Today's Law As Amended

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AB-1343 Private postsecondary education: California Private Postsecondary Education Act of 2009.(2019-2020)



SECTION 1.
 The Legislature finds and declares the following:
(a) When a for-profit educational institution obtains more than 85 percent of its revenue from recruiting taxpayer-funded beneficiaries, the institution is, in effect, a vendor of educational services for the government and taxpayers should expect, and the government should ensure, that the institution obtains only the funding that is reasonably required to achieve the purposes of the program.
(b) In 2018, the federal Department of Veterans Affairs Inspector General reported that the federal Veterans Administration will pay an estimated $2.3 billion in taxpayer-funded GI Bill student aid over the next five years on improper payments to ineligible educational institutions, including institutions with deceptive advertising and recruiting, prohibited under federal law.
(c) In 1992, Congress capped the amount of taxpayer financial aid collected that a for-profit institution could receive at 85 percent of an institution’s revenues, later increased to 90 percent. This reform was intended to ensure that the prices charged to recipients of government aid were not inflated solely to match the size of the financial aid benefit, leaving less aid for students’ other expenses. The reform was also intended to ensure that prices charged to government aid recipients were based in part on the prices being charged in the competitive market to students not using government aid.
(d) Analysts, including the Federal Reserve Bank of New York, have found that tuition at for-profit educational institutions rises at a rate far higher than tuition rises at public or nonprofit colleges when federal aid expands, confirming the need to ensure that prices at for-profit institutions are not based solely on the amount of the government aid received by a student.
(e) A loophole in federal law provides that GI Bill benefits are not what they indisputably are, namely, government benefits. Under the loophole, an institution is permitted to count GI Bill benefits as if the veteran was paying out of their own pocket. This loophole undermines the very purpose of the cap as a check on the fairness of the tuition price.
(f) With this loophole, the institutions that most aggressively recruit veterans are those of low quality that are unable to attract even a modest amount of employer, or other private, support. As the United States Senate Committee on Veterans’ Affairs stated in adopting a similar rule for GI Bill funds in 1976, “if an institution of higher learning cannot attract sufficient nonveteran and nonsubsidized students to its programs, it presents a great potential for abuse.” Veterans deserve our utmost protection in honor of their service.
(g) For these reasons, state law must end the excessive incentive to enroll veterans in overpriced programs that exploit a loophole. To prevent price gouging, the state must impose reforms that ensure that institutions that enroll veterans charge what consumers who are paying with private funds would be willing to pay.

SEC. 2.

 Section 94918.5 is added to the Education Code, to read:

94918.5.
 (a) For the purposes of this section, “tuition revenues” means the revenues from all tuition and fees assessed against students by the institution, minus any amounts refunded to students.
(b) An institution shall not enroll residents of California, except those already enrolled on or before January 1, 2023, in any program unless the institution meets one of the following:
(1) (A) No more than 85 percent of the institution’s tuition revenue, as documented in the most recent audited financial statement for a fiscal year within the prior two years, is derived from student financial aid provided by a federal agency.
(B) The methodology used to determine the percentage of the institution’s revenue derived from student financial aid provided by a federal agency shall be consistent with the methodology and accounting standards established in Section 668.28 of Title 34 of the Code of Federal Regulations, as that section read on January 1, 2019, with the exception that tuition revenue derived from programs of the United States Department of Veterans Affairs and the United States Department of Defense shall be counted as student financial aid provided by a federal agency.
(2) Not less than 50 percent of the institution’s tuition revenue is dedicated to a combination of student instruction and student support.
(c) This section does not apply to an institution with annual revenues, in the most recent audited financial statement for a fiscal year within the prior two years, of less than two million five hundred thousand dollars ($2,500,000).
(d) Submission to the bureau of an audit or audited financial statement by a certified public accountant that is lawfully permitted to practice in California attesting that an institution is in compliance with paragraph (1) or (2) of subdivision (b) presumptively constitutes proof of compliance with this section. This subdivision shall not be construed as limiting the bureau’s authority to investigate and take appropriate action if the bureau concludes that an institution is not in compliance with this section, notwithstanding the attestation.
(e) The bureau shall adopt regulations that define “instruction” and “student support” for purposes of this section. In developing these regulations, the bureau shall take into consideration the definitions of “academic support,” “instruction,” and “student services” used by the federal Integrated Postsecondary Education Data System as of January 1, 2019, and the provisions of Section 84362 as of January 1, 2020. For purposes of this section, “student support” shall not include any spending for advertising, recruiting, admissions, and other activities related to students not yet enrolled in an institution. The bureau shall adopt these regulations no later than July 1, 2022.
(f) This section does not apply to a cohort of students enrolled at an institution to which this section otherwise applies if the attendance of that cohort at that institution begins before regulations defining “instruction” and “student support” have been adopted pursuant to subdivision (e).