Oversight of Private Colleges in California

Oversight of Private Colleges in California MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • DECEMBER 2013 AN LAO REPORT 2 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT EXECUTIVE SUMMARY In California, Private Colleges Enroll One in Five Students. In addition to 145 public colleges and universities, California has about 200 private nonprofit colleges and more than 1,000 private for-profit colleges. Whereas public and nonprofit colleges tend to offer a wide range of academic programs and award various types of degrees, for-profit colleges tend to offer programs that are shorter in duration and lead to vocational certificates. In California, the private sector serves about one in five college students, with about equal shares enrolled in nonprofit and for-profit colleges. Recent Legislation Designed to Improve Private College Oversight. Following a long history of struggling to oversee private colleges, California adopted legislation in 2009 that established a new regulatory structure. The 2009 act created the Bureau for Private Postsecondary Education (the Bureau) and entrusted it with monitoring the educational quality and business practices of private colleges, resolving student complaints against the colleges, and identifying deception associated with fraudulent or substandard degrees. Legislature Exempted Many Organizations but Called for Subsequent Review. The act exempted some colleges from Bureau oversight—most notably regionally accredited colleges. The act also called for our office to examine the extent to which regional and other accrediting agencies provide the same level of student protection as the Bureau, to report on the appropriateness of these exemptions, and to recommend whether the exemptions should be continued, adjusted, or removed. Educational Quality and General Operations Accreditors Provide Greater Oversight of Educational Program Quality and Similar Oversight of General Operations. Regional and national accreditors generally have more exacting educational quality standards than the Bureau, and they conduct more in-depth reviews of colleges’ compliance with these standards. Accreditors and the Bureau have comparable standards in areas of general operations such as record keeping, facilities, and financial viability. Recommend Bureau Rely on Accreditors to Oversee Educational Quality and General Operations. Because accreditors provide oversight that is at least as robust as the Bureau’s for educational quality and general operations, we recommend the Legislature continue to exempt regionally accredited institutions from the Bureau’s reviews in these two areas. For nationally accredited schools, we recommend the Legislature eliminate the education-review components of the Bureau’s on-site inspections and eliminate review of general operations to the extent Bureau and accreditor standards overlap. Business Practices and Student Complaints Bureau Has More Rigorous Standards for Business Practices. For business practices (including marketing and recruitment, disclosures, and tuition refund policies), the Bureau has more exacting standards than both regional and national accreditors. In general, the business practices of regionally accredited institutions are the least well monitored given these institutions are exempt from Bureau oversight. Nonetheless, most regionally accredited colleges appear to have acceptable business practices. www.lao.ca.gov Legislative Analyst’s Office 3 AN LAO REPORT Bureau Has Better Recourse for Student Complaints. Unlike the Bureau, most accreditors do not seek to resolve individual student complaints. Instead, they focus on whether colleges maintain adequate complaint procedures. For example, the Bureau can require a college to refund tuition payments to a student with a valid complaint whereas an accreditor more likely would confirm that the school has a complaint resolution process in place and is following it. As a result, students attending accredited, exempt institutions do not have comparable recourse for their complaints as students attending schools overseen by the Bureau. Focus Bureau’s Business Practices Review and Complaint-Resolution Process on Highest-Risk Institutions. We recommend the Legislature establish criteria to distinguish low-risk from higher-risk institutions for the purpose of providing targeted business practices oversight for the highest-risk institutions. To determine which colleges should be subject to this targeted oversight, the state could consider various institutional proxies for risk, including school ownership, types of programs offered, track record of operation in state, and performance criteria. For regionally accredited colleges, we recommend the Legislature continue to exempt the vast majority from all Bureau oversight but subject a small subset of these colleges to business practices review. For nationally accredited institutions, we recommend the state maintain business practices review consistent with current law, but reduce the periodic inspection requirement for low-risk colleges. The net effect of these oversight changes would be to free up time for the Bureau to focus on higher-risk institutions (including unaccredited schools)—providing these schools more extensive and more frequent oversight. Oversight of Online Colleges Some Online Colleges Serving California Students Not Regulated by Bureau. The Bureau regulates only schools with a physical presence in the state. As a result, students enrolled in online programs offered by institutions based in other states do not benefit from the oversight provided by the 2009 act. For example, these schools are not subject to the Bureau’s minimum standards for educational quality, operations, or business practices, and their students do not have access to the Bureau’s complaint-resolution process. Recommend Requiring State Approval for Online Schools Enrolling California Students. Extending Bureau oversight to these schools would provide greater student protection for California students. The Bureau could oversee these schools through new multistate reciprocity agreements that are being developed. These reciprocity agreements would result in minimal additional workload for the Bureau because it could rely on approval from other participating states that meet mutually agreed-upon standards for oversight. To this end, we recommend the Legislature require online colleges to be state-approved and provide statutory authorization for the Bureau to grant reciprocal approval to institutions licensed in other states. 4 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT INTRODUCTION In 2009, the Legislature adopted the California In the first half of the report, we describe Private Postsecondary Education Act to protect the different types of postsecondary schools, explain interests of students attending private universities, the basic framework for regulation of private colleges, and technical schools in the state. The act postsecondary schools, and provide a brief review set minimum standards for private postsecondary of California’s regulatory efforts over the last institutions operating in the state, created a new 35 years. The second half of the report contains our oversight bureau for these schools, and exempted analysis of the oversight provided by accreditors several types of institutions from bureau oversight, and the bureau under California’s current including institutions accredited by any of six regulatory system, as well as our recommendations regional associations. The legislation directs our for adjusting exemptions from oversight moving office to examine: (1) the extent to which regional forward. The recommendations are intended to and national accreditors oversee institutions and close a gap in oversight for certain now-exempt protect student interests, (2) whether that oversight institutions while limiting the new regulatory results in the same student protections as oversight burden placed on them. We also suggest allowing by the new bureau, and (3) whether current other institutions voluntarily to participate in the exemptions from bureau oversight should be new, more limited state oversight process to help continued, adjusted, or removed. This report fulfills them meet certain new federal requirements. that statutory requirement. BACKGROUND P ostsecondary s chools By comparison, for-profit colleges are more likely to focus on a narrower range of disciplines, be Two Main Types of Postsecondary Schools. vocationally oriented, and offer programs of Higher education institutions in the United States shorter length that result in certificates rather than are classified into various sectors based on who baccalaureate degrees. For-profit institutions may controls the institution. The two main sectors be owned by individuals or families, stockholders are (1) the public (or state) sector, consisting of a publicly traded corporation, or private primarily of community colleges, state colleges, and investors with large capital investments in a school universities; and (2) the private sector, including or group of schools. Publicly-traded for-profit nonprofit and for-profit schools. Most public and institutions are accountable by law for the financial nonprofit colleges offer a wide range of academic returns they produce for their owners/shareholders. programs in the liberal arts and sciences, as well Wide Range of Postsecondary Schools as technical fields, and award various types of in California. California public institutions degrees. Nonprofit schools typically are founded include the 112 California Community Colleges, by charitable or religious organizations. These 23 California State University campuses, and institutions are accountable to volunteer governing 10 University of California campuses. California boards whose members are prohibited by law has nearly 200 nonprofit schools (often referred to from benefiting financially from the institutions. www.lao.ca.gov Legislative Analyst’s Office 5 AN LAO REPORT as independent institutions), including Stanford Concerns About For-Profit Colleges. For-profit University, Saint Mary’s College, and the California colleges have received considerable attention in College of the Arts. California has more than 1,000 recent years. Some of this attention has been positive, for-profit colleges, including the University of including studies highlighting the role of these Phoenix, ITT Technical Institute, Academy of Art colleges in fostering innovation and increasing the University, and Citrus Heights Beauty College. number of graduates in California. Much attention, About One in Five College Students in however, has been critical of the sector, with California Attends Private Sector. In 2011-12, of particular concern that the more intense business 3.7 million students attending college in California, pressures that for-profit schools face sometimes nearly 3 million were enrolled in the public sector adversely affect students. Regulators have determined and almost 800,000 (or 21 percent) were enrolled in that students are at greater risk of exploitation at the private sector. As reflected in Figure 1, 10 percent for-profit institutions than at other postsecondary of college students were enrolled in nonprofit institutions. Investigations of for-profit schools schools, with 11 percent enrolled in for-profit suggest that someG ofr athpeshe iscch Sooilgs nha vOe fofffered schools. The proportion of college students attending low value educational programs at a high cost to Secretary for-profit schools has grown in recent years while students and taxpayers, resulting in poor academic Analyst the share in each of the other segments has been and financial outcomes for students. For example, a Director declining slightly. In 2002-03, for example, the United States Senate investigation noted that while Deputy share of students enrolled in for-profit schools was for-profit schools enroll between 10 percent and 5 percent. 13 percent of postsecondary students nationally, they receive 25 percent of financial aid dollars and account for nearly half of Figure 1 all federal student loan In California Private Colleges Enroll One in Five Students defaults. Numerous other Students by Sector, 2011-12 investigations, including inquiries by the United Private For-Profits States Government Accountability Office and Nonprofits state attorneys general California (AGs) have identified poor Community Colleges student outcomes, high costs, and misleading or deceptive recruitment University of California practices at a number of for-profit schools. r t egulatory riad California State In the United States, University three independently Public acting entities—the federal government, accrediting 6 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #100176 AN LAO REPORT bodies, and state agencies—oversee postsecondary These institutions serve the vast majority of college institutions. This regulatory structure is referred to students. Increasingly, large for-profit institutions as the regulatory triad. The purpose of this structure also are becoming regionally accredited. Six national is to ensure that postsecondary institutions serve the accreditors, by contrast, oversee most non-degree interests of taxpayers, students, and employers. granting, career-related postsecondary schools, The United States Department of Education in addition to many degree-granting but more (USED) Sets Standards for Institutions specialized or vocationally oriented schools. These Participating in Federal Student Financial national accreditors are organized by discipline Aid Programs. The goal of the USED’s rules for area or type of school—for example, career colleges institutional participation in federal student aid or online institutions—instead of by geographic programs is to ensure that federal student aid is region. Nationally accredited schools serve less directed only to institutions and academic programs than 10 percent of all college students. In addition that meet minimum standards. These standards to these two types of institutional accreditors, a require financial stability, limit the proportion of number of specialized and programmatic accreditors an institution’s total revenue that may be federal oversee specialty schools and programs within aid, and set maximum student loan default rates schools—such as stand-alone schools of nursing for institutions, among other requirements. These and departments of nursing within universities. federal rules strongly influence institutional behavior Specialized schools serve less than 2 percent of because federal financial aid (student loans, grants, college students. Figure 2 (see next page) summarizes and work study funds that cover tuition and other the different types of accrediting agencies recognized student expenses) affects schools’ ability to attract by USED. students. States’ Main Role Is to Protect Students Accreditors Verify Institutions Meet Acceptable From Unfair Business Practices. State licensing Levels of Educational Quality. One of USED’s agencies are responsible for overseeing most private requirements for institutions participating in federal postsecondary schools within a state, whether or not student aid programs is that they be accredited by they are accredited. These agencies have three broad a federally recognized accrediting agency. These roles: accrediting agencies have two primary roles: • Authorize private postsecondary schools to (1) develop and enforce a set of minimal standards operate within the state. necessary for institutions to maintain accreditation (and by extension, eligibility for federal student • Enforce state regulatory requirements aid programs), and (2) promote best practices and regarding postsecondary education. These encourage continual improvement among accredited regulations typically focus on traditional institutions. consumer protection issues, such as Two Main Types of Accreditation. Institutions prohibiting unfair, deceptive, or abusive can be accredited by regional or national agencies. business practices and requiring bonds or Federal authorities recognize six regional tuition recovery funds to protect students associations to accredit degree-granting institutions when institutions close. within specified areas of the United States. All • Collect and resolve student complaints public institutions and most degree-granting about authorized institutions. private nonprofit colleges are regionally accredited. www.lao.ca.gov Legislative Analyst’s Office 7 AN LAO REPORT For Some Institutions, State Sole Oversight exemptions. The rule also requires the state to have Agency. Some institutions are unaccredited a process for reviewing and acting upon student and thus ineligible for federal student aid. As a complaints about the institution. result, they are not subject to federal or accreditor c ’ l h alifornias ong istory oversight, leaving the state as the sole oversight s o of truggling to versee body for these institutions. For this reason, state P c rivate olleges regulations for these agencies typically include minimum educational quality standards in Two Diverging State Regulatory Philosophies. addition to more traditional consumer protection For more than three decades, California has standards. struggled to provide effective oversight of private New “State Authorization” Rule. Effective postsecondary schools. One of the reasons effective July 2014, USED will require states to take a more regulation has been difficult to establish is tension active role in approving schools. Specifically, between distinct schools of thought about the under this new state authorization rule, USED will goals of regulation. One perspective emphasizes require an institution participating in its federal student protection through performance standards, aid programs to receive explicit state approval. This while another relies on public disclosure of costs means the state may no longer exempt institutions and benefits. Under the first regulatory approach, from state oversight based on accreditation, institutions that fail to meet minimum standards number of years in operation, or other comparable for educational quality, student outcomes, and Figure 2 Three Types of Accreditors Federally Recognized Accrediting Agencies Regional National Specialized Number of Agencies 6 6 45 Types of Institutions • Degree-granting colleges and • Mostly career-related schools • Specialty schools, programs universities • Most for-profit schools within schools • All public schools and most • Mix of school types nonprofit schools List of Agenciesa Middle States Commission on Accrediting Commission of Career Accreditation Commission for Higher Educatio Schools and Colleges Education in Nursing New England Association of Accrediting Council for Continuing Commission on Accrediting of Schools and Colleges Education and Training Association of Theological Schools North Central Association of Accrediting Council for Commission on Accreditation of Colleges and Schools Higher Independent Colleges and National Association of Schools of Learning Commissio Schools Music Northwest Commission on Council on Occupational Commission on Massage Therapy Colleges and Universities Education Accreditation Southern Association of Colleges Distance Education and Training Legal Education Section Council of and School Council American Bar Association Western Association of Schools Transnational Association of National Council for Accreditation of and Colleges Christian Colleges and Schools Teacher Education a For specialized accreditors, shows only a sampling of agencies. 8 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT business practices are not permitted to operate. aid grants to cover their costs) without providing Under the second regulatory approach, institutions commensurate public or student benefits. have broader latitude to operate regardless of New Regulatory Law Enacted in 1989 student outcomes, but must disclose information Transferred Oversight Responsibility to New about their costs, accreditation, and results, Council. Responding to these concerns, the enabling students to make informed decisions Legislature adopted Chapter 1307, Statutes about their schooling. Oversight frameworks of 1989 (SB 190, Morgan), also known as The typically incorporate aspects of both perspectives. Private Postsecondary and Vocational Education Reform Act (Reform Act). The Reform Act Three Major Regulatory Laws transferred responsibility from the SPI to a new, Enacted Between 1977 and 1989 20-member Council for Private Postsecondary Superintendent of Public Instruction and Vocational Education (Council) with 6 (SPI) Was Responsible for Regulation Under institutional representatives and 14 state officials 1977 Law. Chapter 1202, Statutes of 1977 and representatives of the public. The act established (AB 911, Arnett), also known as The Private separate approval processes for degree-granting Postsecondary Education Act, charged the SPI institutions and those granting only certificates with protecting the integrity of degrees and or other credentials, and required schools to diplomas conferred by private postsecondary provide partial refunds to students withdrawing institutions. Chapter 1202 created an advisory from programs. It also required institutions to council with equal representation from leaders of provide prospective students of certain programs regulated institutions and members of the public. with a “school performance fact sheet” disclosing The SPI created a division within the California completion rates, passage rates for related licensure Department of Education to carry out regulatory and certification exams, job placement, and average duties. Under the 1977 law, the division reviewed starting wages of program graduates. (While the unaccredited institutions for compliance with the act required disclosure of these outcomes, it did not law. It accepted accreditation in lieu of state review set minimum standards for performance. These and oversight for licensure of accredited schools. were established in companion legislation enacted Over Ensuing Years, Several Significant in the same year.) The act contained a number of Problems Highlighted. State reports regarding this exemptions, including religion programs at nonprofit period describe poor oversight of the unaccredited religious institutions; educational programs offered institutions and lax enforcement of regulations. by trade, professional, or other associations solely By the late 1980s, a number of private institutions for their membership; and institutions accredited were granting degrees of questionable value, in by the Western Association of Schools and Colleges some cases without requiring students to complete (WASC) if they were nonprofit schools or for-profit academic requirements, and California developed schools providing only degree programs of two or a reputation as the “diploma mill capital of the more years. world.” Many schools were aggressively recruiting Companion 1989 Law Complemented Reform students without regard for their ability to complete Act . . . In the same year, Chapter 1239, Statutes of or benefit from the schools’ educational programs. 1989 (AB 1420, Waters), The Maxine Waters School These schools often benefited significantly from Reform and Student Protection Act (Waters Act), public funding (by primarily using public financial also was adopted. This legislation complemented www.lao.ca.gov Legislative Analyst’s Office 9 AN LAO REPORT Chapter 1307 in that it established minimum without regulatory authority to oversee private performance standards in certain areas, including postsecondary schools. During this time, legislation course completion and job placement. urged institutions to maintain voluntary compliance . . . And Conflicted With Reform Act. Other with the previous standards, even though the provisions of the Waters Act, however, created standards were no longer operative. In addition to duplicative or conflicting requirements. With schools that had been approved under the 1989 laws both laws in place, the Education Code contained (or had been operating without approval), many new different and sometimes conflicting standards, institutions began offering programs in California sanctions, and refund requirements, depending on because of the regulatory vacuum. which provisions applied in a given situation. Some 2009 l c egislation reated institutions were exempted from provisions of one n r s ew egulatory tructure act but not the other. The result was a fragmented regulatory structure that often was difficult to After a number of failed attempts to create a new interpret. At times, the Council (and later a successor regulatory structure, the Legislature and Governor bureau) was unable to determine whether it had passed Chapter 310, Statutes of 2009 (AB 48, authority to act upon an institution’s application. Portantino), the California Private Postsecondary 1989 Reforms Did Not Resolve All Existing Education Act (Private Postsecondary Act). The Problems, Added New Ones. Despite two major new act created the current Bureau for Private legislative efforts to improve oversight of private Postsecondary Education (Bureau) under DCA to postsecondary education in 1989, hundreds of oversee the state’s private postsecondary schools unapproved institutions continued to operate in the and established a single set of rules for institutions state in violation of the law. Reviews determined that subject to state oversight. the Council provided inadequate student protection Three Major Goals of 2009 Legislation. The and lacked the enforcement authority and sanctions main goals of the Private Postsecondary Act are to: to bring schools into compliance with regulations. (1) ensure minimum educational quality standards At the same time, regulated institutions raised at private postsecondary schools in the state, objections to burdensome regulatory fees and the (2) provide meaningful student protections and an lack of an appeal process for Council decisions. appropriate level of oversight, and (3) prevent public Oversight Transferred to New Bureau, but deception associated with fraudulent or substandard Problems Persisted. Chapter 78, Statutes of 1997 degrees. The legislation also aims to establish a (AB 71, Wright), transferred the Council’s duties to governance structure that provides for accountability a new bureau within the Department of Consumer and legislative oversight, as well as a regulatory Affairs (DCA). Difficulties, however, continued process that allows all stakeholders to have a voice. under DCA. Several reviews between 2000 and 2005 Bureau’s Major Functions Reflect Goals. The identified ongoing and new problems with nearly Bureau is tasked with performing a number of every significant component of the state’s regulatory oversight functions reflecting these goals: program. • Licenses Institutions and Programs Laws Sunset, Followed by Period With Meeting Minimum Standards. The Bureau No Regulation. Following two extensions of licenses most private colleges in California. their sunset dates, the 1989 laws expired in July To be licensed, unaccredited institutions 2007. The expiration of these laws left the state must demonstrate to the Bureau that they 10 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT meet minimum educational quality and • Resolves Student Complaints. The Bureau operating standards. Accredited institutions is responsible for responding to and helping under Bureau oversight are subject to the to resolve student complaints about the same minimum statutory and regulatory institutions it oversees. The Bureau can standards. In practice, however, these require an institution to pay restitution to institutions may gain approval through an students if it finds that the institution caused abbreviated procedure (termed approval by harm to those students by a violation of the means of accreditation) that relies on the Private Postsecondary Act. accreditation process to ensure educational All Regionally Accredited Postsecondary quality. For both types of schools, once they Schools Exempt From Bureau Oversight. Some are approved, the Bureau conducts regular private institutions are exempt from Bureau compliance inspections to ensure that oversight. This means they do not need to be they meet all Bureau standards including licensed to operate in the state. One of the Graphic Sign Off educational quality standards. main exemptions is based on an institution’s Secretary • Monitors Fair Business Practices. The accreditation. As illustrated in Figure 3, the Private Analyst Postsecondary Act exempts regionally accredited Bureau oversees the business practices of Director schools from Bureau oversight. (Institutions private colleges, including their marketing Deputy accredited by one of the national accreditors, on the and recruitment practices; disclosures other hand, generally are subject to some Bureau through enrollment agreements, school oversight.) catalogs, and performance reports; and tuition policies Figure 3 including California’s Current Regulatory Framework for Private Collegesa prepayment, cancellations, and Accredited Overseen by Bureau refund rules. In order to enforce regulations relating to fair business practices, the Private Postsecondary Regional National Unaccredited Act requires and Specialized the Bureau to 150 Institutions 450 Institutions 700 Institutions regularly conduct 50% of Students 40% of Students 10% of Students announced and unannounced compliance inspections at each regulated institution. a Approximate number of institutions and proportion of students. www.lao.ca.gov Legislative Analyst’s Office 11 ARTWORK #100176 AN LAO REPORT A Few Other Types of Institutions Also educational standards as well as all other minimum Exempt. In addition to the exemption based on operating standards during periodic inspections). regional accreditation, the Private Postsecondary Unaccredited schools are subject to full Bureau Act includes a number of other exemptions oversight through licensing and compliance from Bureau oversight. Figure 4 lists all current requirements. exemptions from the act. No State Oversight of Online Schools. While As a Result, Not All Schools Overseen by some California colleges are exempted from Bureau. As noted, an institution’s accreditation Bureau oversight due to accreditation, another status determines the level of state oversight group of colleges—online colleges based in other it receives. Regionally accredited schools are states—is not subject to state oversight. The Private entirely exempt from Bureau oversight. Nationally Postsecondary Act does not apply to these schools. accredited schools, while still subject to all Bureau As a result, they are not required to show the requirements, are exempted from educational Bureau evidence of accreditation or approval by program reviews as part of the licensing process another state in order to serve California students. (but must demonstrate compliance with Oversight of these online colleges is discussed in a box later in this report. COMPARING OVERSIGHT OF BUREAU AND ACCREDITORS The Private Postsecondary Act directs our level of student protection as that provided by the office to examine the extent to which regional and Bureau. Below, we compare the protection offered national accrediting agencies provide the same under the two systems. We find that accreditor Figure 4 Institutions Currently Exempt From Bureau Oversight Exemptions Relying on Some Form of Accreditation: Colleges and universities accredited by Western Association of Schools and Colleges. Institutions accredited by another regional accrediting agency. Accredited nonprofit institutions that have operated in the state for at least 25 years, have student loan default rates below 10 percent, and meet certain other requirements, including maintaining specified financial ratios and refund policies. Accredited nonprofit workforce development and rehabilitation services. Law schools accredited or approved by the American Bar Association or Committee of Bar Examiners of the California State Bar. Other Exemptions: Schools sponsored and operating for a business, professional, or fraternal organization. Federal- or state-operated institutions. Purely avocational or recreational schools. Religious schools not offering secular degrees. Flight instruction schools that do not require prepayment in excess of $2,500. Schools charging less than $2,500 for educational programs and not offering degrees. Schools offering test or license examination preparation. 12 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT oversight differs from Bureau oversight in several postsecondary institution. It can require a school to ways. The organizations have different structures, stop advertising and recruiting students, or prohibit areas of focus, and review processes. a school owner from operating any schools for a specified period. The Bureau also can issue citations Different Structures and Authority for a school’s violations of state law or regulations, Bureau Provides Independent Oversight, assess a fine up to $50,000, require a refund to a Accreditation Is a Form of Self-Policing. The student, or require other restitution. Bureau is an executive branch agency managed Accreditors Have Fewer Formal Sanctions by civil servants who are independent of the at Their Disposal. By contrast, accreditors postsecondary schools they oversee. It has an have few sanctions available to them for minor administrative hierarchy for decision-making at violations. They may require institutions to various levels, and decisions are guided by statutes submit corrective action plans and interim and detailed regulations developed to protect reports, as well as schedule additional site visits public interests. Nearly all accreditors, by contrast, to monitor compliance. In the event of a more are voluntary, nongovernmental membership serious violation, an accreditor will typically give associations governed by the institutions an institution a fixed amount of time to correct (members) they accredit. They have a shared problems to avoid suspension or revocation of its interest in holding members to certain standards accreditation. In practice, accreditors—especially because the reputation of each member institution the regional associations—rarely terminate the is linked to the reputation of the group. They also accreditation of their member institutions. (Recent have an interest in forestalling additional federal actions by regional accreditors suggest this may and state regulatory efforts by requiring their be changing in response to increased federal members to meet sufficiently high self-imposed scrutiny of accreditors. For example, in 2012 the standards. Accrediting associations delegate WASC Senior College and University Commission significant decision-making to peer reviewers initially denied accreditation to Ashford University, from institutions within the association. Notably, requiring extensive changes in practice before accreditors’ funding derives largely from dues and ultimately granting accreditation. Additionally, accreditation fees paid by member institutions. The in 2013 the WASC Accrediting Commission for Bureau’s budget is similarly funded by fees from Community and Junior Colleges terminated regulated schools, but Bureau-regulated schools accreditation for City College of San Francisco, do not have a choice of regulators, while schools effective July 2014.) sometimes have a choice of accrediting bodies. Different Areas of Focus Bureau Has Greater Enforcement Authority. Deriving from its statutory authorization, the Accreditors Focus on Educational Quality. Bureau has a number of enforcement powers it Regional and national accreditors focus primarily on can bring to bear against institutions that are out program quality and student outcomes. For example, of compliance with its requirements. The Bureau most accreditors require evidence of student learning (sometimes in collaboration with the AG) can as part of their review process, while the Bureau deny a school approval to open, put a school on simply requires that institutions describe desired probationary status, or require a school to stop student learning outcomes. Accreditors typically offering a particular program or operating as a require that teaching faculty possess an academic www.lao.ca.gov Legislative Analyst’s Office 13 AN LAO REPORT degree above the level of instruction, often specifying not seek to resolve individual student complaints a master’s degree or higher, while the Bureau permits regarding the postsecondary schools they accredit. faculty at the same level of preparation as the course Instead, they require that institutions have being taught. As well, accreditors have standards for appropriate complaint resolution processes in faculty development and student support services place and follow them. They also consider patterns such as academic advising, while the Bureau does of complaints that may reflect underlying issues not. regarding the institution’s compliance with the Bureau Emphasizes Protecting Students association’s standards. From Fraud. Consistent with its placement in Bureau and National Accreditors Enforce DCA, the Bureau focuses more heavily on student Specific Regulatory Standards, Regional protection from fraud and deceptive practices Accreditors Use Continuous Improvement than on educational quality. One article in the Approach. The Bureau focuses on ensuring that Private Postsecondary Act pertains to operating institutions meet objective standards that are standards (which address educational program clearly spelled out in legislation and regulations. content, faculty qualifications, and other aspects of These standards typically involve processes educational quality), while the bulk of the legislation (such as disclosure) rather than outcomes. The is dedicated to fair business practices, recordkeeping, approach is binary in most cases, and lends itself to recruitment, disclosures, refunds, and other checklists—an institution either meets or does not consumer protection issues. In addition, the Bureau’s meet a particular standard. National accreditors standards for student protection are generally more also evaluate schools against minimal thresholds exacting than those of accreditors. For example, of compliance, but they are more likely than the the Bureau specifies the format and content of Bureau to have specific, quantifiable benchmarks of written enrollment agreements that institutions minimally acceptable student outcomes. Regional must provide to each student detailing total accreditors, on the other hand, employ a continuous charges, cancellation and refund policies, complaint improvement approach. Although they have some procedures, and other required information. explicit criteria institutions must meet, they typically Regional accreditors do not require these look for areas in which institutions can improve agreements, and national accreditation standards their performance and evaluate progress in those lack the specificity—and some of the substantive areas. They tend to have guidelines instead of specific requirements—of the Bureau’s standards. requirements in their standards and often evaluate Bureau Resolves Individual Student progress qualitatively. Complaints, Accreditors Focus on Complaint Program completion, job placement, and Process. One of the Bureau’s major responsibilities graduate earnings provide a good illustration of is responding to individual student complaints. these different approaches. The Bureau requires The Bureau is required to determine the facts institutions to disclose these data for each program surrounding a complaint, conduct an investigation using specified definitions and time frames, but it if needed, and take appropriate administrative sets no minimum performance levels. In addition enforcement action, including ordering the to requiring public disclosure of this information, institution to provide restitution to any students the major national accreditors often set minimum who experienced damage or loss due to a school’s acceptable levels of performance (for example, violation of the law. In contrast, most accreditors do establishing minimum job placement rates) and 14 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT take disciplinary action (up to and including Regional accreditors (and to a lesser extent, national withdrawing accreditation) when institutions fall accreditors) rely on a far more extensive process below their benchmarks. Regional accreditors using a team of peer reviewers (including faculty require institutions to monitor and publish members, administrators, and other college staff) to graduation rates (but typically not job placement determine institutional compliance with standards. and earnings), benchmark them against the rates The Bureau process for approval to operate—which of peer institutions, and develop goals and plans involves an application, Bureau review of documents, for improvement if rates are poor. Unlike national and a determination—can be completed in a accreditors, however, regional associations typically matter of months. At the Bureau’s discretion, it may do not set minimum thresholds for these measures. assemble a visiting team to conduct an onsite review Bureau and Accreditor Standards in as part of the initial approval process, but this is not Remaining Areas Are Similar. Despite these required. By contrast, one to three team visits are differences, Bureau and accreditor standards overlap always central to the regional accreditation process, more significantly in several areas. These include which may require several years to complete. many general operating standards. For example, Bureau Conducts More Frequent Reviews. both the Bureau and accreditors require schools Institutions must renew their Bureau approval to retain certain student records permanently, every five years and provide annual reports to the submit independently prepared or audited financial Bureau. In addition, statute requires the Bureau statements, and maintain financial viability as to conduct one announced and one unannounced reflected by their assets-to-liabilities ratio. compliance inspection at every institution at least every two years. (The new Bureau has not yet met Different Review Processes these requirements.) Regional associations typically Accreditor Reviews Are More Thorough. grant accreditation for five to seven years initially Reflecting their different objectives, the Bureau and and ten years thereafter. National accreditors fall in accreditors differ in how they structure institutional between, requiring more frequent visits and reports reviews. The Bureau uses a relatively short, staff- than regional associations but less frequent than the driven process based on protocols and checklists. Bureau. ASSESSING EXISTING OVERSIGHT STRUCTURE Our comparison of the oversight provided Oversight of Accrediting Agencies by accrediting agencies and the Bureau shows Sufficient in Two Areas that these entities have different strengths and Accreditors Provide Greater Oversight of weaknesses. Accrediting agencies provide better Educational Program Quality. With stricter educational oversight than the Bureau. In addition, educational program standards and more in-depth these agencies require institutions to meet general reviews by knowledgeable experts, regional and operating requirements that typically are at least national accreditors generally provide greater as rigorous as the Bureau’s requirements. In the scrutiny of institutions’ educational program areas of business practices and student complaints, quality than the Bureau. Moreover, accreditors however, accreditor oversight (both regional and and the Bureau both examine student learning national) falls short of Bureau oversight. www.lao.ca.gov Legislative Analyst’s Office 15 AN LAO REPORT outcomes, require monitoring and reporting Recent Changes Have Motivated Colleges of student graduation rates and certain other to Improve in These Areas . . . In 2010 and 2011, outcomes, and set minimum faculty qualifications. USED published new rules to tighten standards Given these factors, Bureau oversight activities for institutions participating in federal student related to educational program quality do not aid programs with the intent of improving add significant value at nationally accredited business practices generally. These rules prohibit institutions and likewise would not add value incentive-based payments for recruiting, at the currently exempted regionally accredited admitting, or awarding financial aid to students. institutions. The new rules also strengthen disclosure and Accreditors Provide Similar Oversight performance standards for certain vocationally of General Operations. Accreditors and the oriented programs. New disclosure requirements Bureau have similar practices in areas other include graduation and job placement rates, total than educational quality and business practices. program costs, and median loan debt for graduates. Similarities exist particularly in general operating Additional rules under development will establish standards, such as those for record-keeping, maximum student debt levels relative to average facilities, and financial viability. Given these graduate earnings for certain programs. These similarities, the Bureau could eliminate its developments, along with tighter student loan oversight process in these areas for many of the default limits approved in 2008, provide incentives institutions it reviews without adverse effect. for all accredited schools participating in federal aid programs to improve their business practices Oversight of Bureau Better in Two Areas and student outcomes. Several accreditors also have Bureau Provides Better Review of Business stepped up their own standards and enforcement— Practices. In the area of business practices, forcing schools with poor compliance to either however, the Bureau has more exacting standards improve or close. than both regional and national accreditors. . . .But Complaints Persist. A multistate task In general, the business practices of regionally force of state AGs that monitors for-profit colleges accredited institutions are the least well monitored reported in October 2013 that, despite these recent given these institutions are exempt from Bureau changes, complaints from students and alumni of oversight and regional accreditors focus more for-profit colleges continue. Ten states, including heavily on educational rather than business California, currently have investigations pending practices. Though national accreditors place against regionally and nationally accredited more focus than regional accreditors on business for-profit education companies. practices, the standards they apply generally also State Oversight Required to Meet New Federal are more lenient than the Bureau’s. Rule. Irrespective of the relative strengths and Bureau Provides Better Recourse for Student weaknesses of accreditor and Bureau oversight, Complaints. Similarly, because most accreditors do the new federal state authorization rule requires not seek to resolve individual student complaints, that institutions participating in federal student students attending accredited, exempt institutions aid programs be authorized by the state in which do not have comparable recourse for their they are located by July 1, 2014 and have a state complaints as students attending schools overseen complaint-resolution process in place. This by the Bureau. requirement has created a challenge for some 16 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT currently exempt colleges. While some of them exempt schools have neither state approval nor a have approval from state agencies other than the state complaint-resolution process. Colleges failing Bureau (such as Student Aid Commission approval to meet this new requirement could lose access to participate in Cal Grant programs), they do not to federal student aid programs on which they have a state complaint-resolution process. Other depend. RECOMMENDATIONS In this section, we make several duplicate any of the education program review recommendations. Specifically, we recommend efforts of accreditors. Accreditors would be solely eliminating Bureau oversight in the areas of responsible for continuing to oversee certain educational quality and general operating practices minimum operating standards related to educational for accredited colleges but requiring business program quality. practices review of some accredited colleges. We Reduce Duplication in Reviews of General believe these changes would have the net effect of Operations. Likewise, we recommend the freeing up Bureau resources to focus on unaccredited Legislature continue to exempt regionally institutions and a limited number of accredited accredited institutions from the Bureau’s reviews institutions that require additional attention. In of general operations. In addition, we recommend addition to modifying exemptions, we recommend the Legislature direct the Bureau to identify the Legislature allow exempt institutions to duplication between its operating standards and receive limited Bureau review focused on business those of national accreditors and eliminate Bureau practices and student complaints to help them meet reviews of the overlapping areas. new federal requirements. We also recommend Target Bureau’s Business Practices extending Bureau oversight to certain online colleges Review to Select Schools (as discussed in the box on page 18). Figure 5 (see page 20) summarizes our assessment and Continue to Exempt Most Regionally recommendations. Accredited Institutions From All Bureau Reviews. In general, we see no compelling reason for the Rely on Accreditors to Oversee Educational Bureau to oversee most regionally accredited Quality and General Operations institutions. Although regional accreditors Rely Solely on Accreditors for Educational generally do not provide as rigorous oversight of Program Review. Given accreditors generally business practices as the Bureau, most regionally conduct more extensive education program accredited schools appear to have acceptable reviews, we recommend the Legislature continue to business practices. exempt regionally accredited institutions from the Subject a Small Subset of Regionally Bureau’s education program reviews. For nationally Accredited Institutions to Business Practices accredited schools, we recommend eliminating Review and Complaint-Resolution Process. the education-review components of the Bureau’s We do have a concern, however, about a small on-site inspections. As a result of eliminating these number of regionally accredited institutions. components of its reviews, the Bureau would not We recommend the Legislature bring this small www.lao.ca.gov Legislative Analyst’s Office 17 AN LAO REPORT OVERSIGHT OF ONLINE COLLEGES Some Online Colleges Serving California Students Not Regulated by Bureau. Because the Bureau regulates only schools with a physical presence in the state, California students enrolled in online programs offered by institutions based in other states do not benefit from the oversight provided by the Private Postsecondary Act. For example, these schools are not subject to the Bureau’s minimum standards for educational quality, general operations, or business practices, and their students do not have access to the Bureau’s complaint-resolution process. These institutions may be accredited or unaccredited and may be licensed by another state, but they currently are not required to show evidence of such approvals to offer courses to California students. Federal Rule Likely to Require Bureau Oversight for These Schools. A recent federal rule would have required colleges providing distance education to be approved by each state in which they enroll students, but this rule was overturned on a technicality. Nonetheless, many states have proceeded to review and improve their oversight processes for out-of-state schools—both because policymakers believe regulating these schools is important and because the United States Department of Education plans to resubmit the regulation in 2014. If the rule is reinstated, the Bureau’s workload could increase substantially as many out-of-state schools seek state approval. Rule Also Would Affect California Schools Offering Online Programs. In addition to requiring out-of-state schools enrolling California students to receive Bureau approval, the new rule would require California schools enrolling students in other states to be authorized by each of those states. Such state-by-state approval can be a barrier for institutions offering distance education because of the considerable complexity and cost of navigating differing requirements in multiple states. States Forming Reciprocity Consortium. To address this challenge, a group of institutions, states, and policy organizations is developing the State Authorization Reciprocity Agreement (SARA) whereby accredited, degree-granting institutions approved by an oversight body in one participating state will be deemed automatically to have met approval requirements in other participating states. This agreement will facilitate multistate approval for institutions while providing each state assurance that participating colleges meet common standards and have meaningful accountability and complaint-resolution procedures in place. Require State Approval for Out-of-State Schools Enrolling California Students. Extending Bureau oversight to out-of-state distance education providers enrolling California students would provide greater student protection for California students. To this end, we recommend the Legislature require online colleges serving California students to be approved by the Bureau. Authorize Bureau to Participate in SARA. Through SARA, the Bureau could oversee online schools enrolling California students with minimal additional workload by recognizing approval from other participating states that meet mutually agreed-upon standards. We recommend the Legislature provide statutory authorization for the Bureau to participate in SARA and to grant reciprocal approval to institutions licensed in other states. In addition to facilitating better protection for California students, this would enable colleges overseen by the Bureau (including those volunteering for business practices review) to receive multistate authorization through an efficient process. 18 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT subset of institutions under Bureau oversight but incidence. Higher-risk nationally accredited limit the scope of review to business practices and institutions could remain subject to ongoing complaint resolution. Specifically, we recommend business practices review and periodic announced the Legislature establish criteria to distinguish and unannounced Bureau inspections. low-risk from higher-risk institutions and subject Focus Bureau Resources on Overseeing only higher-risk institutions to oversight in these Highest-Risk Institutions. Under our particular areas. To determine which regionally recommendations, the Bureau would be accredited institutions should be subject to increasing its workload for a small set of Bureau review of business practices and complaint regionally accredited institutions, but it would resolution, the state could consider various be reducing its workload for a larger set of institutional proxies for risk, including: nationally accredited institutions that would require only the more limited review focusing • School ownership (nonprofit or for-profit). on business practices and complaints rather than • Types of programs offered (degree or extensive Bureau oversight that included reviews nondegree programs, length of programs, of educational quality and general operations and vocational orientation). as well as regular compliance inspections. The net effect of these oversight changes would be • Track record (such as operating in state for to free up time for the Bureau to focus on the a minimum of 20 years in good standing highest-risk institutions (including unaccredited and accreditation experience, including schools)—providing these schools more extensive history of complaints and adverse findings). and more frequent oversight. In short, under the • Performance criteria (including graduation revised oversight system, the Bureau generally and student loan default rates). would conduct inspections for low-risk accredited institutions only when triggered by complaints, Match Bureau Reviews of Nationally poor performance, or other factors, while Accredited Schools to Risk Level. Consistent with dedicating the bulk of its compliance resources current state law, we recommend the Legislature to the remaining, highest-risk accredited and maintain Bureau review of business practices and unaccredited institutions. complaint resolution for nationally accredited Colleges Voluntarily Opting for Bureau institutions. However, the state could make a Review Would Benefit From Targeted Approach. similar determination of low- and high-risk Exempt institutions already have the option to institutions to determine the extent of Bureau submit to Bureau oversight voluntarily, pursuant oversight. For example, the state could reduce to Chapter 28, Statutes of 2013 (SB 71, Committee the periodic inspection requirement for low-risk on Budget and Fiscal Review). Two large for-profit nationally accredited institutions that are approved college groups have done so—the University based upon initial business practices review and of Phoenix and DeVry University—to meet the remain in good standing. Schools could report new federal financial aid requirement that they certain data and if problems emerged through be authorized by a state agency and have a state reporting or complaints, then the Bureau could complaint resolution process in place. Under reinstate frequent reviews and inspections until current law, these institutions are subject to the the school had several consecutive years without full range of Bureau requirements, resulting www.lao.ca.gov Legislative Analyst’s Office 19 AN LAO REPORT Figure 5 Summary of Assessment and Recommendations Assessment: Recommendations: Educational Quality and General Operations Regional and national accreditors provide • Continue to exempt regionally accredited schools from these more rigorous educational quality review components of Bureau review. than Bureau and have similar general • Eliminate these components of Bureau review and inspections operating standards. for nationally accredited schools. Business Practices and Student Complaints Regional and national accreditors provide • Continue to exempt low-risk regionally accredited schools less rigorous oversight of business practices from Bureau’s business practices review. Subject only higher- than Bureau. risk regionally accredited schools to business practices review. • Continue to conduct business practices review for all nationally accredited schools but reduce Bureau’s periodic inspections of low-risk nationally accredited schools in good standing. • Focus freed-up Bureau resources on oversight of unaccredited schools and accredited schools with identified problems. Accreditors do not provide comparable • Include oversight of complaint resolution in Bureau’s business recourse as Bureau for resolving student practices review. complaints. To be able to participate in federal financial • As an option to meet new federal requirements, allow aid programs, institutions are now required exempted schools volunteering for Bureau oversight to receive to (1) obtain state approval to operate and limited review focused on business practices and student (2) have a state-run complaint-resolution complaints. process. Oversight of Online Colleges State does not oversee institutions that have • Require online colleges serving California students to receive no physical presence in California but that state approval to operate. are enrolling California students through • Authorize Bureau to participate in new State Authorization distance learning. Reciprocity Agreement and to grant reciprocal approval to schools authorized in other participating states. in substantial cost and effort, some of which Limiting such review to business practices could duplicates existing accreditation requirements. reduce this regulatory burden, making this option more attractive for colleges. CONCLUSION The Legislature reestablished oversight of protections and an appropriate level of oversight private postsecondary schools by enacting the for private colleges. The act called for our office Private Postsecondary Act in 2009. A primary to undertake a review of newly authorized goal of the act is to provide meaningful student exemptions from Bureau oversight. Based on our 20 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT review of these exemptions, we believe that for improve student protections. Taken together, we the most part, current exemptions are consistent believe the recommended changes would improve with the Legislature’s goals for the act. In a few student protections, promote an appropriate level areas, however, we identified ways the Legislature of oversight for various types of colleges, target could adjust the exemptions to reduce duplication the Bureau’s limited resources to overseeing between Bureau and accreditor oversight and the highest-risk schools, and help a number of accredited colleges meet new federal requirements. www.lao.ca.gov Legislative Analyst’s Office 21 AN LAO REPORT 22 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT www.lao.ca.gov Legislative Analyst’s Office 23 AN LAO REPORT LAO Publications This report was prepared by Judith Heiman and J. Oliver Schak and reviewed by Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 24 Legislative Analyst’s Office www.lao.ca.gov