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 act is enforced by the Bureau for Private Postsecondary Education within the Department of Consumer Affairs. The act exempts specified private postsecondary educational institutions from all, or a portion of, its provisions, but requires those institutions that are subject to its provisions to apply for and obtain an approval to operate, including by means of accreditation, as specified. The act also requires an out-of-state private postsecondary educational institution to comply with specified requirements for registration, including providing the bureau evidence of the institutions accreditation and complying with the requirements of the Student Tuition Recovery Fund and regulations adopted by the bureau related to the fund, as provided. The act establishes the Student Tuition Recovery Fund to relieve or mitigate economic loss suffered by a student while enrolled in a private postsecondary educational institution, as specified. The act requires an independent institution of higher education that is exempt from the act to comply with all applicable state and federal laws. Existing law repeals the act on January 1, 2027.

The bill would authorize a highly qualified private nonprofit institution, as defined, to register with the bureau by paying a registration fee and complying with specified requirements for registration, including providing the bureau evidence of the institutions accreditation and complying with the requirements of the Student Tuition Recovery Fund or receiving a waiver from those requirements if an approved surety bond, or other security in lieu of a bond, is placed on file with the bureau, Fund, as provided. The bill would authorize a highly qualified private nonprofit institution, as defined, that received an approval to operate by means of accreditation before July 1, 2025, to instead register with the bureau under the bills provisions. The bill would specify that a highly qualified private nonprofit institution that registers with the bureau is required to comply with all applicable state and federal laws.

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 act is enforced by the Bureau for Private Postsecondary Education within the Department of Consumer Affairs. The act exempts specified private postsecondary educational institutions from all, or a portion of, its provisions, but requires those institutions that are subject to its provisions to apply for and obtain an approval to operate, including by means of accreditation, as specified. The act also requires an out-of-state private postsecondary educational institution to comply with specified requirements for registration, including providing the bureau evidence of the institutions accreditation. accreditation and complying with the requirements of the Student Tuition Recovery Fund and regulations adopted by the bureau related to the fund, as provided. The act establishes the Student Tuition Recovery Fund to relieve or mitigate economic loss suffered by a student while enrolled in a private postsecondary educational institution, as specified. Existing law repeals the act on January 1, 2027.

The bill would authorize a highly qualified nonprofit institution, as defined, to register with the bureau by paying a registration fee and complying with specified requirements for registration, including providing the bureau evidence of the institutions accreditation, accreditation and complying with the requirements of the Student Tuition Recovery Fund or receiving a waiver from those requirements if an approved surety bond, or other security in lieu of a bond, is placed on file with the bureau, as provided. The bill would authorize a highly qualified nonprofit institution, as defined, that received an approval to operate by means of accreditation before July 1, 2025, to instead register with the bureau under the bills provisions.

Existing law establishes the California Community Colleges, the California State University, the University of California, independent institutions of higher education, and private postsecondary educational institutions as the segments of postsecondary education in the state. The missions and functions of these segments are set forth in the Donahoe Higher Education Act.

This bill would make nonsubstantive changes in a provision that, for purposes of the Donahoe Higher Education Act, designates the segments of public postsecondary education as the California Community Colleges, the California State University, and the University of California, as specified, and defines independent institutions of higher education for these purposes.

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 3167 (Chen) - California Private Postsecondary Education Act of 2009: highly qualified private nonprofit institution

Bill Summary:

AB 3167 authorizes a highly qualified nonprofit private institution, as defined, to register with the Bureau for Private Postsecondary Education (BPPE) beginning July 1, 2025.

Fiscal Impact:

The BPPE reports the following:

• Total ongoing annual costs of approximately $416,000 for additional staff resources (Private Postsecondary Education Administration Fund). Up to 400 out-of-state institutions that are currently exempted from registration with the bureau would be required to register with the BPPE under this bill. Additional workload to the BPPE is not absorbable, and includes reviewing and processing any changes in out-of-state institutions’ registration circumstances and handling an increase in complaints.
• Annual revenue increase of approximately $120,000 annually from out-of-state institutions that would now be required to register with the BPPE. Revenues from the $1,500 registration fee established by this bill may offset the bureau’s administrative costs to process applications to some extent.
• Annual revenue decrease of approximately $88,000, as the bureau notes there is at least one institution that would qualify for registration in lieu of obtaining approval, and therefore would no longer have to pay fees.
• One-time IT costs of approximately $72,000 for the Office of Information Services (OIS) to create a new license type. OIS notes workload is anticipated to be absorbable through the redirection of existing maintenance resources, however will likely require a delayed implementation date of July 1, 2026.

Background:

The BPPE regulates private postsecondary educational institutions operating in this state. Its role is to protect consumers and students from fraud, misrepresentation, or other business practices at private postsecondary institutions that may lead to the loss of students’ tuition and related educational funds. It also sets and enforces minimum standards for ethical business practices and the health, safety, and fiscal integrity of postsecondary education institutions. Finally, it establishes and enforces minimum standards for instructional quality and institutional stability for all students in any private postsecondary educational and vocational institutions.

The BPPE approval not only authorizes institutions to operate and serve students in California but also enables institutions to meet requirements to receive public funds through the federal Title IV financial aid programs.

Proposed Law:

• Beginning July 1, 2025, authorizes a highly qualified nonprofit private institution to register with BPPE if the institution pays a registration fee and complies with specified requirements.
  • Establishes a registration fee of $1,500.
• Requires BPPE to develop a registration form for highly qualified private nonprofit institutions through emergency regulations effective on and after July 1, 2025.
• Authorizes a highly qualified nonprofit private institution that has received approval by means of accreditation before July 1, 2025 to elect to register with BPPE.
• Authorizes a highly qualified nonprofit private institution to contract with BPPE to review and, as appropriate, act on complaints concerning the institution.
• Defines highly qualified nonprofit institution as an institution that:
  • Is exempt from taxation under the Internal Revenue Code and has no insider transactions within the past five years.
  • For the past 20 years, has not operated as a for-profit institution and has awarded at least 500 degrees each year.
  • Is accredited by an institutional accrediting agency that has been recognized by the US Department of Education for at least 10 years for accrediting institutions, the majority of which are classified as nonprofit or public and that is governed by a board of directors with no directors who hold an equity interest in an institution of higher education.
• Makes technical and conforming changes.

Staff Comments:

The boards and bureaus within the Department of Consumer Affairs are special fund agencies whose activities are funded by regulatory and license fees and generally receive no support from the General Fund. New legislative mandates, even those modest in scope, may in totality create new cost pressures and impact the entity’s operating costs, future budget requests, or license fees.

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SENATE COMMITTEE ON EDUCATION

Senator Josh Newman, Chair

2023 - 2024 Regular

Bill No: Hearing Date: July 3, 2024

Subject: .

SUMMARY

This bill authorizes, beginning July 1, 2025, a "highly qualified private nonprofit institution," as specified, to register with California's Bureau of Private Postsecondary Education (Bureau).

BACKGROUND

Existing law:

1) The California Private Postsecondary Education Act of 2009 (the Act) provides, among other things, for student protections and regulatory oversight of private postsecondary institutions in the state. The Act is enforced by the Bureau within the Department of Consumer Affairs (DCA). The Act exempts specified private postsecondary educational institutions from all, or a portion of, its provisions, but requires those institutions that are subject to its provisions to apply for and obtain an approval to operate, including by means of accreditation, as specified. The Act also requires an out-of-state private postsecondary educational institution to comply with specified requirements for registration, including providing the Bureau evidence of the institution’s accreditation. Existing law repeals the Act on January 1, 2027. (Education Code § 94800 et. seq.)

ANALYSIS

This bill:

1. Authorizes, beginning July 1, 2025, highly qualified private nonprofit institutions, as specified, to register with the Bureau.
2. Defines a “highly qualified private nonprofit institution” to mean an institution that meets all of the following criteria:
   1. The institution is exempt from taxation under the Internal Revenue Code

and has no insider transactions within the past five years.

• 1. For the previous 20 years, the institution has not operated as a for-profit

institution and has awarded at least 500 degrees each year.

• 1. The institution has been accredited by an institutional accrediting agency

that meets both of the following:

• • 1. It has been recognized by the US Department of Education for at

least 10 years for accrediting institutions, the majority of which are classified by the US Department of Education as nonprofit or public.

• • 1. It is governed by a board of directors with no directors who hold an

equity interest in an institution of higher education.

1. Requires that a highly qualified private nonprofit institution, as defined that registers with the Bureau to comply with all applicable state and federal laws including those relating to fraud, abuse, and false advertising.
2. Requires that a highly qualified private nonprofit institution pay a $1,500 registration fee and specifies that a registration with the Bureau is to be valid for 5 years.
3. Requires the Bureau to develop, through emergency regulations effective on and after July 1, 2025, a registration form for highly qualified nonprofit institutions. The emergency regulations will become law through the regular rulemaking process by January 1, 2026.
4. Eliminates the exemption from having to register with the Bureau as an out-of-state institution for an accredited nonprofit corporation.

STAFF COMMENTS

1. Need for the bill. According to the author, “this bill would help high-quality nonprofit universities with a physical presence in California by reducing burdens on students and colleges. In 2009, the state appropriately set consumer protection rules for vocational schools that enact safeguards for students against fraud.

“While these rules still make sense for such vocational schools, they now also apply to comprehensive or research schools and graduate schools that merge with California institutions. If we can be assured these non-profit schools are high-quality and committed to staying in California, it doesn’t make sense to require students to choose a course of study before they enroll as an undergraduate or charge them a fee to ensure these schools don’t fraudulently accept their tuition payments. This bill will address these issues while incorporating safeguards to ensure California’s students remain protected.

“Some nonprofit colleges and universities in California and nationwide are facing declining enrollment and financial strain. To address this, some have chosen to merge with other partner institutions. With this bill, both California and New York are considering legislative proposals to simplify this process.”

1. Higher education oversight. Under Title IV of the Higher Education Act of 1965, an institution may be eligible to receive federal financial aid programs such as Pell Grants and federal loan programs provided they meet certain standards. The federal Higher Education Act establishes three eligibility criteria that institutions must fulfill. To ensure the quality and integrity of Title IV financial aid program eligible institutions, the three requirements that must be met are: 1) state authorization, 2) certification by the US Department of Education; 3) and accreditation by an accrediting agency association recognized by the US Department of Education. The states are responsible for providing primary protection of consumers and students, while the federal government oversees compliance to ensure the administrative and fiscal integrity of Title IV financial aid programs at institutions of higher education. Accrediting agencies, on the other hand, focus on providing quality assurance for the education or training offered by these institutions.
2. The role of California's Bureau of Private Postsecondary Education. The Bureau regulates private postsecondary educational institutions operating in this state. Its role is to protect consumers and students from fraud, misrepresentation, or other business practices at private postsecondary institutions that may lead to the loss of students’ tuition and related educational funds. It also sets and enforces minimum standards for ethical business practices and the health, safety, and fiscal integrity of postsecondary education institutions. Finally, it establishes and enforces minimum standards for instructional quality and institutional stability for all students in any private postsecondary educational and vocational institutions.

The Bureau approval not only authorizes institutions to operate and serve students in California but also enables institutions to meet requirements to receive public funds through the federal Title IV financial aid programs.

1. Highly qualified private nonprofit institution. This bill attempts to create a new institutional status under the Act, “highly qualified private nonprofit institution.” To meet this definition, an institution must meet several benchmarks, including evidence of accreditation, and be free from specified forms of disciplinary action over the previous five years. This bill would provide a registration option to private nonprofit institutions that have received long-term accreditation from nonprofit agencies.
2. Out-of-state private nonprofit institutions. The Bureau has traditionally regulated only those institutions with a “physical presence” in California. As a growing number of public and private institutions organized or incorporated outside California serve California students through online and hybrid instruction, the need for Bureau oversight has increased. The Legislature has expanded some areas of oversight, providing a registration process for out-of-state for-profit institutions and requiring their participation in the Student Tuition Recovery Fund (STRF). Out-of-state accredited private nonprofit institutions without a physical presence in California, however, remain outside of the Bureau’s purview, and increasingly, private nonprofit and public institutions are adopting methods of program delivery modeled after for-profit institutions. The Act exempts WASC-accredited private non-profit colleges and universities chartered in California from Bureau oversight, but it requires an approval to operate for private non-profit colleges and universities with a physical presence in California that are headquartered out-of-state. Approval to operate requires compliance with minimum operating standards and numerous other requirements, such as annual reports to the Bureau with student outcome information.

This bill allows a highly qualified private nonprofit institution that has a physical presence in California but is headquartered outside the state to use a process very similar to registering, resulting in state authorization. This is in lieu of seeking an approval to operate for a nonprofit institution with a physical presence in this state. It also eliminates the exemption for accredited nonprofit institutions from having to register with the Bureau as an out-of-state institution.

1. Student Tuition Recovery Fund (STRF). 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 closure of an institution, the institutions' failure to pay refunds or reimburse loan proceeds, or the institutions' failure to pay students' restitution awards 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. Under current law, when the STRF balance exceeds $25 million, the Bureau is required to temporarily stop collecting from institutions, and when the STRF balance drops below $20 million, the Bureau is to resume collecting. In the event of a school closure, the STRF funds can serve various purposes such as compensating students or their parents for lost prepaid tuition, covering reasonable expenses for storing, maintaining, and making student records available, compensating faculty for temporary leave to finish a term or course, and reimbursing former students of the closed institution for the cost of obtaining academic records. At present, the STRF exceeds its statutory limit of $25 million, and California Code of Regulations Section 76120 has been modified, which took effect April 1, 2024, to set the assessment rate to $0.00. For the last two years, the assessment rate has been $2.50 per $1,000 of institutional charges. For example, if a student had paid $10,000 in tuition and fees, they would have paid $25.00 towards the STRF. Modifying the statute to include highly qualified private nonprofit higher education institutions will ensure certain schools continue to participate in STRF and would newly require schools to do the same.
2. Registration fees. This bill further requires a highly qualified private nonprofit institution to pay a $1,500 registration fee and specifies that registration with the Bureau is to be valid for 5 years. The opponents of this measure argue that the proposed fee is insufficient to cover the Bureau’s increased workload and recommend an annual fee of $1,500 rather than one imposed after several years. The request for increased fees is consistent with recommendations made by the Bureau in a recent report to the Legislature. AB 1780 (Ting, Chapter 45, Statutes of 2022) required the Bureau to provide the Legislature with a proposal for a new fee structure to support the Bureau’s operations. One recommendation of the report is to bring out-of-state institution fees more closely in line to those of other states to have merit, particularly as the fee paid by these institutions was reduced from $1,500 every two years to $1,500 every five years, while at the same time the required workload increased. At a minimum, the Bureau recommends assessing a fee of $1,500 annually, which would reduce the Bureau’s budget shortfall by an estimated $120,000 annually. The author may wish to consider increasing the frequency of the registration fee to ensure the increased workload is sustainable for the Bureau.
3. Trends in higher education access. Higher education in this country continues to shift due to mergers, acquisitions, and consolidation across state lines as higher education institutions face declining enrollment and the expansion of online education. According to the Legislative Analyst’s Office’s recent report on trends in higher education student access, the number of California public postsecondary campuses totals 149, along with nearly 200 private nonprofit colleges and over 500 for-profit colleges operating in this state. Since 2013-14, the number of private for-profit institutions in California participating in federal financial aid programs has declined by 23 percent. Since peak levels, total higher education enrollment has shrunk by about 2.5 million students (12 percent) nationally and 240,000 students (8.4 percent) in California. A key issue highlighted in the report is that as the high school graduate and college-age populations decline in this state, the segments are likely to begin competing more for students. The Legislature will continue to face key decisions about how much enrollment to fund at each of the public segments. Such decisions could have important implications for the size of each segment in the years to come. As the higher education landscape changes with the growth of cross-state instruction, the committee may wish to consider the potential advantages of attracting out-of-state higher education institutions, such as diversity of instruction and innovation, as well as the potential disadvantages, such as resource diversion and increased competition for California's institutions.
4. Double-referral. This bill was previously heard by the Senate Business, Professions and Economic Development Committee, which has jurisdiction over bills relating to business and professional practices and periodically conducts sunset review of various boards and licensing agencies, including the Bureau. This bill was heard by the Senate Business Professions and Economic Development Committee on July 1, 2024.
5. Prior legislation.

AB 1344 (Bauer-Kahan, Chapter 520, Statutes of 2019) requires out-of-state institutions to provide information to the Bureau and authorizes the Bureau to place these out-of-state private postsecondary institutions on a probationary status and revoke authorization to enroll California students.

SUPPORT

Northeastern University (Sponsor)

Association of Independent California Colleges & Universities

Century Foundation

OPPOSITION

Institute for College Access & Success

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SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Angelique Ashby, Chair

2023 - 2024 Regular

Bill No: Hearing Date: July 1, 2024

Subject:

SUMMARY:

Authorizes a highly qualified nonprofit private institution, as defined, located in another state, to register with the Bureau for Private Postsecondary Education (Bureau or BPPE) and authorizes a highly qualified nonprofit private institution to contract with BPPE to review and act on complaints concerning the institution.

NOTE: This bill is double-referred to the Senate Committee on Education, second.

Existing law:

1. Establishes California Private Postsecondary Education Act of 2009 (the Act) until January 1, 2027, and requires the BPPE to, among other things, review, investigate and approve private postsecondary 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 United States Department of Education (USDE). 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 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. Provides numerous exemptions from the Act and oversight by BPPE, including, but not limited to schools that are accredited by the Accrediting Commission for Senior Colleges and Universities, Western Association of Schools and Colleges, or the Accrediting Commission for Community and Junior Colleges, Western Association of Schools and Colleges. (EC § 94874 (i))
3. 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 USDE. 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)
4. Defines “out-of-state private postsecondary educational institution” as a private entity without a physical presence in this state that offers distance education to California students for an institutional charge, regardless of whether the institution has affiliated institutions or institutional locations in California. (EC § 94850.5)
5. Requires an out-of-state private postsecondary educational institution (other than a nonpublic higher education institution that grants undergraduate degrees, graduate degrees, or both, formed as nonprofit corporation and accredited by an agency recognized by the USDE) to register with the BPPE, pay a fee and provide evidence of accreditation; evidence that the institution is approved to operate in the state where the institution maintains its main administrative location and; a copy of the institution’s catalog and sample enrollment agreement. Requires these institutions to comply with STRF requirements and disclosures. Prohibits and institution from operating in California for failure to comply with the registration requirements. Establishes the validity of a BPPE registration for two years. (EC § 94801.5)
6. Authorizes BPPE to establish thresholds of California-based activity that constitute limited physical presence, with those institutions subject to registration requirements defined through regulation, and minimal levels of California-based activity that do not require institutional approval by, nor registration with, the Bureau. Specifies that an institution is considered to have a physical presence in the state if it offers instruction or core academic support services from a physical location owned, operated, or rented by or on behalf of the institution in California (EC § 94801.7)
7. Requires an independent institution of higher education that is otherwise exempt from the Act to comply with all applicable state and federal laws, including laws relating to fraud, abuse, and false advertising and authorizes these types of institutions to execute a contract with BPPE for BPPE to review and, as appropriate, act on complaints concerning the institution, according to specified requirements and subject to a fee of $1,076. (EC § 94874.9.)

This bill:

1. Beginning July 1, 2025, authorizes a highly qualified nonprofit private institution to register with BPPE pursuant to provisions in 4) above.
2. Authorizes a highly qualified nonprofit private institution to contract with BPPE to review and, as appropriate, act on complaints concerning the institution.
3. Defines highly qualified nonprofit institution as an institution that:
4. Is exempt from taxation under the Internal Revenue Code and has no insider transactions within the past five years.
5. For the past 20 years, has not operated as a for-profit institution and has awarded at least 500 degrees each year.
6. Is accredited by an institutional accrediting agency that has been recognized by the USDE for at least 10 years for accrediting institutions, the majority of which are classified as nonprofit or public and that is governed by a board of directors with no directors who hold an equity interest in an institution of higher education.

FISCAL EFFECT:

This bill is keyed fiscal by Legislative Counsel. According to the Assembly Committee on Appropriations, the bill will result in ongoing special fund costs to BPPE of about $416,000 annually and ongoing special fund increases of about $30,000 annually, based on various interplays related to the fees institutions would be required to pay to BPPE as a result of this bill. Specifically, BPPE estimates at least one institution would qualify as a highly qualified nonprofit institution, therefore creating a net loss in revenue of approximately $88,000 annually. The bill will also result in costs of $72,000 to the Office of Information Services (OIS) for development of a highly qualified nonprofit institution license type in its IT system. OIS indicates it will require a delayed implementation of July 1, 2026, to achieve this objective.

COMMENTS:

1. Purpose. Northeastern University is the Sponsor of this bill. According to the Author, “The bill establishes an alternative registration process for highly qualified non-profit institutions. The new registration system would require disclosure and timely notification to BPPE by such institutions in certain circumstances to protect consumers, but otherwise would relieve significant compliance obligations that are poorly targeted to institutions with comprehensive undergraduate and graduate degree programs. Enactment will enhance California’s economic competitiveness by ensuring that the state is not at a competitive disadvantage in attracting high-quality non-profit higher education providers.”
2. Background. The BBPE and the Act were established by Assembly Bill 48 (Portantino, Chapter 310, Statutes of 2009) after several failed legislative attempts to remedy the structural challenges of the former Bureau for Private Postsecondary and Vocational Education (BPPVE). AB 48 took effect January 1, 2010, and provided the BPPE responsibility for oversight of private postsecondary educational institutions operating with a physical presence in California. While the Legislature has amended the Act several times since the initial passage of AB 48, it has consistently directed BPPE to make protection of the public the highest priority in performing duties and exercising powers. Today, the Act expresses Legislative intent that BPPE:

• Ensure minimum educational quality standards and opportunities for success for California students attending private postsecondary schools in California;
• Provide meaningful student protections through essential avenues of recourse for students;
• Establish a regulatory structure that provides an appropriate level of oversight;
• Provide a regulatory structure that ensures all stakeholders have a voice and are heard in policymaking by the Bureau;
• Ensure accountability and oversight by the Legislature through program monitoring and periodic reports;
• Prevent harm to students and the deception of the public that results from fraudulent or substandard educational programs and degrees.

BPPE also actively investigates and combats unlicensed activity, administers the Student Tuition Recovery Fund (STRF), and conducts outreach and education activities for students and private postsecondary educational institutions within the state. Within BPPE is the Office of Student Assistance and Relief (OSAR), established by SB 1192 (Hill, Chapter 593, Statutes of 2016) which exists to advance the rights of students at private postsecondary educational institutions and assist students who have suffered economic loss due to unlawful activities or the closure of an institution.

Exemptions. Independent institutions have operated in California for hundreds of years, largely under the rules and requirements governing non-profit entities. For-profit colleges and non-profit certificate programs entered the regulatory structure in the early 1990’s in response to a lack of state-level oversight. Despite attempts at meaningful reform and the establishment of laws governing the regulation of institutions, the fragmented regulatory and oversight structure of the former acts were the heart of the rationale behind the eventual elimination of the laws guiding the former BPPVE and the sunset of that bureau.

AB 48, while establishing a foundation for regulation of private postsecondary educational institutions, contained numerous exemptions to state-level regulation, which have since been expanded and added to. The following are currently exempt from the Act and oversight by BPPE:

• An institution that offers solely avocational or recreational educational programs.
• An institution offering educational programs sponsored by a bona fide trade, business, professional, or fraternal organization, solely for that organization’s membership.
• A bona fide organization, association or council that offers preapprenticeship training programs on behalf of one or more Division of Apprenticeship Standards-approved labor-management or apprenticeship programs that is not on the ETPL currently but has met requirements for placement on the list, that is on the ETPL and that has not been removed from the ETPL for failure to meet performance standards.
• A postsecondary educational institution established, operated, and governed by the federal government or by this state or its political subdivisions.
• An institution offering either test preparation for examinations required for admission to a postsecondary educational institution or continuing education or license examination preparation, if the institution or the program is approved, certified, or sponsored by a government agency, other than the Bureau, that licenses persons in a particular profession, occupation, trade, or career field; a state-recognized professional licensing body, such as the State Bar of California, that licenses persons in a particular profession, occupation, trade, or career field; or a bona fide trade, business, or professional organization
• An institution owned, controlled, and operated and maintained by a religious organization lawfully operating as a nonprofit religious corporation whose instruction is limited to the principles of that religious organization and the diploma or degree granted is limited to evidence of completion of that education. The institution is only eligible to offer degrees and diplomas in the beliefs and practices of the church, religious denomination, or religious organization and shall not award degrees in any area of physical science. Any degree or diploma granted by an institution owned, controlled, and operated and maintained by a religious organization lawfully operating as a nonprofit religious corporation shall contain on its face, in the written description of the title of the degree being conferred, a reference to the theological or religious aspect of the degree’s subject area. The degree must reflect the nature of the degree title, such as “associate of religious studies,” “bachelor of religious studies,” “master of divinity,” or “doctor of divinity.”
• An institution that does not award degrees and that solely provides educational programs for total charges of two thousand five hundred dollars ($2,500) or less when no part of the total charges is paid from state or federal student financial aid programs.
• Law schools as previously described.
• A nonprofit public benefit corporation that is qualified under Section 501(c)(3) of the United States Internal Revenue Code, is organized specifically to provide workforce development or rehabilitation services and is accredited by an accrediting organization for workforce development or rehabilitation services recognized by the Department of Rehabilitation.
• Schools accredited by certain accrediting agencies as previously described.
• Flight instruction providers or programs that provide flight instruction pursuant to Federal Aviation Administration (FAA) regulations and do not require students to enter into written or oral contracts of indebtedness and do not require or accept prepayment of instruction-related costs in excess of $2,500.
• An institution owned, controlled, operated, and maintained by a community-based organization that meets specified criteria and complies with specified requirements.
• An institution that is accredited by the Accrediting Commission for Senior Colleges (ACSC) and Universities, Western Association of Schools and Colleges (WASC), or the Accrediting Commission for Community and Junior Colleges (ACCJC) that has been accredited by a USDE recognized accrediting agency for at least 10 years and has not been placed on probation or on monitoring or sanctioned; is headquartered in California and has operated continuously for at least 25 years; is privately held and was previously granted an approval to operate by the BPPE or the former Bureau and has not changed ownership since its last approval; has not filed for bankruptcy protection; maintains an equity ratio composite score of at least 1.5; derives at least 12.5 percent of its revenues from sources other than state or federal student assistance like Title 38 and CalGrant monies; does not have a cohort default rate over 13 percent for the most recent 3 years; has a graduation rate that exceeds 60 percent; has not been subject to any legal or regulatory actions by a state AG that resulted in monetary settlement, fines or other documented violations; provides a pro rata refund of unearned institutional charges to students who complete 75 percent or less of the period of attendance; complies with other reasonable criteria established by the California State Approving Agency for Veterans Education; and verifies its exemption with the Bureau.

The Act was also amended in 2015 to prohibit an institution, beginning January 1, 2016, from claiming an exemption from the Act if the institution is approved to participate in Title 38 veterans benefits programs. There were serious concerns stemming from multiple reports and hearings focusing on the experience of veterans at private for-profit institutions, about false and predatory advertising to veterans, and about the potential lack of accountability for the millions of dollars administered by the federal Veterans Administration (VA) and Department of Defense (DOD) spent at private postsecondary education institutions in California if schools are not regulated.

The exemptions in the Act, and attempts to create additional exemptions, have been an ongoing source of consideration for the Legislature. It was not until a hearing in the Senate that AB 48 was amended to include a “good schools” exemption, as institutions pushing for this exemption (based on criteria like length of operation under one owner and nonprofit status) argued that a similar recognition had been included in all legislation related to private postsecondary institution regulation since 1991 and should be continued. In 2014, during the discussion surrounding SB 1247 (Lieu, Chapter 840, Statutes of 2014), the Author submitted a letter to the Senate Journal requesting that the Legislature strike the exemption outlined above for WASC accredited institutions to remain exempt, and asked that all exemptions provided for in the Act be thoroughly examined by the Legislature to determine the merits of their continuation.

Action taken by the USDE in 2010 aimed at improving the integrity of programs authorized under Title IV of the Higher Education Act requires, among other things, that to remain eligible for Title IV, postsecondary education institutions must be authorized to operate in the state they are located and must ensure access to a complaint process that will permit student consumers to address alleged violations of state consumer protection laws. These changes rendered independent institutions of higher education, exempt from Bureau oversight and regulation under the Act by virtue of being accredited by a regional accrediting agency, potentially unable to meet the state authorization and complaints process requirements for Title IV. In response, the Department of Finance issued a Spring Finance Letter in May 2015 that proposed statutory changes allowing independent institutions of higher education located in California to be recognized by the state and to enter into a contract with BPPE to establish a state-level student complaint process. The Bureau subsequently entered into contracts with over 100 institutions in 2015.

A number of institutions previously verified as exempt under the Act have now sought voluntary approval by BPPE to comply with Title IV requirements.

The Act, as created by AB 48, attempted to correct many of the prior laws’ structural problems, most especially the former acts’ different standards and requirements for different categories of institutions that created legal and regulatory complexities. The Act has one single category of institution and establishes the same standards and requirements for all of the institutions under the Bureau’s oversight. Yet many of the institutions supportive of exemptions were exempt under the prior BPPVE regulatory framework and sought or even still seek to continue operating as they always have: subject to oversight by accreditors and state and federal oversight agencies responsible for approving the expenditure of public monies, but not the BPPE.

Licensing laws exist to protect the public from potentially harmful services rendered by unqualified businesses and individuals. The intent of licensure is not to punish good actors or impose punitive requirements on businesses and individuals but rather to establish a baseline of licensee quality and competency and corresponding enforcement provisions for consequences of violating the regulatory framework. Professionals and businesses required to be licensed are not able to justify a lack of disciplinary action or sanctions to then skirt their licensure requirement.

Exemptions in the Act may serve as an artificial measure of quality and in some cases, while the intention may have been to ensure that the BPPE’s workload is focused on those schools that require attention, may not benefit the public and provide accountability for public monies utilized at these institutions.

Out-of-state registration. As noted in the January 2024 Bureau for Private Postsecondary Education Funding Study (Study) prepared for the Department of Consumer Affairs by the Foundation for California Community Colleges:

“When the current version of the Bureau was created in 2009, policymakers were trying to solve for the emerging problem of the time: The proliferation of a new type of school in the marketplace, mainly large publicly traded for-profit institutions offering academic and vocational degrees. Previously, the state’s regulatory role had been focused primarily on smaller vocational and trade schools (e.g., barbering and cosmetology; truck driving, medical assisting) because this new spate of schools had yet to exist at the scale they do now.

While the basic framework for the Bureau has remained largely unchanged, the industry it regulates is constantly changing. Perhaps with the exception of financial institutions, no other regulated industry has changed as much and as fast as private postsecondary education. The presumption in 2009 was, if California could put in place an approval process for schools to operate in the state, that process would be enough to provide students with the protections they need and deserve.

While the current framework put some enforcement provisions in place, that does not appear to have been policymaker’s primary focus. Colleges are increasingly owned by corporations that merge, buy and sell schools, convert from profit to not-for-profit, and move out-of-state, all while continuing to enroll Californians. The state has seen an influx of out-of-state colleges operating online-only education programs for students within its borders, something that could not have been foreseen in 2009. Additionally, schools' access to federal student aid dollars, and more importantly, students’ access to student loans, have become drivers of the federal government’s accountability and student protection policies… When colleges change their legal structures and/or move out-of-state while continuing to enroll Californians, fewer schools end up paying BPPE’s annual fees…

BPPE currently has very little authority to monitor or follow up with schools, whether that be to assess citations or penalties for problematic school activities at registered institutions, or to pursue actions against unregistered online institutions enrolling California students. Lack of authority in this area is a significant limitation to BPPE’s ability to enforce California law…”

Mills College. Mills College was founded in Benicia as the Young Ladies' Seminary. The school was moved to Oakland in 1872, after being purchased by two missionaries who were champions of women's rights. Mills was the first women's college to offer a computer science major in 1974, the first and only women's college to reverse a decision to go co-ed in 1990, and the first single-sex college to adopt an admissions policy welcoming transgender students in 2014. In 2021, amidst financial challenges and declining enrollment, the school announced that it would stop enrolling undergraduates after the fall of 2021. Mills College was accredited by WASC, thus exempt from BPPE oversight. In June 2021, it was announced that Mills would merge with Northeastern University; the institution is now a BPPE-approved school, Northeastern University Oakland.

1. Arguments in Support. Northeastern University states that “Institutional safeguards will remain in place under the bill. Any nonprofit university that would use this new pathway must demonstrate that it is committed to California’s students. BPPE will retain the right to approve, deny, condition, or revoke the registration of an institution. In order to be approved to operate in the state, the institution must show BPPE that it maintains a physical presence in the state. Importantly, the bill reduces programmatic burdens on students. Currently, undergraduate students attending nonprofit universities regulated by BPPE must declare a major before beginning their four-year course of study. While this may make sense for short-term vocational programs, at non-profit liberal arts colleges and comprehensive research universities, academic exploration and discovery are the hallmark of an undergraduate education, particularly during the first year. Approximately one-quarter of incoming students at Northeastern University-Oakland seek to begin their undergraduate studies as undeclared. This bill corrects the practice of requiring students to enroll in a degree program before they have decided on a major by exempting highly qualified institutions from this requirement.”

The Century Foundation writes that “With the federal elimination of the geographic limitations on formerly “regional” accrediting agencies, nonprofit institutions accredited by other former regional agencies might reasonably argue for the same treatment as the WASC-accredited institutions…that type of change would be a mistake, subjecting even more institutions to oversight that is too minimal in scope. AB 3167 offers a reasonable alternative: a streamlined process for the most reputable nonprofit higher education institutions, accredited by reputable accrediting agencies, to be able to register for oversight by the Bureau... Northeastern-Mills has successfully come under full BPPE oversight and is fully eligible for Title IV funding. That said, the university has made a convincing case that some of the BPPE requirements are a mismatch, confusing to students and not a good use of administrative and financial resources. A less onerous approach to oversight makes sense given Northeastern’s long history as a reputable, regionally-accredited nonprofit institution. Consideration of this approach is also warranted as a matter of equity given the nearly nonexistent Bureau oversight of WASC nonprofits.”

According to the Association of Independent California Colleges and Universities, “As the higher education ecosystem in the state and nationally continues to evolve, it is critical that policymakers make thoughtful changes to the policies that regulate it. We believe that the policies proposed in AB 3167 make modest but important improvements that benefit students while maintaining proper consumer protection oversight by the state.”

1. Arguments in Opposition. The Institute for College Access & Success (TICAS) writes that “we must consider the broader policy implications which this bill could lead California towards. This bill may inadvertently allow more out-of-state public or nonprofit institutions to perceive this new registration status as a future mechanism to lobby themselves into so that they may establish legitimacy for purposes of accessing federal financial aid, or even California’s financial aid. This is particularly concerning given the already limited financial aid available to California’s community colleges and four-year institutions. Furthermore, during times of fiscal limitations, California should not open the door to diverting state resources from in-state public institutions which serve that vast majority of student in the state.”

According to TICAS, “The bill’s current enforcement mechanisms may place the Bureau in a difficult position, forcing it to choose between costly litigation and allowing minor infractions. This situation could further strain the Bureau’s limited budget and resources.” The organization also believes that AB 3167 should include reporting requirements for the BPPE to provide the Legislature with data on the implementation and impact of this new registration classification. This will help assess which institutions qualify, which do not, and the reasons behind these outcomes.

1. Policy Questions and Comments.

Compliance with certain provisions of the Act and BPPE regulations. Northeastern University Oakland is a BPPE-approved school. The bill’s sponsors indicate that there are onerous provisions of the Act that make compliance difficult, for example, the requirement that students at BPPE-approved schools declare a major and the requirement to receive BPPE approval for programmatic changes. Rather than create a separate regulatory pathway, should Northeastern University Oakland instead be exempt from specific requirements in the Act it cannot meet?

Workload and funding. As the Study acknowledged, “…BPPE relies solely on fees paid by schools…This model has become unsustainable. In particular, BPPE’s fees: (1) were set in statute in 2016 and last adjusted in 2018;4 (2) must be adjusted statutorily by the Legislature; (3) are assessed on a constantly changing industry that expands and contracts in unexpected ways that make it difficult to predict, much less rely on, fee revenue; and (4) are insufficient to cover either BPPE’s actual ongoing costs or the unexpected costs for activities related to enforcement, litigation and school closures, among others.” The Study noted that “A key place where the workload of the Bureau is out of alignment with the fee structure is the approval of out-of-state institutions operating online education programs in California. These institutions are charged an extremely nominal fee of $1,500, which previously was assessed every 2 years but now covers 5 years (effectively making the rate $300 per year). This fee level is entirely insufficient to cover the costs of the Bureau to authorize these schools and is out of sync with what other comparable states charge.” The Study recommended that…”given that California’s annual fee of $300 is comparatively minimal, out-of-state institution fees should immediately be increased to at least $1,500 per year rather than every five years.”

BPPE workload could increase dramatically through this bill, depending on the number of highly qualified private nonprofit institutions that register with the Bureau. For every school that seeks registration, BPPE still has to consider whether to approve, deny, or condition initial registration based upon the substantial information provided by an institution that still requires evaluation and analysis. It is unclear whether BPPE will have the resources to effectively fulfill all of its statutory requirements and Legislative priorities with this added responsibility.

SUPPORT AND OPPOSITION:

Support:

Association of Independent California Colleges & Universities
Century Foundation
Northeastern University

Opposition:

The Institute for College Access & Success

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 3167

Author:(Chen)

As Amended Ver:April 24, 2024

Majority vote

SUMMARY

Authorizes, beginning July 1, 2025, a "highly qualified nonprofit institution," as specified, to register with California's Bureau of Private Postsecondary Education (BPPE).

Major Provisions

1. Defines a highly qualified nonprofit institution as one with the following qualifications:
   1. The institution is exempt from taxation under the Internal Revenue Code and has no insider transactions within the past five years;
   2. For the previous 20 years, the institution has not operated as a for-profit institution and has awarded at least 500 degrees each year;
   3. The institution has been accredited by an institutional accrediting agency recognized by the United States Department of Education for at least 10 years that accredits institutions, the majority of which are classified by the United States Department of Education as nonprofit or public; and,
   4. The institution is governed by a board of directors with no directors who hold an equity interest in an institution of higher education.
2. Requires that a highly qualified nonprofit institution pay a $1,500 registration fee and specifies that a registration with BPPE is to be valid for 10 years. The bill also allows a highly qualified nonprofit institution to post a surety bond rather than assessing the Student Tuition Recovery Fund (STRF) on its students.
3. Requires BPPE to develop, through emergency regulations effective on and after July 1, 2025, a registration form for highly qualified nonprofit institutions. The emergency regulations will become law through the regular rulemaking process on or before January 1, 2026.
4. Eliminates the exemption of an accredited nonprofit corporation from having to register with BPPE as an out-of-state institution and requires registered out-of-state institutions to report specific changes in their circumstance that would affect their registration status to BPPE within 30 days. The bill further requires BPPE investigate complaints regarding registered institutions.

COMMENTS

BPPE. BPPE and the Act were established by AB 48 (Portantino, Chapter 310, Statutes of 2009) after several failed legislative attempts to remedy the Bureau for Private Postsecondary and Vocational Education (BPPVE) structural challenges. AB 48 took effect January 1, 2010, and, in part, changed the name from the BPPVE to the BPPE and provided the BPPE responsibility for oversight of private postsecondary educational institutions operating with a physical presence in California. While the Legislature has amended the Act several times since the initial passage of AB 48, it has consistently directed the BPPE to make protection of the public their highest priority in performing duties and exercising powers. Today, the Act expresses Legislative intent that the BPPE:

1. Ensure minimum educational quality standards and opportunities for success for California students attending private postsecondary schools in California;
2. Provide meaningful student protections through essential avenues of recourse for students;
3. Establish a regulatory structure that provides an appropriate level of oversight;
4. Provide a regulatory structure that ensures all stakeholders have a voice and are heard in policymaking by the BPPE;
5. Ensure accountability and oversight by the Legislature through program monitoring and periodic reports;
6. Prevent harm to students and the deception of the public that results from fraudulent or substandard educational programs and degrees.

The BPPE also actively investigates and combats unlicensed activity, administers the STRF, and conducts outreach and education activities for students and private postsecondary educational institutions within the state. Within BPPE exists the Office of Student Assistance and Relief (OSAR), established by SB 1192 (Hill, Chapter 593, Statutes of 2016), which exists to advance the rights of students at private postsecondary educational institutions and assist students who have suffered economic loss due to unlawful activities or the closure of an institution.

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 closure of an institution, 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.

Currently, the STRF exceeds its statutory limit of $25 million, and 5 California Code of Regulations Section 76120 has been modified, effective April 1, 2024 to set the assessment rate to $0.00. For the last two years, the assessment rate has been $2.50 dollars per $1,000 dollars of institutional charges. As an example, for a student paying $10,000 dollars of tuition and fees, that student would have paid $25.00 towards the STRF.

Highly qualified nonprofit institution. AB 3167 (Chen) creates a new institutional status under the CPPEA – that of the "highly qualifies nonprofit institution." In order to meet this definition, an institution needs to be able to meet several benchmarks, including evidence of accreditation, and must be free from specified forms of disciplinary action over the prior five years.

According to the Century Foundation, which has published extensively on issues related to for-profit institutions, notes that the provisions of AB 3167 seem to be a "reasonable solution that considerably eases the burdens on the institution, and students, while maintaining some BPPE oversight."

Comments from BPPE. The registration methodology proposed in AB 3167 (Chen) builds on an approval process of online students originally authorized in AB 1344 (Bauer-Kahan), Chapter 520, Statutes of 2019. According to correspondence with the BPPE, the registration requirement for out-of-state institutions provides greater insight into which institutions are enrolling Californians along with a sense of scale of enrollment. The registration scheme has enabled the OSAR to support Californians impacted by closures of out-of-state institutions, including helping them file claims for the STRF.

However, the BPPE noted several challenges with the existing out-of-state registration process, making it challenging to use and costly for the BPPE. The Bureau has not yet denied any registrations or placed conditions on any registrations since the law was amended to allow it to do so.

According to the BPPE, the enforcement tools are powerful, but blunt, and do not always fit the situations presented. They force a choice between allowing these schools to commit minor infractions without consequence or having the BPPE take more severe measures at risk being overturned through costly litigation.

According to the Author

According to the author, "This bill would help high-quality nonprofit universities located in California by reducing burdens on students and colleges. In 2009, the state appropriately set consumer protection rules for vocational schools that enact safeguards for students against fraud. While these rules still make sense for such vocational schools, they now also apply to comprehensive or research schools and graduate schools that merge with California institutions. If we can be assured the schools are high-quality and committed to staying in California, it doesn't make sense to require students to choose a course of study or charge them a fee to ensure these schools don't fraudulently accept their tuition payments. This bill will address these issues while incorporating safeguards to ensure California's students are protected. Some nonprofit colleges and universities in California and nationwide are facing declining enrollment and financial strain. To address this, some have chosen to merge with other partner institutions. With this bill, both California and New York are considering legislative proposals to simplify this process."

Arguments in Support

Boston-based Northeastern University, which was founded in 1898 and has a network of 13 campuses, merged with Mills College in July 2022. Northeastern writes that “institutional safeguards will remain in place under [AB 3167 (Chen)]. Any nonprofit university that would use this new pathway must demonstrate that it is committed to California's students. BPPE will retain the right to approve, deny, condition, or revoke the registration of an institution. In order to be approved to operate in the state, the institution must show BPPE that it maintains a physical presence in the state. Importantly, the bill reduces programmatic burdens on students.

Northeastern continued that, "currently, undergraduate students attending nonprofit universities regulated by BPPE must declare a major before beginning their four-year course of study. While this may make sense for short-term vocational programs, at non-profit liberal arts colleges and comprehensive research universities, academic exploration and discovery are the hallmark of an undergraduate education, particularly during the first year. Approximately one-quarter of incoming students at Northeastern University-Oakland seek to begin their undergraduate studies as undeclared. This bill corrects the practice of requiring students to enroll in a degree program before they have decided on a major by exempting highly qualified institutions from this requirement.

The Association of Independent California Colleges and Universities (AICCU) wrote that "students must pay into the [STRF], driving up their cost of attendance, even though an institution like Northeastern University is at no considerable risk of closure…As the higher education ecosystem in the state and nationally continues to evolve, it is critical that policymakers make thoughtful changes to the policies that regulate it. We believe that the policies proposed in AB 3167 make modest but important improvements that benefit students while maintaining proper consumer protection oversight by the state."

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Assembly Committee on Appropriations:

1. Ongoing Special Fund costs to BPPE of about $416,000 annually for 2.5 staff to implement the requirements of this bill.

Specifically, BPPE estimates it would need (a) two staff at $328,000 annually to investigate one complaint per year per registered out-of-state institution (this assumes 10 hours and 400 complaints) and (b) half a staff at $88,000 annually to review changes submitted by out-of-state institutions that would affect their registration status (this assumes about 20% of the 400 institutions report a change annually and it takes an analyst 10 hours per report to review).

1. Ongoing Special Fund increases of about $30,000 annually, based on various interplays related to the fees institutions would be required to pay to BPPE as a result of this bill.
2. Absorbable Special Fund costs of $72,000 to the Office of Information Services (OIS) for development of a highly qualified nonprofit institution license type in its IT system. OIS indicates it will require a delayed implementation of July 1, 2026, to achieve this objective.

VOTES

ASM HIGHER EDUCATION: 11-0-0

YES: Mike Fong, Ta, Arambula, Boerner, Chen, Alanis, Irwin, Jackson, Addis, Muratsuchi, Quirk-Silva

ASM BUSINESS AND PROFESSIONS: 17-0-1

YES: Berman, Flora, Alanis, Bains, Juan Carrillo, Chen, Dixon, Aguiar-Curry, Irwin, Jackson, Lowenthal, McKinnor, Stephanie Nguyen, Pellerin, Sanchez, Soria, Zbur

ABS, ABST OR NV: Low

ASM APPROPRIATIONS: 15-0-0

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

UPDATED

VERSION: April 24, 2024

CONSULTANT: Kevin J. Powers / HIGHER ED. / (916) 319-3960 FN: 0003207

Date of Hearing: May 8, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 3167

Author:(Chen) – As Amended Ver:April 24, 2024

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

SUMMARY:

This bill authorizes, beginning July 1, 2025, a “highly qualified nonprofit institution” to register with California’s Bureau of Private Postsecondary Education (BPPE).

Specifically, this bill defines a highly qualified nonprofit institution as one with the following qualifications:

1. The institution is exempt from taxation under the Internal Revenue Code and has no insider transactions within the past five years.
2. For the previous 20 years, the institution has not operated as a for-profit institution and has awarded at least 500 degrees each year.
3. The institution has been accredited by an institutional accrediting agency recognized by the United States Department of Education for at least 10 years that accredits institutions, the majority of which are classified by the United States Department of Education as nonprofit or public.
4. The institution is governed by a board of directors with no directors who hold an equity interest in an institution of higher education.

The bill requires that a highly qualified nonprofit institution pay a $1,500 registration fee and specifies that a registration with BPPE is to be valid for 10 years. The bill also allows a highly qualified nonprofit institution to post a surety bond rather than assessing the Student Tuition Recovery Fund (STRF) on its students.

The bill further requires BPPE to develop, through emergency regulations effective on and after July 1, 2025, a registration form for highly qualified nonprofit institutions. The emergency regulations shall become law through the regular rulemaking process on or before January 1, 2026.

This bill also eliminates the exemption of an accredited nonprofit corporation from having to register with BPPE as an out-of-state institution and requires registered out-of-state institutions to report specific changes in their circumstance that would affect their registration status to BPPE within 30 days. The bill further requires BPPE investigate complaints regarding registered institutions.

FISCAL EFFECT:

1. Ongoing Special Fund costs to BPPE of about $416,000 annually for 2.5 staff to implement the requirements of this bill.

Specifically, BPPE estimates it would need (a) two staff at $328,000 annually to investigate one complaint per year per registered out-of-state institution (this assumes 10 hours and 400 complaints) and (b) half a staff at $88,000 annually to review changes submitted by out-of-state institutions that would affect their registration status (this assumes about 20% of the 400 institutions report a change annually and it takes an analyst 10 hours per report to review).

1. Ongoing Special Fund increases of about $30,000 annually, based on various interplays related to the fees institutions would be required to pay to BPPE as a result of this bill.

Specifically, BPPE estimates at least one institution would qualify as a highly qualified nonprofit institution, therefore creating a net loss in revenue of approximately $88,000 annually. This bill would also eliminate the exemption of an accredited nonprofit corporation from having to register as an out-of-state institution. As a result, BPPE estimates that up to 400 out-of-state institutions that are currently exempted from registration would now have to register with BPPE at a rate of $1,500 each every five years. As a result, BPPE estimates a revenue increase of $120,000 annually.

1. Absorbable Special Fund costs of $72,000 to the Office of Information Services (OIS) for development of a highly qualified nonprofit institution license type in its IT system. OIS indicates it will require a delayed implementation of July 1, 2026, to achieve this objective.

COMMENTS:

1. Purpose. Boston-based Northeastern University, which recently merged with Mills College, is the sponsor of this bill and writes:

Under current law, high-quality nonprofit institutions with a physical presence in California but which are headquartered outside the state fall into the same regulatory category as private proprietary and vocational schools offering short-term programs. While the California Private Postsecondary Education Act was established in 2009 to protect students from predatory institutions, it’s application today has an outsized effect on high quality non-profit institutions that partner with independent California schools, such as the merger between Northeastern and Mills College. [This bill] would create an alternative registration pathway for institutions such as Northeastern that meet appropriately high standards, to be considered highly qualified. As the higher education landscape continues to shift amidst a trend toward acquisition, merger, and consolidation, this is an important change to ensure California is not at a competitive disadvantage in attracting high-quality education providers to meet the state’s need to develop and retain a highly skilled workforce.

1. Background. BPPE is responsible for overseeing anyprivate postsecondary educational institution that has a physical presence in California and enforcing the California Private Postsecondary Education Act. Among other requirements, the California Private Postsecondary Education Act directs BPPE to review and approve private postsecondary educational institutions, establish minimum operating standards for institutions to ensure educational quality, provide an opportunity for student complaints to be resolved, and ensure private postsecondary educational institutions offer accurate information to prospective students about school and student performance. BPPE also investigates and addresses unlicensed activity, conducts research and outreach to students and postsecondary educational institutions, and administers the STRF.

The STRF provides financial assistance to students who enrolled at BPPE-overseen private postsecondary educational institutions in instances where the institution closes, fails to pay refunds or reimburse loan proceeds, or fails to pay restitution awards to students for a violation of the California Private Postsecondary Education Act. The STRF is funded by assessments paid by students, collected by institutions, and then remitted to the BPPE. When the STRF balance exceeds $25 million, BPPE must temporarily reduce the assessment rate to $0, effectively stopping collection for STRF. The STRF is currently above its cap and BPPE is not collecting the assessment. Prior suspending the collection, the assessment rate on a student was $2.50 per $1,000 of institutional charges.

Private and out-of-state nonprofit institutions with a physical presence in California must be “approved to operate” by BPPE, which requires compliance with minimum operating standards and numerous other requirements, such as annual reports to BPPE with student outcome information. Out-of-state public institutions with a physical presence in California are not required to, but may, seek approval to operate from BPPE so that their students are eligible for federal financial aid. Out-of-state for-profit institutions that want to enroll California students for online programs instead “register” with BPPE. These institutions are not required to meet minimum operating standards as are those institutions that are approved to operate. To register with BPPE, an institution must provide limited information, pay a fee, and pay into the STRF. Specifically, the institution must pay a $1,500 registration fee and specifies that a registration with BPPE is to be valid for five years.

This bill allows a highly qualified nonprofit institution that has a physical presence in California but is headquartered outside the state to use a process very similar to registering with BPPE. However, the bill allows a highly qualified nonprofit institution to post a surety bond rather than assessing the STRF on its students. (The bill’s sponsor, Northeastern University, indicates it does not want to increase student costs by assessing the STRF.) In addition, the bill requires a highly qualified nonprofit institution to pay a $1,500 registration fee and specifies that registration with BPPE is to be valid for 10 years.

Current law also exempts an accredited nonprofit corporation from having to register with BPPE as an out-of-state institution. BPPE estimates about 400 institutions currently fall under this exemption.

This bill eliminates this exemption and requires registered out-of-state institutions to report specific changes in their circumstance that would affect their registration status to BPPE within 30 days and requires BPPE investigate complaints regarding registered institutions.

1. Prior Legislation. SB 1433 (Roth), Chapter 544, Statutes of 2022, in part, allows an out-of-state public institution of higher education that maintains a physical presence in California to apply for an approval to operate from BPPE. This bill was sponsored by Arizona State University (ASU). ASU has a campus in downtown Los Angeles and wished to be authorized to contract with BPPE for purposes of handling complaints made against ASU, as required by the U.S. Department of Education for students to be eligible to receive federal financial aid.

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

Date of Hearing:

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Marc Berman, Chair

ABPCA Bill Id:AB 3167

Author:(Chen) – As Amended Ver:March 21, 2024

NOTE: This bill was double referred to the Assembly Committee on Higher Education, where it passed 11-0-0.

SUBJECT: California Private Postsecondary Education Act of 2009: highly qualified nonprofit institution.

SUMMARY: Authorizes a highly qualified nonprofit institution, as defined, to register with the Bureau for Private Postsecondary Education (BPPE or bureau) by paying a registration fee and complying with specified requirements for registration.

EXISTING LAW:

1. Enacts the California Private Postsecondary Education Act (Act) to provide for the regulation and oversight of private postsecondary schools, subject to repeal on January 1, 2023. (Education Code (EDC) §§ 94800 et seq.)
2. Establishes the BPPE within the Department of Consumer Affairs (DCA) to regulate private postsecondary educational institutions. (EDC § 94820)
3. Defines “private postsecondary educational institution” as a private entity with a physical presence in California that offers postsecondary education to the public for an institutional charge. (EDC § 94858)
4. Requires the BPPE to adopt regulations establishing minimum operating standards for private postsecondary educational institutions. (EDC § 94885)
5. Prohibits a person from opening, conducting, or doing business as a private postsecondary educational institution in this state without obtaining an approval to operate from the bureau. (EDC § 94886)
6. Allows a public institution of higher education that is operated by another state, and that maintains a physical presence in California to apply for an approval to operate from the bureau. (EDC § 94949.8)
7. Authorizes the BPPE to grant approval to operate only after an applicant has presented sufficient evidence to the bureau, and the bureau has independently verified the information provided by the applicant through site visits or other methods deemed appropriate by the bureau, that the applicant has the capacity to satisfy the minimum operating standards; requires the BPPE to deny an application for an approval to operate if the application does not satisfy those standards. (EDC § 94887)
8. Provides that a standard approval to operate shall be valid for five years. (EDC § 94888)
9. Requires the BPPE to grant an accredited institution an approval to operate by means of its accreditation. (EDC § 94890)
10. Exempts from the Act institutions that meet specified criterion, including institutions that are accredited by the Accrediting Commission for Senior Colleges and Universities, Western Association of Schools and Colleges, or the Accrediting Commission for Community and Junior Colleges, Western Association of Schools and Colleges. (EDC § 94874)
11. Requires institutions exempt from the Act to still comply with laws relating to school closure and laws relating to fraud, abuse, and false advertising. (EDC § 94874.9(a))
12. Defines “independent institutions of higher education” as nonpublic higher education institutions that grant undergraduate degrees or graduate degrees and are accredited by an agency recognized by the United States Department of Education. (EDC § 66010(b))
13. Authorizes an independent institution of higher education that is except due to its accreditation status to execute a contract with the bureau for the bureau to review and, as appropriate, act on complaints concerning the institution. (EDC § 94874.9(b))
14. Defines “out-of-state private postsecondary educational institution” as a private entity without a physical presence in this state that offers distance education to California students for an institutional charge, regardless of whether the institution has affiliated institutions or institutional locations in California. (EDC § 94850.5)
15. Requires an out-of-state private postsecondary educational institution to register with the bureau, pay a fee, provide specified information, and comply with certain reporting requirements. (EDC § 94801.5)
16. Prohibits institutions that are operating in this state and subject to approval or registration requirements from engaging in specified business practices. (EDC § 94897)
17. Specifies that an institution, as described, is legally authorized by a State if the State has a process to review and appropriately act on complaints concerning the institution including enforcing applicable State laws, and the institution meets specified provisions. (34 Code of Federal Regulations § 600.9)

THIS BILL:

1. Authorizes a highly qualified nonprofit institution to register with the BPPE, pay a fee as specified, and comply with all of the following:
   1. The institution shall provide the BPPE with all of the following information, as applicable, for consideration of initial registration by the BPPE as specified:
      1. Evidence of institutional accreditation;
      2. Evidence that the institution is approved to operate in the state where the institution maintains its main administrative location;
      3. The agent for service of process, as specified;
      4. A copy of the institution’s catalog and, if the institution uses enrollment agreements, a copy of a sample enrollment agreement;
      5. Whether or not the institution, or a predecessor institution under substantially the same control or ownership, had its authorization or approval revoked or suspended by a state or by the federal government, or, within five years before submission of the registration, was subject to an enforcement action by a state or by the federal government that resulted in the imposition of limits on enrollment or student aid, or is subject to such an action that is not final and that was ongoing at the time of submission of the registration;
      6. Whether or not the institution, or a controlling officer of, or a controlling interest or controlling investor in, the institution or in the parent entity of the institution, had been subject to any education, consumer protection, unfair business practice, fraud, or related enforcement action by a state or federal agency within five years before submitting the registration. If so, the institution shall provide the BPPE a copy of the operative complaint with the registration;
      7. Whether or not the institution is currently on probation, show cause, or subject to other adverse action, or the equivalent thereof, by its accreditor or has had its accreditation revoked or suspended within the five years before submitting the registration;
      8. Whether or not the institution, within five years before submitting the registration, has settled, or been adjudged to have liability for, a civil complaint alleging the institution’s failure to provide educational services, including a complaint alleging a violation of Title IX of the Education Amendments of 1972 (20 U.S.C. Sec. 1681, et seq.) or a similar state law, or a complaint alleging a violation of a law concerning consumer protection, unfair business practice, or fraud, filed by a student or former student, an employee or former employee, or a public official, for more than two hundred fifty thousand dollars ($250,000). The institution will provide the BPPE a copy of the complaint filed by the plaintiff and a copy of the judgment or settlement agreement for any such judgment or settlement, and the BPPE shall consider, as specified, all material terms and aspects of the settlement, including, for example, whether a student plaintiff remained enrolled or reenrolled at the institution; and
      9. Any additional documentation the BPPE deems necessary for consideration in the registration process.
   2. When considering whether to approve, deny, or condition initial registration based upon the information provided by an institution, the BPPE will do all of the following:
      1. Not consider any individual submission made, as specified, to be solely determinative of the institution’s eligibility for registration but, exercising its reasonable discretion, approve, reject, or condition registration based upon a review of all of the information provided, as specified;
      2. Provide an institution with reasonable notice and an opportunity to comment regarding any determination to deny, condition, or reject initial registration before that determination becomes final. After the determination becomes final, the institution may seek review of the BPPE’s decision through an action brought as specified; and,
      3. Require the initial registration, if approved, to memorialize that the institution agrees, as a condition of its registration, to be bound by this section and that its registration may be rejected, conditioned, or revoked for failure to comply with this section, as specified. The agreement shall be signed by a responsible officer of the institution.
   3. An institution that is registered with the BPPE and enrolls a student residing in California shall report in writing to the BPPE, within 30 days, the occurrence of any of the following:
      1. The institution has its authorization or approval revoked or suspended by a state or by the federal government, or has been subject to an enforcement action by a state or by the federal government that resulted in the imposition of limits on enrollment or student aid;
      2. The institution or a controlling officer of, or a controlling interest or controlling investor in, the institution or in the parent entity of the institution is subject to any education, consumer protection, unfair business practice, fraud, or related enforcement action by a state or federal agency. If so, the institution shall provide the BPPE a copy of the operative complaint;
      3. The institution is currently on probation, show cause, or subject to other adverse action, or the equivalent thereof, by its accreditor or the accreditation of the institution is revoked or suspended; and,
      4. The institution settles, or is adjudged to have liability for, a civil complaint alleging the institution’s failure to provide educational services, including a complaint alleging a violation of Title IX, or a similar state law, or a complaint alleging a violation of a law concerning consumer protection, unfair business practice, or fraud, filed by a student or former student, an employee or former employee, or a public official, for more than $250,000. The institution will provide to the BPPE a copy of the complaint filed by the plaintiff and a copy of the judgment or settlement agreement for any such judgment or settlement, and the BPPE shall consider, pursuant to subdivision (b), all material terms and aspects of the settlement, including, for example, whether a student plaintiff remained enrolled or reenrolled at the institution.
   4. The requirements of the Student Tuition Recovery Fund (STRF), as specified, and regulations adopted by the BPPE related to the fund, for its students residing in California. These requirements may be waived if the institution places an approved surety bond, or other security in lieu of a bond, on file with the BPPE.
   5. The institution will provide disclosures pursuant to the requirements for the Student Tuition Recovery Fund, established in Article 14 (commencing with Section 94923), and regulations adopted by the BPPE related to the fund, or information related to an institutional surety bond or other security in lieu of a bond, as appropriate, for its students residing in California.
2. Specifies that, upon receipt of any of the notifications, as specified, the BPPE will, within 30 days of receiving the notice, request the institution to explain in writing why the institution should be permitted to continue to enroll California residents. If the BPPE, after reviewing the information submitted in response to the request and after consultation with the Attorney General, issues a written finding that there is no immediate risk to California residents from the institution continuing to enroll new students, the institution shall be permitted, pending completion of a review by the BPPE, to continue to enroll new students or the BPPE may, in its discretion, limit enrollments.
3. Specifies that any institution under review, as specified, may have its registration revoked by the BPPE if, after further review, the BPPE issues a written finding that there is a substantial risk posed to California residents by the institution continuing to enroll California residents.
4. Specifies that an institution will have the right to reasonable notice and an opportunity to comment regarding any determination to revoke registration or to limit enrollment before that determination becomes final. An institution may seek review of a BPPE order limiting new student enrollment or revoking registration under this subdivision through an action as specified.
5. Specifies that the BPPE is not prohibited from revoking an institution’s registration on any other grounds, as specified.
6. Authorizes any institution whose registration is denied or revoked to reapply for registration after 12 months have elapsed from the date of the denial or revocation of registration.
7. Specifies that a registration with the BPPE pursuant to this section shall be valid for 10 years.
8. Requires the BPPE to develop through emergency regulations effective on and after July 1, 2025, a registration form. The adoption of these regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code. These emergency regulations shall become law through the regular rulemaking process on or before January 1, 2026.
9. Requires the BPPE to disclose on its internet website a list of institutions registered pursuant to this section through reasonable means and disclose a designated email address for California residents to send a complaint to the BPPE about an institution registered pursuant to this section. Complaints received through this email address shall be investigated in the same manner as complaints received by the BPPE for institutions approved to operate pursuant to this chapter, but BPPE enforcement in response to such complaints against institutions registered pursuant to this section shall be governed as specified.
10. Specifies that a highly qualified nonprofit institution that has received an approval to operate by means of accreditation before July 1, 2025, may elect to instead register with the BPPE, as specified.
11. Specifies that these provisions will become operative on July 1, 2025.
12. Defines “highly qualified nonprofit institution” to mean an institution that meets all of the following criteria:
    1. The institution is a public institution of higher education, as defined in Section 94858.5, or the institution is exempt from taxation under the Internal Revenue Code and has no insider transactions within the past five years;
    2. For the previous 20 years the institution has not operated as a for-profit institution and has awarded at least 500 degrees each year;
    3. The institution has been accredited by an institutional accrediting agency recognized by the United States Department of Education for at least 10 years that accredits institutions, the majority of which are classified by the United States Department of Education as nonprofit or public; and,
    4. The institution is governed by a board of directors with no directors who hold an equity interest in an institution of higher education.
13. Establishes that a highly qualified nonprofit institution pay a $1,500 registration fee to the bureau.

FISCAL EFFECT: Unknown. This bill has been keyed fiscal by Legislative Counsel.

COMMENTS:

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

This bill would help high-quality nonprofit universities located in California by reducing burdens on students and colleges. In 2009, the state appropriately set consumer protection rules for vocational schools that enact safeguards for students against fraud. While these rules still make sense for such vocational schools, they now also apply to comprehensive or research schools and graduate schools that merge with California institutions. If we can be assured the schools are high-quality and committed to staying in California, it doesn’t make sense to require students to choose a course of study or charge them a fee to ensure these schools don’t fraudulently accept their tuition payments. This bill will address these issues while incorporating safeguards to ensure California’s students are protected. Some nonprofit colleges and universities in California and nationwide are facing declining enrollment and financial strain. To address this, some have chosen to merge with other partner institutions. With this bill, both California and New York are considering legislative proposals to simplify this process.

Background.

The Bureau for Private Postsecondary Education. The BPPE is responsible for oversight of private postsecondary educational institutions that have a physical presence in California and enforcing the Act, which prohibits false advertising and inappropriate recruiting and requires disclosure of specific information about the educational programs being offered, graduation and job placement rates, and licensing information. Specifically, the Act directs the BPPE to, in part, review and approve private postsecondary educational institutions; establish minimum operating standards to ensure educational quality; provide an opportunity for student complaints to be resolved; and ensure private postsecondary educational institutions offer accurate information to prospective students about school and student performance. The BPPE also investigates and combats unlicensed activity, conducts research and outreach to students and postsecondary educational institutions, and administers the Student Tuition Recovery Fund.

Student Tuition Recovery Fund and Surety Bonds. The STRF exists to relieve or mitigate economic loss suffered by students enrolled at a non-exempt private postsecondary education institution due to the institution’s closure, the institution’s failure to pay refunds or reimburse loan proceeds, or the institution’s 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.

The STRF is financed by assessments paid by students, collected by institutions, and remitted to the BPPE. Under current law, when the STRF balance exceeds $25 million, the BPPE is required to temporarily reduce the assessment rate to $0.00, effectively stopping collection for STRF. Due to the fund reaching its statutory cap, institutions are currently not required to collect STRF assessment fees from students. Prior to the rate change on April 1, 2024, the assessment rate was $2.50 per $1,000 of institutional charges.^[1] For example, a student paying $10,000 dollars in tuition and fees would have paid $25.00 towards the STRF. When the STRF balance drops below $20 million, STRF assessments will resume.

Several states require private postsecondary institutions to post a surety bond as part of their processes for submission of an application for approval to operate. States such as Arizona, Alaska, Florida, Georgia, Maryland, Nebraska, New Mexico, South Carolina, Tennessee, Texas, and Utah all require postsecondary school bonds. During the bureau’s prior sunset review, the point was raised that while STRF exists in California to mitigate economic loss suffered by a California students, the statutory limitations on the utilization of STRF funds fail to allow for a broader range of economic relief that may be beneficial to students. For example, STRF does not cover expenses related to the storage, maintenance, and availability of student records or compensation for faculty to remain on a temporary basis to complete instruction through the end of a term or course – expenses that could potentially be covered by an institution’s surety bond if required to obtain one. This bill would allow a highly qualified educational institution to fulfill its STRF obligation with a surety bond, which the sponsor says will reduce the financial burden of their students.

Approval to Operate vs. Registration. Private and out-of-state nonprofit institutions with a physical presence in California are currently required to seek an approval to operate, which requires compliance with minimum operating standards and numerous other requirements such as an annual report to the BPPE and the publishing of School Performance Fact Sheets that contain specified information. An approval to operate is valid for five years. Out-of-state public institutions with a physical presence in California are not required to, but may, seek approval to operate from the BPPE so that their students are eligible for federal financial aid.^[2] Out-of-state for-profit institutions that want to enroll California students for distance learning (online programs), are required to register with the bureau. To register, these institutions must pay a fee, provide limited information to the bureau, and pay into STRF. Unlike institutions with an approval to operate, registered institutions are not required to meet minimum operating standards nor adhere to other requirements that come with an approval to operate. Additionally, bureau staff report that while it has the ability to deny or place conditions on a registration, the cost of an appeal is so burdensome that the bureau has yet to do so. Moreover, fear of costly litigation that the bureau cannot afford has also placed the bureau is a difficult position decide between allowing registered institutions to commit minor infractions without consequence or taking more severe measures (e.g. revocation of registration) at the risk of them being overturned through costly litigation.

This bill would establish a nearly identical registration process for “highly qualified nonprofit institutions,” as defined. In doing so, this bill would make it easier for highly qualified non-profit institutions such as Northeastern University to operate in California, which the author believes is likely to increase access to higher education programs for first-generation and underrepresented California students.

Prior Related Legislation.

SB 1433 (Roth), Chapter 544, Statutes of 2022, allows, as it pertains specifically to this bill, an out-of-state public institution of higher education, as specified, that maintains a physical presence in this state to apply for an approval to operate from the BPPE.

AB 1344 (Bauer-Kahan), Chapter 520, Statutes of 2019, requires out-of-state institutions to provide information to the BPPE and also authorizes the BPPE to place these out-of-state private postsecondary institutions on a probationary status and revoke authorization to enroll California students.

ARGUMENTS IN SUPPORT:

As the sponsor of this bill, Northeastern University writes in support:

Under current law, high-quality nonprofit institutions with a physical presence in California but which are headquartered outside the state fall into the same regulatory category as private proprietary and vocational schools offering short-term programs. While the CPPEA was established in 2009 to protect students from predatory institutions, it’s application today has an outsized effect on high quality non-profit institutions that partner with independent California schools, such as the merger between Northeastern and Mills College. [This bill] would create an alternative registration pathway for institutions such as Northeastern, that meet appropriately high standards, to be considered highly qualified. As the higher education landscape continues to shift amidst a trend toward acquisition, merger, and consolidation, this is an important change to ensure California is not at a competitive disadvantage in attracting high-quality education providers to meet the state’s need to develop and retain a highly skilled workforce.

ARGUMENTS IN OPPOSITION:

None on file

POLICY ISSUE(S) FOR CONSIDERATION:

Public Institutions. In 2022, as part of the BPPE’s sunset review process, the Legislature required via SB 1433, Chapter 544, Statutes of 2022, out-of-state public universities that have a physical presence in California to obtain an approval to operate from the bureau in order for their students to be eligible to federal financial aid. That requirement was established due to legislative efforts by Arizona State University (ASU), who has a campus in downtown Los Angeles, to be authorized to contract with the bureau for purposes of handling complaints made against ASU—a federal requirement by the U.S. Department of Education for students to be eligible to receive federal financial aid. The Legislature and Administration at that time deemed it most appropriate to require public universities that are operated by another state but have a physical presence in California to seek an approval to operate from the bureau. This bill may unintentionally undo that by allowing public universities that meet the criterion enumerated in this bill to register with the bureau in lieu of seeking an approval to operate. At present, it is uncertain whether ASU would be eligible for registration as provided in this bill. Nonetheless, that policy change appears to be beyond the scope of what the author and sponsor are trying to accomplish in this bill and may warrant its own policy discussion.

IMPLEMENTATION ISSUES:

Inefficiency. Existing law authorizes out-of-state private postsecondary educational institutions who enroll California students for distance learning to register with the bureau. This bill would duplicate that registration process for highly qualified nonprofit institutions, with three key differences. First, the registration process proposed by this bill would allow highly qualified nonprofit institutions to waive STRF requirements by placing an approved surety bond, or other security in lieu of a bond, on file with the bureau. Second, highly qualified nonprofit institutions would be required to re-register with the bureau every 10 years, as opposed to every five years as required of out-of-state private postsecondary educational institutions. Third, as currently defined, “highly qualified nonprofit institutions” captures out-of-state public institutions that meet the same criteria as highly qualified nonprofit institutions. Requiring the bureau to administer duplicative registration processes may not be an efficient use of the bureau’s limited resources. Moreover, the bureau reports several challenges with the existing out-of-state registration process that would be replicated in the nearly identical registration process envisioned by this bill.

Cost. Consistent with the existing registration requirements, this bill would require highly qualified nonprofit institutions to pay a $1,500 registration fee. However, highly qualified nonprofit institutions would pay half as much annually as out-of-state private postsecondary educational institutions because they would be required to re-register every 10 years instead of every 5 years. $1,500 over 10 years equates to $150 per year for highly qualified nonprofit institutions to be registered with the bureau. It is unlikely that such a nominal fee would cover the cost of administering a new registration process for highly qualified nonprofit institutions.

AMENDMENTS:

1. To limit the type of institutions that may register with the bureau as provided for by this bill, remove public institutions from the definition of “highly qualified nonprofit institution.”
2. For efficiency and cost savings, amend the bill to allow highly qualified nonprofit institutions to register with the bureau via the existing registration process for out-of-state private postsecondary educational institutions, but continue to allow highly qualified nonprofit institutions to fulfill its STRF requirements by placing an approved surety bond, or other security in lieu of a bond, on file with the bureau.

REGISTERED SUPPORT:

Northeastern University (Sponsor)

Association of Independent California Colleges & Universities
The Century Foundation, Inc.

REGISTERED OPPOSITION:

None on file

Analysis Prepared by: Kaitlin Curry / B. & P. / (916) 319-3301

1. STRF Assessment Rate Reduction 2024 ↑

2. Federal law requires for state authorization entitling students to federal financial aid, to have a process for reviewing and action on complaints concerning the institution. With an approval to operate, the BPPE would provide that service for out-of-state public institutions. ↑

Date of Hearing: April 16, 2024

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Mike Fong, Chair

ABPCA Bill Id:AB 3167 (

Author:Chen) – As Amended Ver:March 21, 2024

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

SUBJECT: California Private Postsecondary Education Act of 2009: highly qualified nonprofit institution

SUMMARY: Authorizes a highly qualified nonprofit institution, as defined, to register with the Bureau for Private Postsecondary Education (BPPE) by paying a registration fee and complying with specified requirements for registration, including providing the BPPE evidence of the institution’s accreditation, as provided. Additionally authorizes a highly qualified nonprofit institution, as defined, that received an approval to operate by means of accreditation before July 1, 2025, to instead register with the BPPE under the bill’s provisions. Specifically, this bill:

1. Authorizes a highly qualified nonprofit institution may register with the BPPE, pay a fee as specified, and comply with all of the following:
   1. The institution shall provide the BPPE with all of the following information, as applicable, for consideration of initial registration by the BPPE as specified:
      1. Evidence of institutional accreditation;
      2. Evidence that the institution is approved to operate in the state where the institution maintains its main administrative location;
      3. The agent for service of process, as specified;
      4. A copy of the institution’s catalog and, if the institution uses enrollment agreements, a copy of a sample enrollment agreement;
      5. Whether or not the institution, or a predecessor institution under substantially the same control or ownership, had its authorization or approval revoked or suspended by a state or by the federal government, or, within five years before submission of the registration, was subject to an enforcement action by a state or by the federal government that resulted in the imposition of limits on enrollment or student aid, or is subject to such an action that is not final and that was ongoing at the time of submission of the registration;
      6. Whether or not the institution, or a controlling officer of, or a controlling interest or controlling investor in, the institution or in the parent entity of the institution, had been subject to any education, consumer protection, unfair business practice, fraud, or related enforcement action by a state or federal agency within five years before submitting the registration. If so, the institution shall provide the BPPE a copy of the operative complaint with the registration;
      7. Whether or not the institution is currently on probation, show cause, or subject to other adverse action, or the equivalent thereof, by its accreditor or has had its accreditation revoked or suspended within the five years before submitting the registration;
      8. Whether or not the institution, within five years before submitting the registration, has settled, or been adjudged to have liability for, a civil complaint alleging the institution’s failure to provide educational services, including a complaint alleging a violation of Title IX of the Education Amendments of 1972 (20 U.S.C. Sec. 1681, et seq.) or a similar state law, or a complaint alleging a violation of a law concerning consumer protection, unfair business practice, or fraud, filed by a student or former student, an employee or former employee, or a public official, for more than two hundred fifty thousand dollars ($250,000). The institution will provide the BPPE a copy of the complaint filed by the plaintiff and a copy of the judgment or settlement agreement for any such judgment or settlement, and the BPPE shall consider, as specified, all material terms and aspects of the settlement, including, for example, whether a student plaintiff remained enrolled or reenrolled at the institution; and,
      9. Any additional documentation the BPPE deems necessary for consideration in the registration process.
   2. When considering whether to approve, deny, or condition initial registration based upon the information provided by an institution pursuant to 1) in the analysis, the BPPE will do all of the following:
      1. Not consider any individual submission made, as specified, to be solely determinative of the institution’s eligibility for registration but, exercising its reasonable discretion, approve, reject, or condition registration based upon a review of all of the information provided, as specified;
      2. Provide an institution with reasonable notice and an opportunity to comment regarding any determination to deny, condition, or reject initial registration before that determination becomes final. After the determination becomes final, the institution may seek review of the BPPE’s decision through an action brought as specified; and,
      3. Require the initial registration, if approved, to memorialize that the institution agrees, as a condition of its registration, to be bound by this section and that its registration may be rejected, conditioned, or revoked for failure to comply with this section, as specified. The agreement shall be signed by a responsible officer of the institution.
   3. An institution that is registered with the BPPE and enrolls a student residing in California shall report in writing to the BPPE, within 30 days, the occurrence of any of the following:
      1. The institution has its authorization or approval revoked or suspended by a state or by the federal government, or has been subject to an enforcement action by a state or by the federal government that resulted in the imposition of limits on enrollment or student aid;
      2. The institution or a controlling officer of, or a controlling interest or controlling investor in, the institution or in the parent entity of the institution is subject to any education, consumer protection, unfair business practice, fraud, or related enforcement action by a state or federal agency. If so, the institution shall provide the BPPE a copy of the operative complaint;
      3. The institution is currently on probation, show cause, or subject to other adverse action, or the equivalent thereof, by its accreditor or the accreditation of the institution is revoked or suspended; and,
      4. The institution settles, or is adjudged to have liability for, a civil complaint alleging the institution’s failure to provide educational services, including a complaint alleging a violation of Title IX, or a similar state law, or a complaint alleging a violation of a law concerning consumer protection, unfair business practice, or fraud, filed by a student or former student, an employee or former employee, or a public official, for more than $250,000. The institution will provide to the BPPE a copy of the complaint filed by the plaintiff and a copy of the judgment or settlement agreement for any such judgment or settlement, and the BPPE shall consider, pursuant to subdivision (b), all material terms and aspects of the settlement, including, for example, whether a student plaintiff remained enrolled or reenrolled at the institution.
   4. The requirements of the Student Tuition Recovery Fund (STRF), as specified, and regulations adopted by the BPPE related to the fund, for its students residing in California. These requirements may be waived if the institution places an approved surety bond, or other security in lieu of a bond, on file with the BPPE.
   5. The institution will provide disclosures pursuant to the requirements for the Student Tuition Recovery Fund, established in Article 14 (commencing with Section 94923), and regulations adopted by the BPPE related to the fund, or information related to an institutional surety bond or other security in lieu of a bond, as appropriate, for its students residing in California.
2. Specifies that, upon receipt of any of the notifications, as specified, the BPPE will, within 30 days of receiving the notice, request the institution to explain in writing why the institution should be permitted to continue to enroll California residents. If the BPPE, after reviewing the information submitted in response to the request and after consultation with the Attorney General, issues a written finding that there is no immediate risk to California residents from the institution continuing to enroll new students, the institution shall be permitted, pending completion of a review by the BPPE, to continue to enroll new students or the BPPE may, in its discretion, limit enrollments.
3. Any institution under review, as specified, may have its registration revoked by the BPPE if, after further review, the BPPE issues a written finding that there is a substantial risk posed to California residents by the institution continuing to enroll California residents;
4. An institution will have the right to reasonable notice and an opportunity to comment regarding any determination to revoke registration or to limit enrollment before that determination becomes final. An institution may seek review of a BPPE order limiting new student enrollment or revoking registration under this subdivision through an action as specified; and,
5. Does not prohibit the BPPE from revoking an institution’s registration on any other grounds specified in this chapter. This section shall not prohibit or impair the ability of an institution registered pursuant to this section or eligible to register pursuant to this section to apply to be an approved institution pursuant to this chapter.
6. Authorizes any institution whose registration is denied or revoked may reapply for registration after 12 months have elapsed from the date of the denial or revocation of registration.
7. Specifies that a registration with the BPPE pursuant to this section shall be valid for 10 years.
8. Requires the BPPE to develop through emergency regulations effective on and after July 1, 2025, a registration form. The adoption of these regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code. These emergency regulations shall become law through the regular rulemaking process on or before January 1, 2026.
9. Requires the BPPE to disclose on its internet website a list of institutions registered pursuant to this section through reasonable means and disclose a designated email address for California residents to send a complaint to the BPPE about an institution registered pursuant to this section. Complaints received through this email address shall be investigated in the same manner as complaints received by the BPPE for institutions approved to operate pursuant to this chapter, but BPPE enforcement in response to such complaints against institutions registered pursuant to this section shall be governed as specified.
10. Specifies that a highly qualified nonprofit institution that has received an approval to operate by means of accreditation before July 1, 2025, may elect to instead register with the BPPE, as specified.
11. Specifies that these provisions will become operative on July 1, 2025.
12. Defines “highly qualified nonprofit institution” to mean an institution that meets all of the following criteria:
    1. The institution is a public institution of higher education, as defined in Section 94858.5, or the institution is exempt from taxation under the Internal Revenue Code and has no insider transactions within the past five years;
    2. For the previous 20 years the institution has not operated as a for-profit institution and has awarded at least 500 degrees each year;
    3. The institution has been accredited by an institutional accrediting agency recognized by the United States Department of Education for at least 10 years that accredits institutions, the majority of which are classified by the United States Department of Education as nonprofit or public; and,
    4. The institution is governed by a board of directors with no directors who hold an equity interest in an institution of higher education.
13. Establishes that a highly qualified nonprofit institution registration fee in an amount $1,500 dollars.

EXISTING LAW:

1. The California Private Postsecondary Education Act of 2009 (CPPEA) provides, among other things, for student protections and regulatory oversight of private postsecondary institutions in the state. The act is enforced by the BPPE within the Department of Consumer Affairs (DCA). The act exempts specified private postsecondary educational institutions from all, or a portion of, its provisions, but requires those institutions that are subject to its provisions to apply for and obtain an approval to operate, including by means of accreditation, as specified. The act also requires an out-of-state private postsecondary educational institution to comply with specified requirements for registration, including providing the bureau evidence of the institution’s accreditation. Existing law repeals the act on January 1, 2027. (Education Code Section 94800 et. seq.)

FISCAL EFFECT: Unknown

COMMENTS: Purpose. According to the author, “This bill would help high-quality nonprofit universities located in California by reducing burdens on students and colleges. In 2009, the state appropriately set consumer protection rules for vocational schools that enact safeguards for students against fraud. While these rules still make sense for such vocational schools, they now also apply to comprehensive or research schools and graduate schools that merge with California institutions. If we can be assured the schools are high-quality and committed to staying in California, it doesn’t make sense to require students to choose a course of study or charge them a fee to ensure these schools don’t fraudulently accept their tuition payments. This bill will address these issues while incorporating safeguards to ensure California’s students are protected. Some nonprofit colleges and universities in California and nationwide are facing declining enrollment and financial strain. To address this, some have chosen to merge with other partner institutions. With this bill, both California and New York are considering legislative proposals to simplify this process.”

BPPE. BPPE and the Act were established by AB 48 (Portantino, Chapter 310, Statutes of 2009) after several failed legislative attempts to remedy the Bureau for Private Postsecondary and Vocational Education (BPPVE) structural challenges. AB 48 took effect January 1, 2010, and, in part, changed the name from the BPPVE to the BPPE and provided the BPPE responsibility for oversight of private postsecondary educational institutions operating with a physical presence in California. While the Legislature has amended the Act several times since the initial passage of AB 48, it has consistently directed the BPPE to make protection of the public their highest priority in performing duties and exercising powers. Today, the Act expresses Legislative intent that the BPPE:

1. Ensure minimum educational quality standards and opportunities for success for California students attending private postsecondary schools in California;
2. Provide meaningful student protections through essential avenues of recourse for students;
3. Establish a regulatory structure that provides an appropriate level of oversight;
4. Provide a regulatory structure that ensures all stakeholders have a voice and are heard in policymaking by the BPPE;
5. Ensure accountability and oversight by the Legislature through program monitoring and periodic reports;
6. Prevent harm to students and the deception of the public that results from fraudulent or substandard educational programs and degrees.

The BPPE also actively investigates and combats unlicensed activity, administers the STRF, and conducts outreach and education activities for students and private postsecondary educational institutions within the state. Within BPPE exists the Office of Student Assistance and Relief (OSAR), established by SB 1192 (Hill, Chapter 593, Statutes of 2016), which exists to advance the rights of students at private postsecondary educational institutions and assist students who have suffered economic loss due to unlawful activities or the closure of an institution.

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 closure of an institution, 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.

Over the past several years, the BPPE has experienced several precipitous closures of large institutions with sizable student populations, such as Marinello Schools of Beauty, ITT Technical Institute, ECA (Brightwood), Dream Center (Argosy), and Corinthian Colleges. Several states require private postsecondary institutions to post a surety bond as part of the state’s application for approval to operate. States such as Arizona, Alaska, Florida, Georgia, Maryland, Nebraska, New Mexico, South Carolina, Tennessee, Texas, and Utah all require private postsecondary schools to have bonds. In the event of a precipitous school closure, the STRF funds may be used for several purposes, including but not limited to, the compensation of students or students’ parents for lost prepaid tuition, payment of reasonable expenses related to the storage, maintenance and availability of student records, compensation for faculty to remain on a temporary basis to complete instruction through the end of a term or course, and reimbursement of former students of the closed institution for the cost of obtaining academic records.

Unlike some of the states previously mentioned, California has the STRF which can provide direct financial relief to students impacted by closures. However, STRF resources are not authorized to address a broader range of financial impacts of closures.

Currently, the STRF exceeds its statutory limit of $25 million, and 5 California Code of Regulations Section 76120 has been modified, effective April 1, 2024 to set the assessment rate to $0.00. For the last two years, the assessment rate has been $2.50 dollars per $1,000 dollars of institutional charges. As an example, for a student paying $10,000 dollars of tuition and fees, that student would have paid $25.00 towards the STRF.

AB 3167 would waive STRF requirements for eligible schools provided the institution places an approved surety bond, or other security in lieu of a bond, on file with the BPPE.

Highly qualified nonprofit institution. AB 3167 (Chen) creates a new institutional status under the CPPEA – that of the “highly qualifies nonprofit institution.” In order to meet this definition, an institution needs to be able to meet several benchmarks, including evidence of accreditation, and must be free from specified forms of disciplinary action over the prior five years.

According to the Century Foundation, which has published extensively on issues related to for-profit institutions, notes that the provisions of AB 3167 seem to be a “reasonable solution that considerably eases the burdens on the institution, and students, while maintaining some BPPE oversight.”

Interestingly, under the bill, a registration option would be available to institutions that are public or nonprofit, and that have long been accredited by agencies that specialize in nonprofit and public institutions. This means that a public institution from another state operating a physical location in California would qualify under the provisions of this bill.

Arguments in support. Boston-based Northeastern University, which was founded in 1898 and has a network of 13 campuses, merged with Mills College in July 2022. Northeastern writes that “institutional safeguards will remain in place under [AB 3167 (Chen)]. Any nonprofit university that would use this new pathway must demonstrate that it is committed to California’s students. BPPE will retain the right to approve, deny, condition, or revoke the registration of an institution. In order to be approved to operate in the state, the institution must show BPPE that it maintains a physical presence in the state. Importantly, the bill reduces programmatic burdens on students.

Northeastern continued that, “currently, undergraduate students attending nonprofit universities regulated by BPPE must declare a major before beginning their four-year course of study. While this may make sense for short-term vocational programs, at non-profit liberal arts colleges and comprehensive research universities, academic exploration and discovery are the hallmark of an undergraduate education, particularly during the first year. Approximately one-quarter of incoming students at Northeastern University-Oakland seek to begin their undergraduate studies as undeclared. This bill corrects the practice of requiring students to enroll in a degree program before they have decided on a major by exempting highly qualified institutions from this requirement.

The Association of Independent California Colleges and Universities (AICCU) wrote that “students must pay into the [STRF], driving up their cost of attendance, even though an institution like Northeastern University is at no considerable risk of closure…As the higher education ecosystem in the state and nationally continues to evolve, it is critical that policymakers make thoughtful changes to the policies that regulate it. We believe that the policies proposed in AB 3167 make modest but important improvements that benefit students while maintaining proper consumer protection oversight by the state.”

Comments from BPPE. The registration methodology proposed in AB 3167 (Chen) mirrors an approval process of online students originally authorized in AB 1344 (Bauer-Kahan), Chapter 520, Statutes of 2019. According to correspondence with the BPPE, the registration requirement for out-of-state institutions provides greater insight into which institutions are enrolling Californians along with a sense of scale of enrollment. The registration scheme has enabled the OSAR to support Californians impacted by closures of out-of-state institutions, including helping them file claims for the Student Tuition Recovery Fund.

However, the BPPE noted several challenges with the existing out-of-state registration process, making it challenging to use and costly for the BPPE. The Bureau has not yet denied any registrations or placed conditions on any registrations since the law was amended to allow it to do so.

According to the BPPE, the enforcement tools are powerful, but blunt, and do not always fit the situations presented. They force a choice between allowing these schools to commit minor infractions without consequence or having the BPPE take more severe measures at risk being overturned through costly litigation.

BPPE also noted that the statute outlines a series of notifications to occur between institutions and the BPPE when specified triggering events occur. The prescriptive steps include a requirement to consult with the Office of the Attorney General, which is not feasible given the office’s statutory role to defend the BPPE, and a requirement in certain cases for the BPPE to declare “there is no immediate risk” for an institution to continue enrolling Californians. This latter claim is not one that the BPPE could ever state with certainty, and doing so could jeopardize later enforcement efforts of the BPPE or other agencies should additional issues come to light.

To note, the law implemented in AB 1344 requires the BPPE to investigate complaints but provides it no tools to address violations. The law specifically says that “bureau enforcement in response to such complaints against institutions registered pursuant to this section shall be governed by subdivision (b),” but subdivision (b) does not give BPPE any enforcement authority with respect to complaints.

Committee staff notes that many of the challenges experienced by BPPE with the existing out-of-state registration process would be replicated in the provisions of AB 3167 (Chen). Moving forward, the author may wish to work with the BPPE to address these challenges, as they would almost certainly would be present should AB 3167 (Chen) become law.

Prior legislation. AB 1344 (Bauer-Kahan), Chapter 520, Statutes of 2019, requires out-of-state institutions to provide information to the BPPE and also authorizes the BPPE to place these out-of-state private postsecondary institutions on a probationary status and revoke authorization to enroll California students.

REGISTERED SUPPORT / OPPOSITION:

Support

Association of Independent California Colleges & Universities (AICCU)

Century Foundation

Northeastern University

Opposition

None on file

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