FINAL BILL REPORT

SSB 5880

                                  C 459 L 87

BYSenate Committee on Education (originally sponsored by Senators Benitz, Saling, Bailey, Owen and Bauer)

Establishing a tuition recovery fund for private vocational schools.

Senate Committee on Education

House Committe on Higher Education

Rereferred House Committee on Ways & Means/Appropriations

SYNOPSIS AS ENACTED

BACKGROUND:

In 1986 the Legislature passed ESHB 1687 regulating private vocational schools.  The act is essentially a consumer protection measure to assist students in evaluating private vocational school programs and obtaining refunds in the event of their withdrawal or school cancellation or closure.  Under prior law, the Educational Services Registration Act of 1979, schools which were accredited by national organizations were exempt from filing fees and bonding requirements.

All private vocational schools are now required to have an approved surety bond or other security on file with the Commission for Vocational Education.  The bond amount must be at least $5,000, but not more than $200,000, and is determined on an incremental scale based on the average amount of prepaid tuition in possession of the school, as determined by CVE.  Schools are permitted, in lieu of a surety bond, to make a cash deposit or other negotiable security with CVE.  Other forms of acceptable security determined by agency rule include escrow accounts, letters of credit, and certificates of deposit.

The surety bond requirement is a problem for the private vocational schools financially, and CVE administratively.  Surety carriers require strict financial qualifications as a condition of underwriting the bonds and charge annual premiums as high as 10 percent of the bonded liability.  The agency has been unable to strictly enforce the law in this setting due to the fear that the requirements may contribute to financial instability of private vocational schools which are otherwise solvent.

A private vocational school advisory committee has studied the approach taken in other states to recommend an alternative security requirement which addresses the problems stated and still provides student-consumer protection as required by the 1986 act.

SUMMARY:

The Commission for Vocational Education is to establish a tuition recovery fund for the benefit and protection of students of private vocational schools.  The liability of each private vocational school is determined on an incremental scale based on the average amount of unearned prepaid tuition in possession of the school.  The minimum liability of each school is at least $5,000 and the maximum amount is not to exceed $200,000.

The fund will be initially capitalized at $200,000 increasing to a $1,000,000 operating balance in five years.  The contribution required from each school will be on a pro rata basis.  The total contribution is due in ten equal installments over a five year period.  An initial contribution is due within thirty days after the effective date of the act.  Surety bonds or other security filed under prior law will be released within sixty days after payment of the initial contribution.  New licensees are required to make an initial contribution prior to a license being issued.

When the fund balance reaches $5,000,000 the agency may reduce the schedule of deposits.  Surplus funds may be disbursed for vocational scholarships subject to future legislative approval.  Annual financial data of each licensed school is reviewed by the agency to determine whether to increase or decrease the school's contribution.

If 51 percent or more of the ownership interest of a school is sold or transferred to new owners, the previous contribution schedule is canceled and previous contributions accrue to the fund.  The new owner commences contributions as a new licensee.

The agency is authorized to settle complaints and claims resulting from closure of a school by disbursements from the fund.  The liability of the fund is not to exceed the total of a closed school's contributions to the fund.  The agency will seek to recover the amount disbursed from the assets of the defaulted entity and may proceed as a creditor in bankruptcy proceedings.

When funds are disbursed to settle claims against a current licensee, the agency will demand reimbursement.  Failure to make such reimbursement will subject the school's license to suspension or revocation. 

A minimum operating balance of $200,000 will be maintained.  Any time the fund balance is below that amount, each school will be assessed a pro rata share of the deficiency.

The tuition recovery fund is established in the custody of the State Treasurer.  Disbursements may be made upon agency authorization without further appropriation being required.  All earnings of investments shall be credited to the tuition recovery fund.

Existing licensing requirements are amended to require participation in the tuition recovery fund.  The surety bond section of the existing law is repealed.

Appropriation:    $26,000 to the Commission for Vocational Education for start-up costs of administering the tuition recovery fund.  After expenditure of that amount, the agency's costs of administering the tuition recovery fund will be paid from the fund.

VOTES ON FINAL PASSAGE:

      Senate    49     0

      House 97   0 (House amended)

      Senate    38     0 (Senate concurred)

EFFECTIVE:May 18, 1987