AB 573

Page 2

SENATE RULES COMMITTEE
Office of Senate Floor Analyses
(916) 651-1520 Fax: (916) 327-4478 / AB 573

THIRD READING

Bill No: AB 573

Author: Medina (D) and McCarty (D), et al.

Amended: 8/31/15 in Senate

Vote: 27 - Urgency

SENATE BUS, PROF. & ECON. DEV. COMMITTEE: 7-0, 6/29/15

AYES: Hill, Block, Galgiani, Hernandez, Jackson, Mendoza, Wieckowski

NO VOTE RECORDED: Bates, Berryhill

SENATE EDUCATION COMMITTEE: 7-0, 7/15/15

AYES: Liu, Block, Hancock, Leyva, Mendoza, Monning, Pan

NO VOTE RECORDED: Runner, Vidak

SENATE APPROPRIATIONS COMMITTEE: 5-0, 8/27/15

AYES: Lara, Beall, Hill, Leyva, Mendoza

NO VOTE RECORDED: Bates, Nielsen

ASSEMBLY FLOOR: 74-0, 5/14/15 - See last page for vote

SUBJECT: Higher education: campus closures: Corinthian Colleges

SOURCE: Author

DIGEST: This bill provides financial and other assistance to students impacted by the recent closing of all Heald, Everest, and WyoTech campuses in California, which were owned by Corinthian Colleges, Inc. (CCI).

ANALYSIS:

Existing law:

1)  Establishes the California Private Postsecondary Education Act of 2009 (Act) until January 1, 2017, and requires the Bureau of Private Postsecondary Education (Bureau) within the Department of Consumer Affairs to, among other things, review, investigate and approve private postsecondary institutions, programs and courses of instruction pursuant to the Act and authorizes the Bureau 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 also provides for specified disclosures and enrollment agreements for students, requirements for cancellations, withdrawals and refunds, and that the Bureau 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.)

This bill:

1)  Appropriates $100,000 from the General Fund (GF) to the California Community Colleges (CCC) Chancellor, from GF revenues appropriated for community college districts (Prop 98), for the purposes of a CCC district conducting a statewide media campaign to inform students affected by the CCI closure of educational opportunities available at CCCs.

2)  Provides a CCC board of governors (BOG) fee waiver, until July 1, 2018, to a student who was enrolled at a California campus of a CCI institution, was unable to complete an educational program offered by the campus due to the campus’ closure on April 27, 2015, and has demonstrated financial need as determined by the enrolling campus.

3)  Provides a BOG fee waiver to a student who was enrolled at a California campus of a CCI institution, withdrew from an education program offered by the campus after the earlier of either: 120 days before the April 27, 2015 closure or an earlier date determined by the Bureau, or the date set by the United States Department of Education (USDE) for closed school loan discharge eligibility and has demonstrated financial need as determined by the enrolling campus.

4)  Provides that Cal Grant recipient students enrolled at a Heald College campus that were unable to complete their educational program due to the closure shall not have the award years utilized at Heald College campus included in the limitation on the number of award years of Cal Grant Awards eligibility. Clarifies that a student shall be eligible for the restoration of award years if the student was enrolled at a Heald College campus on April 27, 2015, or withdrew from enrollment between July 1, 2014 and April 27, 2015.

5)  Increases the maximum allowable fund balance in the STRF from $25 million to $50 million, and requires the Bureau, if it stops collecting STRF assessments because the fund has approached the new maximum balance, to resume collecting assessments when the fund balance falls below $40 million (instead of $20 million currently).

6)  Requires, until January 1, 2020, the Governor to establish a single point of contact (POC) to respond to each closure of an institution that does not comply with closure and related requirements established under state and federal law.

7)  States that the goal of the POC is to ensure that students who were enrolled at, or in an online program offered by, an institution that has closed, receive accurate and timely information regarding the school closure process and the students’ rights and responsibilities, and states that the POC’s primary duty shall be to advocate on behalf of and represent the interest of California students who attended the closed institution.

8)  Provides that consideration should be given to establishing the POC within the Attorney General (AG)’s office for unlawful closures of large institutions regarding which the AG has a pending investigation or ongoing litigation.

6)  Provides grant funds to eligible nonprofit community service organizations offering free counseling on student financial aid and loan debt problems upon the unlawful closure of an institution to assist students according to the following:

a)  Services provided by the organizations shall include assistance with loan discharge and other student financial aid, veteran’s education benefits, loan-related relief and tuition recovery claims.

b)  The organization is a 501 (c)(3) tax-exempt organization in good standing with the Internal Revenue Service and in compliance with all applicable laws and requirements; the organization demonstrates expertise in assisting students with, and currently provides, free direct legal services or will work in partnership with or under the supervision an attorney or nonprofit legal services organization with this expertise; and the organization does not charge students for services.

c)  Grant funds shall be made available from the STRF and shall be calculated by multiplying the number of students affected by the institution’s closure by $100.

d)  The Bureau shall notify the AG of all unlawful school closures within
15 days of the closure. The AG shall, within 90 days of receipt of the notification, solicit grant applications from eligible nonprofit community service organizations and may enter into a contract with another qualified entity to perform duties outlined.

e)  Organizations that receive funds shall report to the AG, or a qualified entity, quarterly through the grant period on the number of students served. For a closure involving fewer than 250 students, 100 percent of funds shall be distributed within 30 days of the grantee entering into a grant agreement; for a school closure involving 250 or more students, 50 percent shall be distributed within 30 days of the grantee entering into a grant agreement,
25 percent shall be distributed upon the submission of the grantee’s second quarterly report and the final 25 percent upon the submission of the third quarterly report.

f)  Appropriates $1.3 million dollars from the STRF to the Bureau for purposes of providing grants to organizations to assist eligible students affected by the CCI closure and to pay for the reasonable administrative costs of the AG related to these grants.

7)  Declares this bill an urgency statute to take effect immediately in order to provide immediate educational and economic relief to the thousands of students harmed by the closure of CCI.

Background

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

Most students attending CCI received federal financial aid; according to CCIs filing with the Securities and Exchange Commission, CCI received 84.8% of net revenue from federal financial aid (Title IV: Pell Grants and Federal Loans). Federal rules require that institutions receive at least 10% of revenues from non-Title IV sources ("90/10 rule"); however, this can include state aid, veteran's aid, and private loans (among other sources). According to the allegations in the CFPB complaint, in order to meet the 90/10 rule, CCI increased tuition in order to create "funding gaps" so that students would be required to take out private loans to pay for their education. CCI offered students their own "Genesis" loans to cover the funding gaps. According to CFPB, by 2014 the outstanding balance of Genesis loans totaled $560 million.

In addition to the CFPB complaint, CCI faced a series of legal actions and investigations into unlawful practices, including by 20 state attorneys general, several federal agencies, and the USDE. These complaints include allegations largely focused on misrepresenting career options (promising lifetime placement services and providing, at best, temporary assistance), falsifying job placements (including counting 1-day employments, paying employers to temporarily hire graduates, and falsifying "self-employment" statistics), and promoting student reliance on CCIs Genesis loans that required students to begin repaying loans while still in programs (staff members were provided bonuses for collecting Genesis loan payments, and were encouraged to publically remove students from class if they were behind on Genesis loan payments). CCI closed all campuses on April 26, 2015, and filed bankruptcy on May 4, 2015.

Options for CCI students. On May 13, the Senate Business, Professions and Economic Development and Senate Education Committees convened a joint hearing, Corinthian College Closures: What’s Next for California Students, to examine options for relief and recourse available to the more than 13,000 students impacted by the sudden and abrupt CCI closure, particularly in light of the confusing choices, multiple application processes to multiple government agencies, pressure from private loan companies to begin paying off loans and the possibility that credits earned at Heald, Everest and WyoTech schools may yield few meaningful future educational opportunities.

USDE provides relief for students of closed schools through a loan discharge for students enrolled at the time of closure, or who withdrew within the previous 120 days, who could not complete their programs. However, students are ineligible for loan discharge if they completed their programs, benefitted from a teach-out agreement through another school or transferred credits to a similar program. USDE can also discharge loans of students defrauded by their schools through a defense against repayment. This provision also applies to students who were no longer enrolled at the time of their school’s closure, including those who completed programs. Accreditors are supposed to require schools to have closure policies, including teach-out policies, policies related to transcript availability and policies for the transfer of student records, key to assisting students in moving forward on their path to higher education. USDE is expanding eligibility for CCI students to apply for a closed school loan discharge, extending the window of time back to June 20, 2014, to capture students who attended CCI institutions at the time CCI entered into an agreement with USDE to terminate its ownership of schools. USDE also took steps for all former CCI students who apply for borrower defense to have the option of having their federal loans immediately placed into forbearance, which stops their monthly payments to ensure they do not fall behind or default on their loans while USDE works to resolve the claim.

At the hearing, the Legislative Analyst’s Office highlighted the high degree of uncertainty for students with private loans, as there are no standard discharge provisions and payments are subject to the requirements of lenders. STRF may reimburse these students for interest and penalties on loans used to pay tuition and other required educational program charges, but there are concerns that there is no guarantee students will be assisted as they navigate through this process.

This bill provides financial and other assistance to students impacted by recent closing of all Heald, Everest, and WyoTech campuses in California, which were owned by CCI. Federal loan forgiveness is available to students who qualify, but only if they do not transfer any educational credits to another institution. The STRF is available to California Everest and WyoTech students, but due to an exemption from state oversight, STRF is not available to Heald students and students enrolled in out-of-state online programs. The author states that not only are existing relief programs insufficient to support all California students harmed by the CCI closure, evidence is surfacing that students are being provided inaccurate and inconsistent information regarding their rights and options. For example, a published list of “viable transfer opportunities” released by USDE upon the CCI closure includes more than a dozen other for-profit schools that are also currently under investigation by federal and state authorities. This bill will ensure that California students harmed by the closure of private, for-profit colleges have access to economic relief and educational opportunity.

FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee:

·  CCCs: $100,000 for allocation to a community college district to conduct a statewide media campaign targeting students affected by the closure of CCI. Potential cost pressures to backfill the loss of an unknown amount of fee revenue to the extent there is an increase in the statewide proportion of students receiving fee waivers due to this bill. This bill also allows campuses to determine their own criteria for financial need which qualifies affected CCI students to be exempt from fees. (Proposition 98)

·  Restoration of Financial Aid Award Years: Approximately $9.6 million to restore Cal Grant awards for affected students for two years ($7.9 to restore one year and $1.7 to restore the second year). (General Fund)

·  STRF Claims Payout to Affected Students: $8.2 million annually, until fiscal year 2018-19, for a total of $32.7 million in STRF to be offset by increases in fees that generate $6.9 million in the 2015-16 fiscal year and $9.2 million annually, until the 2018-19 fiscal year. (Special funds)

·  STRF Claims Processing: $1.5 million in the 2015-16 fiscal year and $1.3 million annually until the 2018-19 fiscal year to support 15 positions to process approximately 1,800 claims at the Bureau. (Special funds)

·  Single Point of Contact: Unknown cost pressures to the Department of Justice potentially in the hundreds of thousands to low millions for additional staff to be single POC for specified institutions to the extent it is designated as the single POC by the Governor. Potential significant additional costs for the entity designated by the Governor to be the single POC for all other institutions. (General Fund)