When State Oversight Ceases

Temporary law providing some measure of supervision of California's for-profit colleges expires. The search for a new regulatory system is still stalled.
July 2, 2008

Around this time last year (July 6, to be exact), Inside Higher Ed published an article about the expiration of a California law regulating the state's 400,000-student, for-profit college sector -- and a seemingly intractable impasse over what could replace it.

Déja vu, anyone?

Even the temporary legislative fix finally pushed through then -- a stopgap bill that provided a system through which proprietary colleges could voluntarily agree to comply with the lapsed regulatory system -- has now expired, running out at midnight on Tuesday. A bill that would have put a new regulatory system in place, Senate Bill 823, failed this week to muster the two-thirds majority needed to enact it on an urgency basis, leaving the state without a regulatory system, it seems, at least through January. (The bill garnered 41 yeas, a slight majority in the 80-member Assembly, and 33 nays.)

Democratic Senate President Pro tem Don Perata’s SB 823 probably will come up again for a majority vote, needed to enact it in January on a non-urgency basis. But many in the for-profit sector remain adamantly opposed, decrying the complex and prescriptive approach of the very detailed 125-page statute. Meanwhile, the consumer advocates describe 823 as a watered-down, but still acceptable, solution to a stalemate. Some of the major criticisms levied by the for-profit sector against the bill in the last go-round, last summer and fall, have been stripped -- including a broad right of private action granted to students to sue problem schools.

Students can still sue colleges under general California consumer laws, however. And the most overarching criticism, concerning the bill’s unwieldiness, still applies, opponents say.

“The fact is, even though the private right of action provisions were taken out, there remain ample opportunities for private litigation and other litigation to be brought about based on 100+ pages of vague, contradictory and in some cases unintelligible requirements,” said Mark Pelesh, executive vice president for legal and regulatory affairs at Corinthian Colleges, a for-profit chain with more than 100 campuses in Canada and the U.S., including in California.

“We still consider the bill to be flawed.”

To convey a sense of the depth of disagreement, this is a case where even seeming concessions are contentious. SB 823, for instance, no longer includes a requirement in the old, now-expired legislation stipulating that career colleges show 60 percent completion rates and 70 percent job placement rates. But it does require extensive disclosures, both orally and in writing, of such facts and others (like license examination passage rates, the cost of attendance, and information on loan obligations).

But even what's described as compromise made from the consumer advocates' side (eliminating the completion and job placement thresholds) isn't seen as a compromise in the for-profit sector, where there's concern about liability in having to communicate a strict sequence of information in written and oral form -- the latter, they say, potentially opening colleges to liability ("he said, she said.")

In a news release Monday, Senator Perata’s office described the colleges as “again defeat[ing]” a "bill to require consumer protections." In a statement, the Senate leader said, “Students attend these schools to better their lives -- to get an education that leads to a decent-paying job and greater support for themselves and their families. With no regulation for these schools, many students find themselves tens of thousands of dollars in debt with no job and no recourses.”

“I think the schools have felt that they have just a huge amount of leverage. They got out from any regulation,” said Betsy Imholz, special projects director for Consumers Union. “They’re screaming about this compromise; it’s just infuriating.”

“The really protective thing for the students and for the state of California, frankly -- and for federal fiscal integrity [through the student loan program] -- would have been to pass this bill and have something in place immediately,” said Imholz.

“For students who are defrauded tomorrow, or subject to misrepresentation, they’re not going to have anywhere to go.”

Who is watching out for those students? Few are saying the sky is falling, and all the accredited institutions still have their accreditors to report to; that hasn't changed. But there are broad concerns about student protections in absence of state oversight.

The Department of Consumer Affairs, which previously housed the regulatory apparatus for monitoring for-profit colleges and, more recently, had the ability to seek the voluntary compliance agreements with the institutions, has no enforcement authority, and in fact, no law to enforce, at this point.

And, because it hasn’t had the ability to collect fees from institutions for a year now, the Student Tuition Recovery Fund it manages -- a safety net for students who attend colleges that close down -- is nearly exhausted.

“We’re hopeful that the colleges will continue to comply with the law even though it doesn’t exist anymore," said Russ Heimerich, a department spokesman.

The department, however, opposes Senate Bill 823 for its duplicative, confusing and, "in some cases, overly burdensome" requirements. “We’ve always hoped for a bill that schools would be able to understand so that they know what their responsibilities are, that students would be able to understand so that it would be very clear what their rights were and, frankly, so it would be clear for the regulators," Heimerich said.

"The Department of Consumer Affairs, which is supposed to implement the bill, came out in opposition to the bill on the basis that they couldn’t implement it. If they couldn’t implement it, how could we comply with it?” said Robert Johnson, executive director of the California Association of Private Postsecondary Schools. “One of our schools identified over 200 issues with the bill.”

Assemblyman Roger Niello, a Republican, had introduced an alternative bill, first floated by Republican Governor Arnold Schwarzenegger's office last year, which the for-profits said they could live with and the consumer advocates despised. Niello's bill died in the appropriations committee this year. He pledged to fight against passage of Perata's bill if it comes up for a majority (as opposed to two-thirds) vote, describing it as overly prescriptive and including onerous requirements of colleges. “If that bill does come back again, I would work pretty aggressively against the simple majority [vote] because I believe that strongly that his approach is so bad that no approach would be preferable in the interim," Niello said.

Yet, from a perspective from outside Sacramento, Alan L. Contreras, administrator of the Office of Degree Authorization of the Oregon Student Assistance Commission, described California's current "complete absence of an oversight structure" as "a very bad situation."

“They’ve got to do something. I don’t think they should sit around forever. I think this bill is worth trying in its current form," Contreras said. "Politics is an imperfect art, and you’re going to get an imperfect bill. The question is if you get a bill that people can live with for a couple of years.”

Good question.


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