SB 790’s Unintended Consequences: A Flawed Reciprocity Agreement Could Harm Californians

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California has long led the nation in protecting students from predatory, low-quality, and exploitative postsecondary institutions. But SB790, authored by Senator Christopher Cabaldon, threatens to remove critical safeguards that have shielded students from fraud and abuse for decades.

While the bill language also covers an issue that TICAS and many partners have long called for, a centralized coordinating entity in the postsecondary space, at its core, SB 790 would, amongst other things, enable California to join the National Council for State Authorization Reciprocity Agreements (NC-SARA), a multi-state reciprocity agreement that enables out-of-state institutions to more easily enroll California students into their online programs. While proponents argue this will reduce regulatory burdens for California schools to offer their programs in other states and thereby generate additional revenue, the reality is that NC-SARA forces California to waive many of its education-specific consumer protection laws not explicitly outlined in Education Code Section 94897 and opens up California’s postsecondary institutions to outside competition that does not have to play by the same rules.

Why this is a Step Backwards for California Student Protections

For 20 years, as online education has grown, Californians have benefited from stronger protections against low quality or exploitative programs than residents of other states. This vigilance has been essential, as weak consumer protection at the federal level has long enabled fraud, misrepresentations, and abuses, especially from for-profit and large online college programs. With the current federal government poised to weaken those protections even further by laying off staff and cutting the budget of (or potentially even eliminating) the Department of Education, it is more important than ever for California to maintain and strengthen the protections it provides to its residents.

If California joined NC-SARA, there are many higher education consumer protections enacted by the California legislature that would no longer apply or be hard to enforce. Below are five examples.

1. Out-of-state schools in NC-SARA that close could leave California students unprotected and significantly harmed.
   • California law states that when a school closes or discontinues a program, it is in default of its agreement with students and students should get a total refund unless the school arranges for the student to complete elsewhere. This means not only are students entitled to a full refund, but they are protected from having to fully pay under the enrollment agreement and on private loans because the school is in breach of their enrollment contract. If California joins NC-SARA, Californians enrolled in NC-SARA schools outside of California would not be protected by this law.
   • SB790 provides that when an out-of-state NC-SARA school closes, California students attending that school may be eligible to access the Student Tuition Recovery Fund (STRF) to obtain reimbursement only if the STRF has a balance of $25 million. If the STRF has less than $25 million, Californians in NC-SARA schools would be unable to request reimbursement of tuition paid to a school that closed while they were attending. Students enrolled at a school based in California or that are not in NC-SARA must shoulder the burden of making payments to replenish the STRF, even if an NC-SARA school’s closure results in payments being made to students. Out-of-state NC-SARA schools are not required to pay into the STRF. If California students are not eligible for reimbursement from the STRF, they would have to seek assistance from their school’s home state. However, many states do not have their own STRF fund, or if they do, it is severely underfunded or may not provide any relief to students who do not live in that school’s home state.
2. Out-of-state schools in NC-SARA could enroll California students in a program even if they are unable to obtain the necessary California license to work in the field.
   • California law states that if a school offers a program in career field that requires licensure in California, the school must be approved by the appropriate state licensing agency so that a student who completes the program is eligible to sit for any required licensure examination. If California joins NC-SARA, out-of-state schools can enroll Californians in a program that does not qualify the student to sit for a required licensure examination in California.
   • California law states that a school should give students a copy of the requirements for license, try to determine if a student would be unable to obtain licensure, and not enroll students in a program if they are ineligible for licensure unless the student’s stated objective is other than licensure. If California joins NC-SARA, out-of-state schools would not have to comply with that law.
3. Out-of-state schools in NC-SARA could withhold California students’ transcripts to collect a debt owed to the school.
   • California law states that schools shall not refuse to provide a transcript to a student because the student owes a debt or condition giving a student their transcript on the payment of a debt or use a transcript as a tool for debt collection. If California joins NC-SARA, Californians enrolled in out-of-state schools could be subject to debt collection via transcript withholding because California is limited in the ways in which it can enforce its prohibition on out-of-state schools doing that.
4. Out-of-state schools in NC-SARA could ask Californians to sign enrollment agreements and provide other important documents in English, even if the school recruited the student in another language or is aware that the student does not understand English.
   • California law states that if a school recruits a student in a language other than English, the enrollment agreement, disclosures, and other statements shall be in that language and provides that if a student is unable to understand the terms of the enrollment agreement, the student shall have the right to obtain a clear explanation of the terms and conditions and all cancellation and refund policies in the student’s primary language. If California joins NC-SARA, out-of-state schools are not required to provide California students with critical documents in any language other than English or explain the terms in a student’s primary language.
5. State legislators and regulators will give up their ability to determine which out-of-state schools can enroll California residents, regardless of their low-quality or bad outcomes, and data reporting on a program’s completion rates, placement rates, licensure exam pass rates, and salary/wages for graduates would not be required.
   • For example, California requires the Bureau for Private Postsecondary Education to consider the following heightened risks when deciding whether to investigate a school: schools that receive over 70% of their revenue from government sources, have federal cohort default rates exceeding 15.5%, report student outcome measures that are far higher or lower than those at comparable schools, report a dramatic increase in enrollment, fail financial stability standards, or have been subjected to adverse actions by accreditors or other agencies. If California joins NC-SARA, it will have to give up its ability to apply laws like this to NC-SARA schools.

Two Cautionary Tales: CollegeAmerica and Anthem College Online

The predatory actions and rapid closure of a large online school based in Utah called CollegeAmerica provide an example of the potential harmful consequences of this bill. In August 2020, following an extensive trial, a Colorado court sided with the state’s Attorney General and found CollegeAmerica liable for deceptive practices and awarded a $3 million judgment. The Colorado court found that CollegeAmerica used a detailed playbook to manipulate vulnerable students into enrolling in high-priced, low-quality programs, that the school directed admissions representatives to “enroll every student,” regardless of whether the student would likely graduate, that the school’s recruiters and advertisements greatly overstated starting salaries that graduates could earn, and that the school falsely inflated graduation rates. The next year, after losing its accreditation and access to federal funds, CollegeAmerica shut down classes, laid off most staff, and closed its doors. Utah, the state that was responsible for acting under NC-SARA, did not take any action to revoke CollegeAmerica’s approval even after the judgment was entered.

Another example is Anthem College Online, a degree-granting for-profit school headquartered and licensed in Arizona, which suddenly closed in August 2014 without providing students legitimate transfer or teach-out options. Because California had not yet established a process by which out-of-state colleges could register with the BPPE and access STRF, and this aspect of the school lacked a physical presence in California, California students who were enrolled in distance education programs did not qualify for any economic relief from California’s Student Tuition Recovery Fund. Additionally, California residents taking online classes also could not apply for relief from Arizona’s student protection fund because its law states that non-Arizona residents enrolled in distance education programs are not eligible for payment from the Arizona fund. Therefore, these students could not access any recovery fund to help them even though their school closed before they were able to complete their programs.

If California joins NC-SARA, out-of-state schools like CollegeAmerica and Anthem College will enroll California students in online programs, but California’s higher education consumer protection laws will be unable to fully protect them.

California Must Remain a Leader in Student Protections

By joining NC-SARA, California would lose the ability to enforce the laws referenced above against out-of-state online schools and lose control over which out-of-state institutions can enroll Californians – essentially handing over that authority to states with weaker oversight. The reality is that for-profit schools pose a higher risk of consumer fraud to students and taxpayers due to their profit-driven priorities. Online-only programs operated by for-profit schools in states with fewer consumer protection laws can exacerbate this problem.

At a time when federal protections are under attack, California cannot afford to cede its ability to protect students from predatory schools. Instead of weakening its oversight, the state should focus on strengthening enforcement, increasing institutional accountability, and expanding financial protections for students.

We urge legislators to maintain California’s status quo and remain a steadfast leader in protecting California students and institutions from incoming predatory for-profit schools by voting NO on SB 790 (Cabaldon).