California bills targeting for-profit businesses and bundled services exception move forward
A set of seven interrelated bills proposing tougher regulation of for-profit and private colleges in California moved closer to becoming law this week — but not completely intact.
One of the bills, a proposal to create the first national rule on paid employment at the state level, has been watered down to only require the collection and disclosure of employment outcome data. for-profit college graduates.
Another bill, which proposed to toughen California’s 90-10 rule — a regulation that allows for-profit institutions to claim up to 90% of their income from federal financial assistance — has been delayed. It is possible that the bill will be reviewed by the committee again next year.
Robert Shireman, director of excellence in higher education at the Century Foundation and a former official in the Department of Education during the Obama administration, helped draft the language for the seven bills. In an emailed statement, he expressed disappointment that California Senate committees did not enact these “essential protections for students.”
“At a time when veterans are at significant risk of being ripped off by for-profit colleges, and just days after [Education] Secretary [Betsy] DeVos shamefully repealed the federal paid employment rule, these two bills in California were desperately needed to fill the void the Trump administration is creating,” he said.
“Yet taken together, the five bills advanced out of committee represent a positive step forward for California students and, if enacted, would be the strictest for-profit university regulations of any state. passed,” Shireman said. “It’s another sign of the growing recognition across the country that for-profit colleges, by design, are inherently different and pose greater risks to consumers and taxpayers.”
Bills Seeking Tougher Regulation of For-Profit Corporations in California
- AB 1340 — California-style paid employment rule similar to that developed by the Obama administration.
- AB 1341 — Prevent for-profit colleges from evading scrutiny by posing as nonprofits.
- AB 1342 — Requires the California Attorney General to review and approve all sales from nonprofit universities to for-profit corporations.
- AB 1343 — Would require that no more than 85% of a school’s revenue can come from federal or state sources.
- AB 1344 — Requires out-of-state institutions that enroll California students in online courses to comply with all California consumer protections.
- AB 1345 — Prohibits colleges from setting recruitment quotas and entering into tuition-sharing agreements.
- AB 1346 — Would allow students victimized by for-profit institutions that have closed to recoup their fees outside of tuition.
Although most of the bills in the legislative package are still pending, many for-profit colleges in California will be pleased to hear that proposed changes to the 90-10 rule have stalled.
The California Association of Private Post-Secondary Schools (CAPPS), which largely represents for-profit institutions and actively opposed the bill package, previously said Inside Higher Education that the proposed changes to the 90-10 rule would lead to the closure of approximately 130 institutions in the state. The bill proposed to cap taxpayer-funded revenue at 85% or require colleges to spend at least 50% of their revenue on education.
For institutions such as Ashford University, which is currently transitioning from for-profit to not-for-profit status, remaining bills could still present a challenge. A bill designed to detect “secret for-profit companies” could give the California attorney general the power to decide whether an institution claiming to be a nonprofit is really a nonprofit, which could contradict decisions made by the IRS and regional accreditors.
Another bill could impose restrictions on the ability of private, for-profit institutions to partner with academic service providers and online program management companies by prohibiting tuition-sharing agreements.
This latest bill, known as AB 1345, is significant because it signals increasing political scrutiny of higher education institutions’ partnerships with online program management companies, although Shireman admits it’s was an unintended consequence of the bill. However, he believes that the legal basis on which OPM companies operate is somewhat fragile and would benefit from being revised.
In 2011, the Department of Education issued a Dear Colleague Letter outlining a “bundled service exception” that allows institutions to enter into tuition-sharing agreements with third parties. AB 1345 could potentially eliminate this exception for certain for-profit colleges operating in California.
Anthony Guida Jr., an attorney and partner at Duane Morris, testified in California this week as a representative for Ashford University. He confirmed that the institution hopes to make changes to the wording of two of the bills. For example, instead of the California Attorney General reviewing an institution’s nonprofit status, Ashford proposed that the California Franchise Tax Board conduct the review. Ashford also hopes to ensure federal and state bundled service exception laws are aligned.
“Hopefully we can work on the language,” Guida said. He added that there “didn’t seem to be a huge gap” between the changes wanted by supporters of the bill and those in the opposition.
The Senate Education Committee and Appropriations Committee will revisit the bills later this month.