Consumer Federation of California

After allowing for-profit institutions to operate without state oversight for more than a year, Gov. Arnold Schwarzenegger of California signed a bill Sunday night that will create a new state bureau to monitor for-profit colleges.

While representatives of the colleges laud the creation of the new body and say that the accompanying regulatory legislation treats their institutions fairly, consumer advocates argue that the re-established Bureau for Private Postsecondary Education has little authority and may lull students into a false sense of security when they are considering the quality of for-profit colleges.

In January 2007, Schwarzenegger allowed the Private Postsecondary and Vocational Education Reform Act of 1989 to expire and shuttered the previous regulatory agency amid contentious debate about its effectiveness. At the time, the governor called the act ‘fundamentally flawed’ and argued that ‘simply extending the existing governing statute … does nothing to enhance protections for students, allows problems that have been well documented to continue to exist and merely allows mediocrity for California’s students."

Later that year, in July, Schwarzenegger signed a stopgap bill that provided a voluntarily system through which for-profit colleges could agree to comply with the lapsed regulatory legislation. This stopgap measure was itself allowed to expire in July 2008, when another reform bill failed to pass the state legislature. Opponents of that failed measure from the for-profit sector argued that its many requirements left their institutions open to myriad lawsuits from students.

The newly enacted legislation, which effectively brings an end to more than two years of political wrangling, is markedly different from prior attempts at reform in the for-profit sector. Namely, it exempts all regionally accredited institutions from the bureau’s oversight. The bill also presents an automatic licensure process for institutions accredited by national agencies.

This hands-off approach to licensing for-profit institutions bothers many consumer advocates.

‘Accreditation alone has been shown over and over again to be wholly inadequate as an indicator of minimal quality,’ wrote Betsy Imholz, special projects director at Consumers Union, in a plea for Schwarzenegger to veto this legislation. ‘Accreditation is basically self-regulation with schools paying to have themselves evaluated by groups comprised of schools. There is no sound policy basis for allowing either total exemption or automatic eligibility for accredited schools.’

Richard Holober, executive director of the Consumer Federation of California, said he believes certain provisions within the new legislation will have such a negative impact on students that it is ‘worse than having no regulatory system’ in place at all.

‘Student are lured through deceptive advertisements and high-pressure sales tactics to sign them up for loans that’ll leave them tens of thousands of dollars in debt with no employable skills,’ he said. ‘Not all of these institutions are bad; some are very reputable. But this bill allows bad institutions to deceive students and leave them in debt. This bill legalizes fraud and allows these institutions to misrepresent job placement and the salaries of graduates to the point where I believe students will have less protection than signed under common law fraud cases.’

The new legislation allows for-profit institutions to count as ‘graduates employed in the field’ those for whom ‘the skills obtained through the education and training provided by the institution are required or provided a significant advantage to the graduate in obtaining the position.’

Holober finds this definition weak, noting that prior legislation required ’employment in the job trained for’ and a period of minimum employment. He argues that, under this new definition, a college could count as a successful placement a nursing student who worked for one hour as a janitor in a hospital.

Holober and Imholz also dislike that the new regulation of these career colleges and vocational programs falls within the purview of the state’s Department of Consumer Affairs instead of its Department of Education, arguing that the business agency has a limited capacity for oversight.

Representatives from the for-profit sector, however, argue that this placement make sense.

‘When the for-profit sector was under the Department of Education, we were like the forgotten child,’ said Robert Johnson, executive director of the California Association of Private Postsecondary Schools. ‘We just weren’t a priority for them, and it was difficult to get anything done. It’s not that they didn’t like the sector, but it wasn’t their mainstream mission.’ If you look at academia in terms of governance structures, they’re not very effective enforcers. This is being done to bring more enforcement.’

Johnson also argues that the new legislation provides for more effective oversight than was offered by the state’s prior regulatory agencies.

‘Nobody’s been hiding in a hole these past two years,’ he said. ‘In the old reform act, there was so much paperwork involved. Agency officials sat at desks with piles of renewal forms. They were going through paperwork so much that they never got out to actually see these schools. They never got a sense of who was good or bad because they were just filing papers. Dubious operators were allowed to exist because they could solve their compliance problems by throwing more paperwork at the agency. This new system is built for more enforcement. The bad institutions will be quickly weeded out, and this can hit the ground running.’

Outside observers were much less critical of the new California law than were student advocates within the state. Alan L. Contreras, administrator of the Oregon Office of Degree Authorization, which licenses colleges in that state, argued that the new law was ‘much better than nothing.’

‘The new [California] legislation is a workable compromise that gets the state back on track,’ Contreras wrote in an e-mail. ‘There are undoubtedly issues that may require future legislative actions. The main issue is that during the start-up phase there is a risk of dubious operators. The new staff will have to be alert to that. Reform will catch up with them if the new staff spends some energy on that. The law is adequate to get it done.’

Contreras added that the new law would "preclude claims of accreditation from fake accreditors" and allow the state to kill existing degree mills.

"These are very positive steps," he said. "One other good thing in the [California] law is that is forbids a private college from using a name that might allow someone to think it is a public college."