NOTICE IS HEREBY GIVEN that pursuant to ss.
45.54 (2),
(3),
(10) (c) 4., and
227.11 (2), Stats., and interpreting ss.
45.54 (2),
(3),
(7) and
(10), Stats., the Wisconsin Educational Approval Board will hold a public hearing at the time and place indicated below to consider an order relating to the regulation of for-profit postsecondary schools; out-of-state, non-profit colleges and universities; and in-state, non-profit institutions incorporated after 1991.
Hearing Information
The public hearing will be held:
Tuesday, February 10, 2004 at 1:30 p.m.
8th Floor Board Conference Room
Department of Veterans Affairs
30 W. Mifflin Street
Madison, Wisconsin
Interested persons are invited to present information at the hearing. Persons appearing may provide oral testimony but are urged to submit facts, opinions and argument in writing. Written commentary may also be submitted without making a personal appearance by mail addressed to the Educational Approval Board, 30 W. Mifflin Street, P.O. Box 8696, Madison, WI 53708. Written comments must be received by February 9, 2004 to be included in the official record of rule-making proceedings.
Any person who has a qualifying disability as defined by the Americans with Disabilities Act that requires the meeting or materials at the meeting to be in an accessible location or format must contact the EAB at 608/266-1996 at least ten days prior to the hearing so that necessary arrangements can be made.
Analysis prepared by the Educational Approval Board
This rule will implement provisions related to the creation of a student protection fund. Enabling legislation was contained in the 2003-05 biennial budget (
2003 Wisconsin Act 33). In addition, the rule will clarify a number of existing rule provisions.
-Clarifies that the board approves schools and their programs.
The rule updates a number of outdated references to clarify that the board approves schools and the programs they offer. Although programs are comprised of a series of courses, the board does not approve these courses individually.
-Create provisions related to implementing a student protection fund.
Under current rule, a school subject to board oversight must provide a surety bond in an amount equal to 125% of unearned tuition as a condition of obtaining and retaining approval. The bond is intended to provide indemnification to any student, parent, guardian, or sponsor suffering loss or damage as a result of any fraud or false representation used in procuring enrollment, a violation of school approval and operating requirements, or the student being unable to complete a program because the school failed to perform its contractual obligation.
The board also relies on the surety bond as a measure of a school's financial stability. When applying for a bond, a surety company evaluates a school's finances and assesses the risks for failure. If a school is unable or has trouble securing a bond, it generally means there are underlying financial concerns which the board carefully considers during the approval process.
When establishing the bond level, the board relies on information that is typically included in the school's annual financial statements. Unfortunately, this information can be 12 to 18 months old by the time it is received and analyzed. As a result, bond levels are not always sufficient to fully protect students being served and their sponsors.
For new schools, it is even more challenging to set an appropriate bond level. Because no financial history exists, the board must rely on enrollment and tuition revenue projections from the prospective school. It can be a year or more before reliable data is available to know if the bond was set at an appropriate level. In the past, there have been schools that have closed during this critical “start-up" period and students (and their sponsors) have not been fully protected by the bond.
In an attempt to better protect students, the 2003-05 state budget (
2003 Wisconsin Act 33) included a provision authorizing the board to create a student protection fund. The fund would become the primary mechanism for providing protection to students in catastrophic situations in which a school closes.
This rule requires schools subject to board oversight to pay a new fee equal to $0.50 per $1,000 of adjusted gross annual school revenue (AGASR). The AGASR refers to the amount of revenue remaining after subtracting from gross annual school revenues the amount of refunds actually made to Wisconsin students or their sponsors during the same fiscal year for which the school reported the gross annual school revenues.
The fees generated will be placed into a newly created student protection appropriation. To the extent that the surety bond is unable to fully cover the losses incurred by a student or sponsor when a school closes, the board would be permitted to authorize the full or partial payment of those losses from the student protection appropriation.
Once funding in the student protection appropriation reaches $1.0 million, the fee assessment for schools will no longer be imposed, as required by state statute.
The rule also specifies that unexpended general operating revenues received by the board shall be transferred to the student protection appropriation, except that the board could retain unexpended revenues up to 20 percent of its annual operating budget to manage cash flow variances and unanticipated revenue reductions. Because the board in entirely funded by program revenues, this will help ensure that approved schools do not incur unanticipated fee increases.
-Amend surety bond requirements as a result of creating a student protection fund.
The student protection fund will allow the board to better protect students and their sponsors in school closure situations. Under the student protection fund, the risk of any one school closing will be spread across the more than 125 schools the board approves. At the same time, the student protection fee paid will be more equitable, reflecting not only a school's level of risk but also its ability to pay the fee.
In response to creating the student protection fund, the board will modify the current requirements for surety bonds. Instead of requiring schools to obtain a bond equal to 125 percent of unearned tuition, the board will require schools to carry a fixed bond of $25,000 or 125% of unearned tuition, whichever is less. The rule retains current provisions that allow the board to reduce these bonds if certain criteria are met. However, the rule specifies that no bond could be less than $1,000, or an amount equal to $2,000 for each representative, if any, the school employs. The overall impact of reducing the surety bond levels will more than offset increases from the student protection fee.
-Clarify the instructor qualifications required by the EAB.
Under current rule, a school is required to provide certain information regarding its faculty and/or instructors as a condition of board approval. This rule establishes specific criteria regarding the qualifications faculty members and/or instructors must possess.
-Clarify when newly approved schools are required to submit their 1st payment renewal fee.
The rule clarifies that a new school may defer its first payment renewal fee -- otherwise due no later than September 1st -- until March 1st of the following year.
Fiscal Estimate/Initial Regulatory Flexibility Analysis
This proposed administrative rule will implement the provisions contained in the 2003-05 state budget (
2003 Wisconsin Act 33) creating a student protection fund. Under the statutory provisions of the student protection fund, the Educational Approval Board (EAB) is required to develop rules for a new student protection fee. Funding generated from these fees will be placed in a separate appropriation to make payment to certain individuals who suffer a loss due to the closure of a school that has been approved by the EAB.
Under the proposed rule order, beginning in 2005, schools regulated by the EAB would pay an annual fee of $0.50 per $1,000 of school revenue. Reported school revenues for the 2004 approval year are $92.6 million. It is estimated that school revenues will increase by 10 percent in 2005 to $101.8 million. By applying the $0.50 fee to this figure, it is estimated that $50,900 will be generated in FY 05. The rule also includes a provision in which any unexpended operating revenues of the EAB exceeding a 20 percent reserve would be transferred to the fund.
While the proposed rule order imposes a new fee on schools, it will also reduce the current bonding requirements for schools. Under current rule, a school must obtain a surety bond equal to 125 percent of its unearned tuition, unless the EAB approves a reduction. For the 2004 approval year, schools will be required to obtain over $9.3 million in bond coverage. Based on rate filings with the state's Office of the Commissioner of Insurance, the average cost charged by surety companies is approximately $10 per $1,000 of needed coverage. Therefore it is assumed that the required surety bonds are currently costing schools roughly $93,000 annually.
The proposed rule will modify the surety bond requirement and specify that the maximum surety bond needed would be $25,000 or 125 percent of unearned tuition, whichever is less. This would require total bond coverage of about $2.1 million. Using the same cost information, this level of bond coverage would cost schools approximately $21,000. The resulting $72,000 in savings would offset the $50,900 of costs associated with the new fee.
The overall fiscal impact of this proposed rule on EAB-approved schools will result in estimated net savings of about $21,100. However, individual schools will be affected differently based on their specific financial circumstances. Based on an analysis of individual school information, the proposed rule will result in savings for 55 schools. Forty-four schools will experience an increase of less than $100 and 31 will incur an increase greater than $100.
Although some schools will experience a cost increase, many of them are already experiencing savings because their current bond reflects a reduction granted by the EAB. Thus, the calculated increase may not be representative of the “true savings."
As the amount of revenue generated by schools subject to EAB oversight increases, so will the fees collected under the provisions of this rule. However, under s.
45.54 (10) (cm),
Stats., the EAB is required to discontinue collecting fees to support the student protection fund during the period of time that the balance in the fund exceeds $1.0 million. Assuming that no payments are made from the student protection fund and that unexpended annual operating revenues are transferred into the fund, it is estimated that it will take nearly 10 years to reach the $1.0 million threshold. At that time, schools subject to EAB oversight would no longer be assessed a fee.
Copies of the Rule and Contact Person
Copies of this proposed rule are available from the EAB website <eab.state.wi.us> or upon request to:
Blanca James
Educational Approval Board
30 W. Mifflin Street, 9th Floor
P.O. Box 8696
Madison, Wisconsin 53708
608/266-1996
Questions regarding the rule should be directed to David Dies at 608/267-7733.
