California's Regulatory Meltdown

When a California bureau charged with regulating the state’s for-profit institutions closed down July 1, the concept of “state approval” became theoretical, if only for a short time.

July 20, 2007

When a California bureau charged with regulating the state’s for-profit institutions closed down July 1, the concept of “state approval” became theoretical, if only for a short time. About 400,000 students are enrolled at the 1,600 or so institutions formerly approved by California’s now-defunct and, by all accounts, largely ineffectual Bureau for Private Postsecondary and Vocational Education – which oversaw such varied degree and non-degree granting institutions as Life University, which offers, among other programs, a doctor of “Oriental medicine in research advancement” degree; Oakland School of Law, the Academy of International Bartending and Casino Dealing, the Art Institute of California and the Coastal Trucking Institute. Some of the state-approved institutions offering degree programs are also accredited by national and regional agencies; some are not, and depend solely upon the state's stamp of approval to prove legitimacy.

Gov. Arnold Schwarzenegger signed a bill last week that extends such state approval authority for colleges that voluntarily agree to comply with the old state regulatory statute through January 31. But a longer-term solution being debated in the California Legislature faces a lot of opposition and a very uncertain future. And, in the meantime, advocates for institutions and students alike are facing some uncertain futures too.

Students, for one, looking for redress or quality assurance have few recourses during this interim in regulatory enforcement. “The students who were harmed in the past by misrepresentations -- with no state agency, with no tuition recovery fund on the state level, they’re going to have no place to go," said Betsy Imholz, special projects director for Consumers Union.

Meanwhile, a handful of smaller institutions that depend on state approval in order to ensure their students’ eligibility for professional licensure – California is unusual in allowing graduates from unaccredited, but state-approved, degree programs sit for licensure exams in most professional fields – are starting to consider the possibility of shutting down because they can’t guarantee their state approval (or a state approval system at all) will be there a year from now, Robert W. Johnson, executive director of the California Association of Private Postsecondary Schools, said in an interview.

It's the small, unaccredited institutions that may be vulnerable in the absence of a state approval mechanism: Alan Contreras, administrator of the Oregon Office of Degree Authorization, said that 10 states, including Oregon, will not accept degrees from unaccredited colleges as credentials unless those colleges are approved by their respective states. California is one of a handful of states that plays host to a significant number of these unaccredited, but state-approved, private providers, Contreras said (Though most states have some, since all new colleges are unaccredited for a time). On the one hand, that's not exactly a marker of quality: "Most states that get into that situation are in effect harboring diploma mills," Contreras said, indicating that California, in particular, has a "history of a lot of substandard private providers."

But while some state-approved institutions don't apply for accreditation because they likely wouldn't receive it, other small colleges, Contreras said, might avoid seeking it because of the cost.

"There are also some good, perfectly sound, unaccredited smaller colleges in California," said Contreras.

A long-term legislative remedy, which replaces one regulatory body with another and maintains the consumer protections in the now inoperable current law, is facing resistance for a number of reasons, the most contentious centering upon which colleges are and aren't exempt from state oversight based on their accreditation status; the complexity of the proposed statute; and a broad right to sue colleges for misrepresentation or fraud granted to students in the bill.

The debate over regulating the state’s for-profit sector is so complex it can become an easy target for oversimplification, with the discussion often hinging on accusations that the for-profit players, in particular the corporate chains, resist regulation and would prefer not to have a law or accountability at all. Meanwhile, the sector’s supporters shoot back that they do want effective, intelligible regulation, and that the plaintiffs' lawyers advocating for students are simply looking for tools with which to more effectively sue.

The big, accredited for-profit players aren't much affected by the lack of regulatory structure, having gotten assurance from the U.S. Department of Education earlier this year that their eligibility for Title IV federal financial aid funding wouldn't be compromised in absence of the bureau's oversight. “On June 30, as the act became inoperative, our president and CEO sent out a communiqué to the presidents of all of our California institutions, noting that it had happened, and his message was ‘Keep doing exactly what you’re doing.’ We’re not changing our mode of doing business, we continue on our own, irrespective of changes in the law, to continue to try to comply with the law as it existed," said Mark Pelesh, executive vice president for legislative and regulatory affairs for Corinthian Colleges, a for-profit education company headquartered in California.

It's the students and the small institutions, which have fewer resources to rely on and a lower tolerance for risk, who stand to potentially suffer, their respective supporters say. The stopgap law recently signed by Governor Schwarzenegger protects the eligibility of students at state-approved institutions to sit for licensing exams into 2008, but without a long-term solution in place, small institutions surviving or shuttering based on tuition revenue may have a tricky time recruiting students for multi-year degree programs, said Johnson of the association of private postsecondary schools, which represents California career colleges.

“If you’re a potential student and you’re looking at whether the law in California is going to be there… if I’m thinking a multi-year program, am I going to that school or to one in another state?” Johnson asked. Several smaller, state-approved colleges, with and without accreditation (though principally without) have approached him so far about possibly shutting down in this uncertain climate, he said. While unaccredited colleges are particularly worried about their students' eligibility for licensing exams, small unaccredited and accredited colleges alike are worried about being sued for fraud if they admit students knowing their state approval could run out. Though Johnson advises them that he expects a legislative solution, if only an extension of the current stopgap law, he acknowledges the risk for small institutions "working on the margins."

“Clearly, if you’re running a small school and you can’t guarantee that their degrees will still be approved in 2009 or 2010 if they graduate…if you enroll them [now], aren’t you taking the risk down the road of being sued for misrepresentation?” Johnson asked.

Inherent in that concern is not only the risk for the institution, but also the student. Collections for the statewide Student Tuition Recovery Fund, a safety net for students who can prove they’ve been ripped off, will cease, at least through the end of the year, under a provision of the short-term law recently signed. While the Department of Consumer Affairs (the department in which the former oversight authority was housed) is expected to accept complaints from students and continue to process claims already on file, student advocates wonder how effective that will be in absence of a staff devoted to the effort, and resources replenishing the pot.

Even the department’s official stance on the matter reflects that caveat. “We will continue to accept complaints and to the extent that we can, we will assist students, given the resources that we have, whether or not resources allow,” said Russ Heimerich, a spokesman for California’s consumer affairs department.

And, while a lot of the immediate concerns rightly fall to the fates of students and the relatively small proportion of California for-profits that are unaccredited, but state-approved, Oregon's Contreras pointed out that, as state approval is a requirement for accreditation, accredited colleges applying for reaccreditation could also run into problems down the road if a long-term legislative solution isn't found. So far, however, their eligibility for key state and federal programs remains perfectly intact. Their eligibility for Workforce Investment Act funds distributed through the state's Employment Development Department will not be immediately impacted, Patrick Joyce, a spokesman for the department, said Wednesday. And Virginia Kice, a spokeswoman for U.S. Immigration and Customs Enforcement, confirmed that California institutions already certified to host foreign students through the Student Exchange and Visitor program will remain eligible, and subject to their scheduled two-year reviews as is typical practice.

Also among the immediate fears are concerns that the regulatory vacuum opens the door for California to return to its sad, 80s-era history of being a haven for diploma mills -- even "the diploma mill capital of the world," as some have put it. But, said Imholz, “It’s not just the fly-by-nights and the diploma mills, but the sector itself [that] needs comprehensive oversight." A recent legislative hearing on this issue attracted testimony from multiple students from accredited colleges who shared tales of being tens of thousands of dollars in debt and short of that lucrative job offer they said they’d been told to expect. Without an oversight agency charged with mediating complaints and collecting information on degree completion and job placement rates, not only will these aggrieved students find little recourse for their complaints aside from the state’s more general anti-fraud law, Imholz said, but so will their ability to find out the facts and avoid getting into that situation in the first place be hampered.

"The temptations are great. It's just too easy to fool people because they have dreams," Imholz said. "You can sell dreams. It's a classic con game. I'm not saying that every school engages in it or that every school engages to the same degree, but the temptations are too great to not have state oversight. And the dollars are too great."


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