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California Dance of Elephants Returns: We’ll decide what is for-profit education

Author

Phil Hill
October 02, 2020

To satisfy a nested self-quoting habit, I wrote in “California Taking a Break in Online Dance of Elephants” in early September 2019:

Back in July I wrote a mini-rant Twitter thread 1 triggered by tens of thousands of California residents losing access to federal financial aid for their online education studies at out-of-state schools. My basic argument was that we were witnessing the consequences of a dance of elephants – triggered by activists who were targeting for-profit institutions, nonprofit conversion institutions, and Online Program Management (OPM) companies – with students caught in the middle.

The pause from the title referred to the legislature holding back on certain pieces of the coordinated legislation, as described by CooledEd at the time.

Three bills were held under submission, meaning they will not proceed to a floor session or further voting in 2019. Further, unless these bills are placed into “two year” status by the Senate Appropriations Committee, the bills will not be considered in their current form for the remainder of the legislative session, which runs through 2020, requiring them to be introduced anew after the end of this year.

The most far-reaching bill held under submission:

  • AB 1341, which would have enabled the California Attorney General “discretion to determine that an institution is not a nonprofit entity for California education regulatory purposes, even if it is recognized by the Internal Revenue Service as such”.

Today’s News

The news today, from Kate Lee Carey at CooleyEd, is that AB 1341, which was re-submitted in mostly similar form as AB70, was signed into law by the governor yesterday [emphasis added].

As a refresher, this bill amends the Act by limiting, in certain circumstances, the authority of the [Bureau for Private Postsecondary Education] BPPE to accept an institution’s nonprofit status when determining whether to verify an exemption from BPPE oversight (whether for an in-state institution or an out-of-state institution that might otherwise be required to register), or entering into a contract for complaint processing through the “independent institution” pathway provided for in SB81, a bill passed in 2015. AB70 adds new definitions to the Act for both “nonprofit corporation” and “public institution of higher education” and requires that the [Attorney General] AG make the determination of nonprofit status for any institution that operated for-profit on or after January 1, 2010, based on specific criteria. (See the September 1st blog post for more details on the criteria.)

Rather than me regurgitating the details, I recommend you read the three CooleyEd posts for a deeper dive. In a nutshell, however, this means that California now has a separate definition of what constitutes a nonprofit or for-profit institution, and they plan to use this regulation reclassify – separately from the IRS and US Department of Education definition – nonprofit conversions (e.g. Purdue Global, University of Arizona Global, Grand Canyon U) and some portion of OPM agreements as being for-profit in the eyes of California.

Deliberate Strategy

A common mistake I see is framing this story primarily as California protecting its public online institutions from competition. The more important framing is that this regulatory push is part of a coordinated campaign that seeks to bypass federal regulation – where activist groups are not seeing the success they’d like – and set a de facto national standard in friendlier California. This why California is the only state that did not participate in the State Authorization Reciprocity Agreement (SARA) which seeks to provide consistency between states on how they manage state authorization (online schools from one state enrolling students from another). Imagine if all but one state had reciprocity on driver’s licenses, and that one state without reciprocity sat in the middle of the country where almost everyone wants to drive. In that case, the special driver’s license requirements of that one state would de facto become the standard for most drivers. That is why we had the situation last year with tens of thousands of California students temporarily losing access to financial aid – an unintended consequence of the lack-of-reciprocity strategy.

Kate Lee Carey’s description gives a sense of the mechanics of how this will play out.

Under the new definitions, institutions that have been operating under a BPPE exemption for years might now have their status as a nonprofit questioned and put in the position of having to either prove to the AG that they are truly nonprofit, or face the task of applying for the applicable BPPE approval or registration. Anyone operating an institution in California can tell you how complex and expensive the regulatory structure is in the state, so a sudden loss of exemption may be particularly challenging for in-state institutions. But out-of-state institutions should also be aware of how AB70, in conjunction with a new law from last year, could impact them.

To borrow a popular phrase from investment and EdTech circles, consider this another step towards the unbundling of federal education regulation. It will have an impact.

1 Read the terms, I believe you are are required to rant on Twitter, or at least to join a virtual mob.