempt from the Act. (EC § 94927.5)
11. Specifies various disclosure and reporting requirements around completion, placement, licensure and salary of students/graduates and establishes various definitions for this purpose. Requires that the information used to substantiate the reported job placement, license passage, and completion rates be documented and maintained by the institution for five years from the date of the publication of the rates and authorizes this information to be retained by the institution in an electronic format. Requires institutions to submit an annual report to the Bureau that includes specified information. (EC §§ 94928-94929.9)

This bill expands 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 expands 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.

FISCAL EFFECT:

This bill is keyed fiscal by Legislative Counsel. According to the Assembly Committee on Appropriations, this bill will result in ongoing Special Fund costs ranging in the mid hundreds of thousands of dollars for BPPE to hire staff to update regulations, application forms and outreach programs for the STRF program and enforce regulations, as well as some additional one-time costs to BPPE to implement the bill’s provisions.

COMMENTS:

1. Purpose. This bill is sponsored by the Legal Aid Foundation of Los Angeles and The Institute for College Access and Success (TICAS). According to the Author, “STRF’s definition of ‘economic loss’ is unjustly narrow and prevents students from recovering the true cost of their loss. Currently, the definition of “economic loss” is limited to tuition, books, and other charges paid directly to the school.

However, the costs of attending college far exceed the costs of tuition and books alone. Many students give up their jobs and take out private loans to cover other associated expenses, including housing, child care, and transportation.

As many of these students are first-generation and/or low-income college students, the additional losses suffered by these students can be catastrophic, additionally due to the fact that the private student loans often used to cover these expenses are NOT included in federal closed school discharges.”

The Author states that “Surrounding the many recent high-profile private for-profit school closures in California, like Corinthian Colleges, Inc., ITT Technical Institute, and most recently Brightwood Colleges, investigations and other legal actions have shown that there is a pattern of abuse at profit-driven institutions. Many of the students who are targeted by these bad actors are first-generation college students, single parents, immigrants, foster youth, veterans, and other minority groups who lack background knowledge and support when it comes to choosing and financing an education. Students are routinely enrolled in these institutions under false and misleading promises, which leave the student with massive debts and far worse off than they were prior to enrolling. When a school closes or a student is otherwise unable to complete or use their education due to problems with the school, the student is faced with a number of hurdles. First and foremost is the fact that the student’s educational path is disrupted. Secondly, the student is worried about existing debts, outstanding loans, and any other expenses incurred as a result of attending the school. The STRF is designed to protect and assist students who have been harmed in the event of a school closure, or if they have been the victim of misrepresentation, abuse, or fraud at the hands of a for-profit private school. The intent of STRF is to allow the student to recover the economic losses they have suffered due to the illegal conduct of the school.”

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. Under current law, the definition of “economic loss” excludes many elements that represent a student’s total cost of attendance.

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.

Corinthian Colleges, Inc (CCI). CCI institutions offered a range of programs, including 8-12 month certificate programs, with tuition and fees that from $13,100-$21,338, 24-month associate's degree programs with tuition and fees that ranged from $33,120 and $42,820, and bachelor's degree programs that were between $60,096 and $75,384. According to a 2014 complaint filed by the Consumer Financial Protection Bureau (CFPB), most students attending CCI were low-income, or the first in their families to seek an education beyond high school. In 2012, CCI reported that 85% of its students had family incomes of less than $45,000 a year. An estimated 57% of CCI students had household incomes of $19,000 or less, and 35% of CCI students had a household income of less than $10,000.

Most students attending CCI received federal financial aid; according to CCI’s filing with the Securities and Exchange Commission (SEC), CCI received 84.8% of net revenue from federal financial aid. According to the allegations in the CFPB complaint, in order to meet the 90/10 rule, CCI increased tuition in order to create “funding gaps” so that students would be required to take out private loans to pay for their education. CCI offered students the company’s own “Genesis” loans to cover the funding gaps. According to CFPB, by 2014 the outstanding balance of Genesis loans totaled $560 million.

The aforementioned CFPB complaint sought, among other monetary penalties and student relief, the rescission of all CCI private loans originated since 2011. In addition to the CFPB complaint, CCI faced a series of legal actions and investigations into unlawful practices, including by 20 state attorneys general, several federal agencies, and the USDE. These complaints include allegations largely focused on misrepresenting career options (promising lifetime placement services and providing, at best, temporary assistance), falsifying job placements (including counting 1-day employments, paying employers to temporarily hire graduates, and falsifying "self-employment" statistics), and promoting student reliance on CCIs Genesis loans that required students to begin repaying loans while still in programs (staff members were provided bonuses for collecting Genesis loan payments, and were encouraged to publically remove students from class if they were behind on Genesis loan payments).

On June 19, 2014, the USDE announced that it had placed CCI on an increased level of financial oversight. Financial stability is a requirement of participation in federal financial aid programs under Title IV of the Higher Education Act; CCI had failed to provide USDE with required financial disclosures. In response to the USDE decision to delay financial aid funds for 21-days, CCI, which was already facing a cash flow shortage, announced it would likely close. In the summer of 2014, a CCI bankruptcy would have impacted 72,000 students nationwide, with approximately $1 billion in (potentially dischargeable) federal loans. On June 23, 2014, USDE and CCI signed a memorandum of understanding requiring the company to develop a plan to sell and teach-out programs over the next six months. As a part of the agreement, CCI was allowed to continue enrolling new students in programs.

On June 26, 2014, the California State Approving Agency for Veterans Education (CSAAVE) suspended CCI institutions’ participation in Title 38 programs (veterans’ GI Bill benefits administered by the Veterans Administration) due to the SEC filing indicating CCI was fiscally unstable. In August of 2014, CSAAVE withdrew institutional approval at all institutions owned and operated in California by CCI. The 23 campuses (Heald, WyoTech and Everest) were prohibited from receiving GI bill benefits. In order to continue using Title 38 benefits, veteran students were required to transfer/enroll in a CSAAVE eligible school.

On November 20, 2014, the ECMC Group, a nonprofit organization that operates a large student-loan guaranty agency, announced it would purchase 56 campuses from CCI. ECMC created a nonprofit subsidiary, called the Zenith Education Group, to manage the campuses. In December of 2014, USDE approved the sale, and as part of the agreement, CCI/ECMC discharged private student loans (approximately $480 million dollars; 40 percent of the private student loans) for students whose campuses were sold. Earlier in the year, CFPB had accused CCI of luring students into its “Genesis” loan program in order for the campus to meet the federal “90/10 rule” with false promises about career counseling and misrepresented job placement statistics. A coalition of student, consumer, veterans and civil rights groups opposed the sale of the CCI campuses, noting that ECMC did not have experience running educational institutions. According to the coalition letter to the USDE, “in the field where ECMC does have experience, its actions have veered more than occasionally into dubious terrain, using ruthless tactics to hound debtors to the point where the company has been sanctioned and reprimanded by judges for abusing the bankruptcy process.” The coalition also noted that the terms of the sale would not give students the choice of having their federal loans discharged.

California campuses were not included in the sale to ECMC and CCI, which was based in Santa Ana, continued to operate and enroll new students at WyoTech (3 campuses), Everest (11 campuses), and Heald (10 campuses) campuses throughout California. On April 14, 2015, the USDE announced a $30 million fine against Heald’s Salinas and Stockton campuses for fraudulent placement and other advertising (CCI appealed this fine). This decision effectively barred all Heald campuses from receiving federal funds for new enrollments. On April 16, 2015, the California Student Aid Commission (CSAC) permanently terminated Heald’s eligibility for the Cal Grant program (Everest and WyoTech were already not eligible). On April 17, 2015, the DCA issued an emergency decision prohibiting Everest and WyoTech campuses from enrolling new students.

CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015.

Due to broad exemptions in the Act, over 13,000 students enrolled in Heald College (owned by CCI) at the time of the institution’s unlawful closure were not eligible for STRF. Further, as a result of the requirement in the Act that schools under BPPE oversight have a physical presence in the state, a number of California students enrolled in Everest Online (owned by CCI but housed outside of California) were not eligible for STRF.

SB 1192 (Hill, Chapter 593, Statutes of 2016) made several modifications to the STRF in response to lessons learned from the closure of CCI schools, and also provided that a student who was enrolled at a California campus of CCI, or was a California student enrolled in an online program offered by an out-of-state campus of a CCI institution, who also meets all of the other eligibility requirements, if the student was enrolled as of June 20, 2014, is eligible for STRF.

In March 2016, the California Attorney General (AG) obtained a default judgment for illegal and deceptive business practices against CCI that provides for $820 million in restitution to all California residents who attended any CCI college on or after January 1, 2010. The AG, however, was not able to collect and pay this restitution to students, due to CCI’s bankruptcy. As a result, all CCI students covered by this judgment are now eligible for relief under STRF, except for Heald College and distance education students who enrolled before June 20, 2014. AB 1356 expands the STRF eligibility for CCI students who were residing in California and attending a campus of a CCI institution on or after January 1, 2010.

1. Related Legislation This Year. AB 1340 (Chiu) requires institutions regulated by BPPE to report identifying, program enrollment, and loan debt information. Authorizes BPPE to match student information with wage data provided by the Employment Development Department (EDD). Requires BPPE to make information available on its website when the Director of the Department of Consumer Affairs (DCA) certifies that an updated information technology system is capable of processing data. (Status: This bill is also pending in the Senate Committee on Business, Professions, and Economic Development)

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 1345 (McCarty) 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. (Status: This measure is currently pending in this Committee.)

1. Prior Related Legislation. AB 573 (Medina) of 2015 provided financial and other assistance to CCI students. (Status: The bill was vetoed by Governor Brown who noted “While the bill's provisions to extend Cal Grant eligibility for Heald students are well-intentioned, I am not comfortable creating new General Fund costs outside of the budget process, particularly given the Cal Grant augmentations already included in this year's budget.)
2. Arguments in Support. 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, write in support of AB 1346, stating, “Giving harmed Californians a fresher start would better position them to restart their college educations at a more reputable school, in order to earn the college credentials needed by them and the state.”

The Legal Aid Foundation of Los Angeles argues that “the costs of attending college far exceed the costs of tuition and books. Being a full-time student is a full-time job, requiring not only a sacrifice of time, but also other associated expenses, including housing, child care, and transportation. These costs often cannot be met by federal financial aid alone, requiring students to take on additional private student loans or pay out-of-pocket in order to cover all of the costs necessary for school. In addition, many of these students quit their jobs to attend school full-time, or forego other career opportunities.

“They are deserving of more complete financial relief from STRF. This bill would ensure that borrowers eligible for STRF receive more complete financial relief by amending the definition of ‘economic loss’ to include ALL student loans, private and federal; all cash paid by the student; and all third-party and government funding, regardless of whether those funds were paid directly to the school.”

SUPPORT AND OPPOSITION:

Support:

CA-AAUP
California Community Colleges Chancellor's Office
California Faculty 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
Legal Aid Foundation of Los Angeles

National Student Legal Defense Network

NextGen California
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:

None on file as of June 27, 2019.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1346

Author:(Medina, et al.)

As Amended Ver:April 1, 2019

Majority vote

SUMMARY:

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.

Major Provisions

1. Defines "economic loss" to include, but not necessarily limited to, pecuniary loss, which is the sum of all amounts paid by the student to the institution, any amounts paid in connection with attending the institution, and all principal, interest, and charges of any kind for a loan incurred by a student to pay these amounts. Economic loss shall also include the amount the institution collected from and failed to refund to third parties on behalf of the student.
2. Economic loss does not include STRF assessments, unless the student is entitled to a full refund, as specified, or nonpecuniary damages such as inconvenience, aggravation, emotional distress, or punitive damages.
3. Economic loss does not include legal fees, attorney fees, court costs, or arbitration fees unless awarded to the student pursuant to a court or arbitrator award and the student is eligible for payment from the STRF pursuant to as specified.
4. Specifies the subdivision shall not prevent the Bureau for Private Postsecondary Education (BPPE) from further defining economic loss to include loss of educational opportunity.
5. Specifies that a student who was enrolled at a California campus of a Corinthian Colleges, Inc. (CCI), institution or was a California student enrolled in an online program offered by an out-of-state campus of a CCI institution, who also meets all of the other eligibility requirements, if the student was residing in California and attending a campus of a CCI institution on or after January 1, 2010, is eligible for payment from the STRF.

COMMENTS:

Under current law, the definition of "economic loss" excludes many elements that represent a student's total cost of attendance. As noted by the author, many students take on additional debt in order to cover expenses like rent and child care. The federal definition used while determining financial need includes tuition and fees; on-campus room and board (or a housing and food allowance for off-campus students); and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care. It can also include other expenses like an allowance for the rental or purchase of a personal computer, costs related to a disability, or costs for eligible study-abroad programs.

According to the Author:

According to the author, "STRF's definition of 'economic loss' is unjustly narrow and prevents students from recovering the true cost of their loss. Currently, the definition of "economic loss" is limited to tuition, books, and other charges paid directly to the school. AB 1346 will expand the definition of 'economic loss' to allow students to recover losses beyond tuition expenses, including housing, transportation, and childcare, as well as any expenses incurred by the student as a result of the closed school, such as transcript fees or the cost of services related to debt relief. This way, these students won't be subject to demoralizing debt collection and lawsuits from private student loan collectors for a worthless education. To recover these losses, AB 1346 will require the student to show that the non-tuition expenses were related to attendance at the private for-profit school that closed, by providing documentation of such expenses."

Arguments in Support:

A coalition representing student, veteran, civil rights, and higher education advocates jointly wrote that, "Californians have been disproportionately affected by the sudden closure of schools including CCI, Westwood College, Marinello Schools of Beauty, ITT Technical Institute, and most recently Brightwood Colleges. California's STRF program is designed to protect and assist students who have been harmed in the event of a school closure. The intent of STRF is to allow the student to recover the economic losses they have suffered due to the negligence of the school, but the amount is currently limited to the cost of tuition and institutional costs."

"The true cost of attendance, as defined under federal law, far exceeds the cost of tuition and institutional costs. By limiting the definition of "economic loss" to tuition and other direct costs of enrollment, STRF fails to recognize much of the financial harm students have experienced. Many of the students targeted by for-profit colleges are first-generation college students, single parents, foster youth, and veterans – groups that are ill-positioned to absorb such a loss and that are particularly harmed by an insufficient safety net…Giving harmed Californians a fresher start would better position them to restart their college educations at a more reputable school, in order to earn the college credentials needed by them and the state."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

The Assembly Committee on Appropriations notes that one-time and ongoing Special Fund costs ranging from in the mid hundreds of thousands up to $1 million to the Bureau of Private Postsecondary Education.

VOTES:

ASM HIGHER EDUCATION: 12-0-0

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

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

UPDATED:

VERSION: April 1, 2019

CONSULTANT: Kevin J. Powers / HIGHER ED. / (916) 319-3960 FN: 0000799

Date of Hearing: April 9, 2019

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 1346 (

Author:Medina) – As Amended Ver:April 1, 2019

SUBJECT: Postsecondary education: California Private Postsecondary Education Act of 2009: Student Tuition Recovery Fund

SUMMARY: 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. Specifically, this bill:

1. Defines “economic loss” to include, but not necessarily limited to, pecuniary loss, which is the sum of all amounts paid by the student to the institution, any amounts paid in connection with attending the institution, and all principal, interest, and charges of any kind for a loan incurred by a student to pay these amounts. Economic loss shall also include the amount the institution collected from and failed to refund to third parties on behalf of the student.
2. Economic loss does not include STRF assessments, unless the student is entitled to a full refund, as specified, or nonpecuniary damages such as inconvenience, aggravation, emotional distress, or punitive damages.
3. Economic loss does not include legal fees, attorney fees, court costs, or arbitration fees unless awarded to the student pursuant to a court or arbitrator award and the student is eligible for payment from the STRF pursuant to as specified.
4. Specifies the subdivision shall not prevent the Bureau for Private Postsecondary Education (BPPE) from further defining economic loss to include loss of educational opportunity.
5. Specifies that a student who was enrolled at a California campus of a Corinthian Colleges, Inc. (CCI), institution or was a California student enrolled in an online program offered by an out-of-state campus of a CCI institution, who also meets all of the other eligibility requirements, if the student was residing in California and attending a campus of a CCI institution on or after January 1, 2010, is eligible for payment from the STRF.

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 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. Authorizes a California student of a CCI institution who meets all of the other eligibility requirements, including that the student was enrolled as of June 20, 2014, or withdrew within 120 days of that date, to receive payment from the fund. (EDC Section 94923)
3. Defines economic loss, for the purposes of a student’s loss that may be relieved or mitigated through the STRF, to include but not necessarily be limited to, pecuniary loss, which is the sum of the student’s tuition, all other institutional charges, the cost of equipment and materials required for the educational program, and interest on any student loan used to pay for such charges. (EDC Section 94923)
4. Establishes that the amount in the STRF shall not exceed 25 million dollars at any time, and that, if the bureau has temporarily stopped collecting the Student Tuition Recovery Fund assessments because the fund has approached the 25 million dollar limit, the bureau shall resume collecting STRF assessments when the fund falls below 20 million dollars. (EDC Section 94925)
5. Sets the current assessment fee at zero dollars per 1,000 dollars of institutional costs. (California Code of Regulations Section 76120)

FISCAL EFFECT: Unknown.

COMMENTS: Need for the bill. According to the author, “STRF’s definition of “economic loss” is unjustly narrow and prevents students from recovering the true cost of their loss. Currently, the definition of “economic loss” is limited to tuition, books, and other charges paid directly to the school.”

“However, the costs of attending college far exceed the costs of tuition and books alone. Many students give up their jobs and take out private loans to cover other associated expenses, including housing, child care, and transportation.”

“As many of these students are first-generation and/or low-income college students, the additional losses suffered by these students can be catastrophic, additionally due to the fact that the private student loans often used to cover these expenses are not included in federal closed school discharges.”

“AB 1346 will expand the definition of “economic loss” to allow students to recover losses beyond tuition expenses, including housing, transportation, and childcare, as well as any expenses incurred by the student as a result of the closed school, such as transcript fees or the cost of services related to debt relief. This way, these students won’t be subject to demoralizing debt collection and lawsuits from private student loan collectors for a worthless education. To recover these losses, AB 1346 will require the student to show that the non-tuition expenses were related to attendance at the private for-profit school that closed, by providing documentation of such expenses.”

Background on BPPE. 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:

1. Create a structure that provides an appropriate level of oversight, including approval of private postsecondary educational institutions and programs;
2. Establish minimum operating standards for California private postsecondary educational institutions to ensure quality education for students;
3. Provide students a meaningful opportunity to have their complaints resolved;
4. Ensure that private postsecondary educational institutions offer accurate information to prospective students on school and student performance; and,
5. 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.

STRF background. The STRF is an important tool to assist harmed students. STRF, administered by the BPPE, 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. Students enrolled in institutions that are exempt from, or not covered by the Act are not eligible for STRF.

Due to broad exemptions in the Act, over 13,000 students enrolled in Heald College (owned by CCI) at the time of the institution’s unlawful closure were not eligible for STRF. Further, as a result of the requirement in the Act that schools under BPPE oversight have a physical presence in the state, a number of California students enrolled in Everest Online (owned by CCI but housed outside of California) were not eligible for STRF.

SB 1192 (Hill, Chapter 593, Statutes of 2016) made several modifications to the STRF in response to lessons learned from the closure of CCI schools, and also provided that a student who was enrolled at a California campus of CCI, or was a California student enrolled in an online program offered by an out-of-state campus of a CCI institution, who also meets all of the other eligibility requirements, if the student was enrolled as of June 20, 2014, is eligible for STRF.

Economic loss. Under current law, the definition of “economic loss” excludes many elements that represent a student’s total cost of attendance. As noted by the author, many students take on additional debt in order to cover expenses like rent and child care. The federal definition used while determining financial need includes tuition and fees; on-campus room and board (or a housing and food allowance for off-campus students); and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care. It can also include other expenses like an allowance for the rental or purchase of a personal computer, costs related to a disability, or costs for eligible study-abroad programs.

Expansion of STRF eligibility. In March 2016, the California Attorney General obtained a default judgment for illegal and deceptive business practices against CCI that provides for $820 million in restitution to all California residents who attended any CCI college on or after Jan. 1, 2010. The Attorney General, however, was not able to collect and pay this restitution to students, due to CCI’s bankruptcy. As a result, all CCI students covered by this judgment are now eligible for relief under STRF, except for Heald College and distance education students who enrolled before June 20, 2014. AB 1356 expands the STRF eligibility for CCI students who were residing in California and attending a campus of a CCI institution on or after January 1, 2010.

STRF fund status. As of January 18^th, 2019, the balance of the STRF is $26,143,000 dollars.

Arguments in support. A coalition representing student, veteran, civil rights, and higher education advocates jointly wrote that, “Californians have been disproportionately affected by the sudden closure of schools including CCI, Westwood College, Marinello Schools of Beauty, ITT Technical Institute, and most recently Brightwood Colleges. California’s STRF program is designed to protect and assist students who have been harmed in the event of a school closure. The intent of STRF is to allow the student to recover the economic losses they have suffered due to the negligence of the school, but the amount is currently limited to the cost of tuition and institutional costs.”

“The true cost of attendance, as defined under federal law, far exceeds the cost of tuition and institutional costs. By limiting the definition of “economic loss” to tuition and other direct costs of enrollment, STRF fails to recognize much of the financial harm students have experienced. Many of the students targeted by for-profit colleges are first-generation college students, single parents, foster youth, and veterans – groups that are ill-positioned to absorb such a loss and that are particularly harmed by an insufficient safety net…Giving harmed Californians a fresher start would better position them to restart their college educations at a more reputable school, in order to earn the college credentials needed by them and the state.”

REGISTERED SUPPORT / OPPOSITION:

Support

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

None on file.

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