Consumer Federation of California

10/8/2015 update: Governor Brown today vetoed SB 573, citing concerns about adding costs outside of the budget process. His veto message is available here.

Consumer Federation of California (CFC) supports Assembly Bill 573 (Medina-McCarty), which offers much-needed relief to some 13,000 California students left in debt and with little to show for their hard work when the private, for-profit Corinthian Colleges shut down due to poor graduation and job placement rates and questionable business practices.

Orange County-based Corinthian Colleges Inc. had operated nearly two dozen Heald College, Everest College and Wyoming Technical Institute (Wyotech) campuses around the state, but the corporation abruptly shuttered all its California campuses last April after a series of regulatory actions by state and federal agencies. Corinthian filed for bankruptcy a few weeks later and abandoned thousands of students.

AB 573 would give all 13,000 former Corinthian students access to legal, financial and academic counseling to help them deal with some of the obstacles they face, such as retrieving their Corinthian files and determining whether the students are eligible to have their federal education loans discharged. The bill would fund outreach efforts to identify eligible students, and it would facilitate and encourage the transfer of academic credits earned at Corinthian Colleges to the California Community Colleges system.

Beyond that, AB 573 would make all former Corinthian students eligible for assistance from the State Tuition Recovery Fund (STRF). Financed by modest student fees, STRF offers students some relief for economic losses resulting from private postsecondary school closures. But under California education law, STRF fees were not collected from the 6,000 students at Corinthian’s 10 Heald campuses, nor from California students enrolled in Everest College’s online courses that are based outside the state.

[9/21/2015 update:]
An urgency measure requiring two-thirds approval in the Legislature, AB 573 passed unanimously in the Assembly and Senate. Amendments narrowed the bill’s reach, but it would still:

• Provide $1.3 million in legal assistance grants so community service organizations can help students with the loan forgiveness and tuition
• Restore Cal Grant (California education grant) eligibility for as many as 3,400 students who were unable to complete their educational programs at Corinthian’s Heald College and so withdrew between July 1, 2014, and April 27, 2015.

Background

Students attending for-profit colleges like Corinthian’s are generally hard-working young adults of modest means who take on expensive loans and educational challenges for the chance to get ahead. They’re often the first in their families to go to college, and they succumb to the high pressure sales tactics and misleading claims of these corporations. These students would especially benefit from AB 573’s outreach and counseling.

“AB 573 would provide much needed relief to students harmed by the recent closure of Corinthian Colleges and ensure stronger protections for students at schools that close in the future,” says a letter of support for the bill signed by CFC and more than a dozen other backers.

“Students who were enrolled in these campuses at or near the point of closure have had their dreams dashed, unable to complete the programs they borrowed loans to attend. In many cases, given widespread concerns about the quality of Corinthian-owned institutions, the credits students earned at the closed schools will not transfer to more reputable colleges.”

The Corinthian collapse is just a symptom of a larger issue: private, for-profit schools that exploit students – especially for their federally guaranteed student loans and other financial assistance – often without providing a quality education that will lead to rewarding careers. Just a month after Corinthian shut down, for example, the state’s Department of Veterans Affairs suspended the use of GI Bill funding for new students at ITT Educational Services’ 15 campuses in California, shortly after the Securities and Exchange Commission filed fraud charges against current and former ITT executives for concealing problems with company-run student loan programs.

Additional Legislation Needed

California’s difficult history with private, for-profit colleges dates back at least to the 1990s, as a 2013 report from the State Auditor’s Office detailed. The Bureau for Private Postsecondary Education, re-established in 2010 to authorize for-profit colleges, was the state’s fourth such attempt in 20 years.  The Consumer Federation of California opposed the legislation that re-established the Bureau, because its purpose was to provide legal cover for California for-profit colleges to obtain federal student loans without any Bureau mandate for regulatory oversight or enforcement power over these institutions.

The bureau “has consistently failed to meet its responsibility to protect the public’s interests,” the State Auditor’s report determined. “In fact, many of the State’s long-standing problems with regulating private postsecondary educational institutions still persist today.”

To cite just one of the Auditor’s Office report’s many examples: “The bureau has performed only 456 announced compliance inspections since January 1, 2010, even though state law would suggest it might be responsible for performing an average of about 500 announced inspections per year. Moreover, the bureau failed to identify violations during the announced inspections that it did perform,” but which the Auditor’s Office was able to detect.

The bureau’s authority was to sunset January 1 of this year, but the Legislature extended it through the end of 2016. That means new legislation extending the bureau’s authority will be needed in the next legislative session, in order for private for-profit colleges under its jurisdiction to qualify for federal student aid.

Tags: 2015 Legislation, CFC, For-Profit Colleges