BILL NUMBER: AB 1916INTRODUCED BILL TEXT INTRODUCED BY Assembly Member Irwin FEBRUARY 11, 2016 An act to add Section 94886.5 to the Education Code, relating to private postsecondary education. LEGISLATIVE COUNSEL'S DIGEST AB 1916, as introduced, Irwin. Private postsecondary education: school closure bonds. Existing law, the California Private Postsecondary Education Act of 2009, provides for the regulation of private postsecondary educational institutions by the Bureau for Private Postsecondary Education in the Department of Consumer Affairs. The act exempts an institution from its provisions, if any of a list of specific criteria are met. The act establishes the Student Tuition Recovery Fund and requires the bureau to adopt regulations governing the administration and maintenance of the fund, including requirements relating to assessments on students and student claims against the fund, and establishes that the moneys in this fund are continuously appropriated to the bureau for specified purposes. This bill would require a private postsecondary institution, as defined, to file a surety bond before January 1, 2019, with the department in the amount equal to a reasonable estimate of the maximum amount of tuition and fees imposed on students of the institution for a period of attendance of greatest expense during the applicable academic year. In the event the institution ceases operation, this bill would require the bureau, upon request for a refund by a student or the implementation of a teach-out for students of the institution, to make a demand on the bond to: (1) issue a refund of tuition and fees for student claims, (2) implement a teach-out for students of the institution, and (3) reimburse the Student Tuition Recovery Fund for moneys paid from the fund for student claims that would have been otherwise recoverable under the bond. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 94886.5 is added to the Education Code, to read: 94886.5. (a) Before January 1, 2019, an institution shall file with the bureau a surety bond in the amount determined pursuant to subdivision (b). The bond shall be executed by the institution as principal and by a surety company authorized to do business in this state. The bond shall be continuous unless the surety is released pursuant to this section. (b) The amount of the bond shall be equal to a reasonable estimate of the maximum amount of tuition and fees to be returned to students of the institution for the most expensive period of attendance during the applicable academic year. Following the initial filing of the bond with the bureau, the amount of the bond shall be recalculated annually by the bureau based upon a reasonable estimate of the maximum amount of tuition and fees to be returned to students anticipated by the school for that period of attendance. The bond shall, to the extent practicable, cover potential administrative costs incurred by the bureau in an amount no less than 5 percent of the total amount of the bond. In no case shall the amount of the bond be less than five thousand dollars ($5,000). (c) (1) In the event that an institution ceases operation, the bureau shall make demand on the surety of the institution upon the request for a refund by a student or the implementation of the teach-out for the students of the institution according to the plan provided to the bureau pursuant to Section 94926, and the surety shall pay the claim due within 45 days. The bureau shall use the bond to pay claims, to the extent practicable, filed by students who have not otherwise recovered their tuition and fees through a teach-out, or from the Student Tuition Recovery Fund established in Section 94923. The bureau shall use the bond to reimburse the Student Tuition Recovery Fund for all moneys paid from the fund for claims that would have been otherwise recoverable under the bond, except as provided in paragraph (4). (2) The bureau shall develop and implement a process, and necessary forms, for students enrolled in an institution ceasing operation to file claims to the bureau to recover their tuition and fees not recovered through a teach-out. (3) Any student enrolled in an institution ceasing operation who does not file a claim to recover tuition and fees pursuant to paragraph (2) may recover through a teach-out provided to students of the institution ceasing operation through a contract with a community college or any other arrangement approved by the bureau. The teach-out provided to the student shall replace the enrollment agreement or contract between the institution ceasing operation and the student, except that fee and tuition payments shall be made by the student as required by the enrollment agreement or contract. (4) If the amount of the bond is less than the total tuition and fees paid by all students declining the teach-out at the time the institution ceased operation, the amount of the bond shall be prorated among those students. (5) The Student Tuition Recovery Fund shall be used to cover economic loss incurred by a student while enrolled at an institution ceasing operation, including any prepaid tuition and fees not recovered by the student under the bond. (6) The bond shall be used to provide recovery for students enrolled in an institution at the time it ceases operation, within 121 days of the institution ceasing operation, and, if applicable, within a period of a declining quality of education, as determined by the bureau, longer than 120 days before the institution ceases operation. (d) Once an institution ceases operation, no new students shall be enrolled. (e) An institution's approval to operate shall be suspended by operation of law when the institution is no longer covered by a surety bond as required by this section. The bureau shall give written notice to the institution at the last-known address, at least 45 days prior to a release of a surety, to the effect that approval shall be suspended by operation of law until another surety bond is filed in the same manner and like amount as the bond being released. (f) A surety on any bond filed under the provisions of this section may be released after the surety serves written notice to the bureau at least 60 days prior to the release. The release shall not discharge or otherwise affect any claim filed by any student for loss of tuition or any fees that occurred while the bond was in effect or that occurred under any note or contract executed during any period of time when the bond was in effect, except when another bond is filed in a like amount and provides indemnification for any loss. (g) For purposes of this section, and notwithstanding Section 94858, "institution" means, to the extent authorized by federal law, a private postsecondary educational institution that offers postsecondary education to the public in this state for an institutional charge, but does not include an independent institution of higher education, as defined in Section 66010, that has operated in California for no less than 15 academic years. (h) Tuition and fees for purposes of this section are both of the following: (1) Paid tuition and fees not recovered by the receipt of academic credits. (2) Paid tuition and fees recovered by the receipt of academic credits that are nontransferable to accredited institutions.