AB 638

This bill increases a student protection fee imposed on private for-profit colleges and requires these colleges to maintain a reserve account for students who suffer loss or damage in certain circumstances, including fraud or school closure.

Under current law, before a private for-profit postsecondary institution (proprietary school) may operate in this state, it must obtain approval from the Department of Safety and Professional Services. The approval must be renewed annually. DSPS establishes fees for approving proprietary schools, including a “student protection fee” in an amount set by rule. DSPS must discontinue annually collecting student protection fees while the balance in the fund holding the fees exceeds $1,000,000. DSPS may expend the revenue from student protection fees to indemnify students, parents, or sponsors for losses resulting from a school closure and for preserving student records of schools that discontinue operations.

The bill sets the student protection fee at a rate of $3 per $1,000 of adjusted gross annual school revenue and increases, from $1,000,000 to $5,000,000, the fund balance threshold at which DSPS must stop annually collecting student protection fees.

The bill also prohibits DSPS from approving a proprietary school, whether upon initial application or renewal, unless the school maintains a reserve account to provide indemnification to any student who suffers loss or damage as a result of 1) fraud or any false representation by the school or a person acting on behalf of the school or 2) the school’s failure to perform its contractual obligations to the student, including the school’s closure. With an exception for a new school, the balance of the reserve account may not be less than 25 percent of the amount of the school’s highest annual revenue in the preceding five-year period.