AB 48 Protects Private For-Profit Education Corporations, Hurts Students and Taxpayers

Posted on 09 September 2009

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R.Holober-2005.gif By Richard Holober
Executive Director
Consumer Federation of California

Did you know that the vocational schools that litter late-night television with promises of new careers and higher salaries in a matter of weeks are in a fight for their lives? And students, who have been defrauded for years, are likely to be the losers.

Private for-profit education corporations are worried that the Obama Administration is moving to reverse a Bush era doctrine that permitted the flow of billions in federal student loans to California proprietary schools, including many that defraud students, offer inferior education and leave taxpayers holding the bag when students unable to find promised employment end up defaulting on their loans.

In 1989, then State Assemblywoman Maxine Waters led the charge to regulate these schools after hearing one horror story after another, including a devastating expose by 60 Minutes. Despite the new regulation schools found ways to defraud students either deviously circumventing the law or by outright ignoring it. Students, largely women and people of color, found themselves victims of fraud and saddled with thousands of dollars in debt. And the state bureau in charge of oversight was found to have failed to properly enforce the law, not even collecting mandatory fees from these schools.

The Waters statute expired two years ago and the industry and consumer groups have been fighting over reregulation ever since. A consumer backed bill was vetoed last year. The Bush Administration took it upon itself to approve continued federal student loans at these schools, ignoring a federal law requiring state oversight of these schools. This temporary authority is on the chopping block by the Obama administration, leaving these schools desperate for any form of reregulation in California.

AB 48 (Portantino) is the vehicle the for-profit post-secondary proprietary schools have crafted to keep the federal loan spigot wide open.

Throughout the process consumer groups have called out for better student protections including an independent monitor to insure the renewed bureau does its job this time. We certainly wanted to learn from the mistakes of the past. Gradually AB 48 was improved to give students better footing against fraud but it still fell short of necessary levels or even the minimum protections of the expired law. Yet the schools continue to lobby for this legislation with an eye on the federal student loan prize.

Now at the 11th hour the schools have shown their hand again. A key provision of AB 48 was rewritten to allow schools to continue to rip off students. For years schools were sued for misrepresenting and falsifying job placement rates. They promised students almost guaranteed new careers after just a few months of classes. We have all seen these late night commercials promising the pot of gold at the end of the rainbow. In 2007 California Attorney General Jerry Brown secured a $6.5 million settlement with Corinthian Colleges for misrepresenting job placement rates to prospective students.

A moderate provision of AB 48 which sought to have some meaningful protections against this type of shenanigans was amended on September 4 to give the schools a loophole as large as their profits. They can now play fast and loose with purported job placement rates to lure enrollment, without any recourse for students who will be left unable to secure the advertised job and laden with thousands of dollars of student debt. With the passage of AB 48 students are in many ways worse off than they were under the previous statute when it comes to the job placement rate provisions. There are no minimum levels of graduation or job placement rates that must be met in order to retain authority to operate. And this does not even take into account that there are fewer schools required to adhere to state regulations since AB 48 is filled with a long list of exemptions for many of the largest schools.

That’s why the activities at the federal level are so critical to this debate. California schools are vigorously lobbying for AB 48 because it is loose enough to allow their deceptive practices while it restores their ability to access federal student loans. And they desperately want these loans to keep flowing. They can’t exist without them.

These for-profit schools are funded almost entirely by federal student loans. Since 2007, California’s proprietary schools have relied on a controversial Bush Administration DOE letter that approved federal student aid despite our state’s non-compliance with federal Title IV student aid requirements.

The Obama Administration recently announced that it will develop new regulations for federal student loans as early as October, 2009. As announced in the Federal Register, we anticipate that the DOE will rescind the Bush Administration letter, and clarify the requirement for a state “authorizer” of proprietary schools operating in each state, along with other new standards designed to achieve better student outcomes. Proprietary schools need AB 48 to promptly re-establish a state “authorizer” to protect their profits, but have made sure the bill is devoid of meaningful regulations to protect students against widespread industry fraud and inferior education.

Many Democrats have lined up to support the bill on the theory that the governor will veto a bill that balances student protection with corporate profit protection. In fact the real pressure will come from the industry for the governor to sign any bill re-establishing a state oversight agency, even a bill containing student protection against fraud and deception. Congresswoman Maxine Waters, who authored the original proprietary school regulations when she served in the State Assembly, wrote to Senate President Pro Tem Darrell Steinberg, urging him to hold AB 48 pointing out that student’s hands will be strengthened once Obama develops tough new federal funding rules for the for-profit education sector. Opponents of AB 48 include Consumer Federation of California, Consumers Union, Legal Aid Foundation of Los Angeles, Center for Public Interest Law, CALPIRG, and Consumer Action.

Abuses in the for-profit job training sector date back to the enactment of the original GI bill after World War II. That legislation created government funding for tuition, and attracted both quality programs and unscrupulous training providers eager to cash in on this funding stream.

In 1987 the state established regulation of vocational schools in the Department of Education. In 1997 the Bureau for Private Postsecondary and Vocational Education moved to the Department of Consumer Affairs. The Bureau performed its oversight job poorly. It failed to issue basic regulations on the running of the Student Tuition Recovery Fund and failed to collect assessments from schools, which left its account depleted and the Department without funding to administer it. A 2004 law established an “Enforcement Monitor” to report on the Bureau’s performance. The Monitor’s 2005 report found a "twenty-year record of repeatedly identified, fundamental problems in every one of the Bureau's key operations." In 2007 the Bureau ceased operating. That put these proprietary schools out of compliance with federal student aid requirements. Then the Bush Administration rushed to their rescue with its novel interpretation enabling these loans to continue, unmolested by the letter of the law.

Last year, Governor Schwarzenegger vetoed legislation (SB 823 - Perata) that would have re-established agency oversight with tougher enforcement standards.

Widespread industry abuses include luring students to enroll in costly programs by advertising job placement success rates that have no basis in reality.

Consumer advocates had called for amendments to AB 48 that would have required a graduate be employed for at least 60 days within a six month period after graduation in a job for which the program of instruction was advertised, before the proprietary school could count that graduate as a successful job placement. And we have called for the placements to be in positions directly related to the coursework- positions that would not have been attainable without the classes. The prior law also required schools to meet minimum levels of graduation and job placement rates. These protections are not in AB 48.

But no sooner than a mild, truncated version of this requested amendment was added on September 1, the proprietary colleges struck back. A new set of amendments on September 4 now permit a proprietary college to advertise as a successful placement a graduate who found work for as little as one hour in any job, even one entirely unrelated to the course of instruction, including an unskilled minimum wage job, as long as the for-profit school can claim that the coursework created an “advantage” for the graduate in securing the job.

This amendment allows a school to claim as a successful job placement a graduate of a nursing program who is rejected by every potential hospital employer but who lands a job as a dishwasher, since the college could legally claim that the college coursework provided an “advantage” in securing the minimum wage unskilled job.

Betsy Imholz of Consumers Union has outlined AB 48’s many shortcomings.

The bill has been presented as a best first step in restoring student protections and educational standards, when in fact the bill exists to protect the funding of California’s for-profit education sector from anticipated Obama Administration regulations. If this bill becomes law, the industry will have achieved its goal. It will exert its bipartisan lobbying muscle in Sacramento to make sure no strengthening revisions are ever enacted, even should a new governor have greater sympathy for student protection.

If the California Legislature is going to reregulate these schools it must do it right the first time. Despite the efforts of many, students are not sufficiently protected under AB 48.

As amended on September 4, AB 48:

* Legalizes misrepresentation of job placement statistics and educational outcomes to prospective students. Misrepresentations are common in high pressure sales tactics driven by admissions representatives paid based on the number of students enrolled. Clear, uniform disclosures are essential to allow students to make informed choices. The bill’s course completion, job placement, and salary disclosures are not crafted with specificity, enabling deceptive marketing practices. Notice of transferability of credits fails to inform students that rarely will other higher education institutions recognize proprietary school courses.

* Allows the schools with the most students and revenue to commence operations in California with no state review. All regionally accredited schools are automatically exempt from any oversight, and are not even required to provide basic disclosures to students. Accreditation is a school-funded self-regulatory mechanism that fails to address fraudulent industry practices. All schools that were previously approved by defunct Bureau for Private Post-Secondary and Vocational Education are automatically approved to operate with no further review, in some cases until 2014, without a new approval. So much for oversight of the industry.

* Lacks an accountable, sufficiently funded regulatory body. In all other states, the licensing authority for proprietary schools is located in an education-related agency or board. From 1997 to 2007 the California Department of Consumer Affairs had the responsibility, but failed to adequately perform, according to several government audits and reports. If authority is to stay with DCA, an Enforcement Monitor should be appointed to ensure that the law is properly implemented.

* Contains weak, hampered enforcement authority. The penalties for violations are weak (e.g. notices to comply, infractions, and citations), and will not provide an incentive for schools to comply.

By creating the illusion of state oversight, AB 48 will hand a new marketing tool to the for-profit education industry. Boasting that they have state approval, but without mentioning that the weakest of educational standards are connected to that approval, sales personnel for substandard schools will more easily entice students to enroll.

All too often these students are left with no meaningful training to prepare them for a job or a transfer to another higher education institution. Strapped with tens of thousands of dollars in loans that they cannot repay, students often have their credit ratings destroyed, and face bankruptcy or debt collection for the rest of their lives.

California students, taxpayers, and employers deserve better than a bill that gives these institutions a license to cheat.

The best course of action is to park AB 48 and strengthen student protections so that we never have to have to hear the horror stories again. The Obama Administration regulations on student loans will allow us to revisit this issue with a new bill written with the goal of protecting students.

The Consumer Federation of California is a non-profit advocacy organization. Since 1960, the Consumer Federation of California has been a powerful voice for consumer rights. CFC campaigns for state and federal laws that place consumer protection ahead of corporate profit. Each year, CFC testifies before the California legislature on dozens of bills that affect millions of our state's consumers. CFC also appears before state agencies in support of consumer regulations.

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