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In the late 1980s, fly-by-night trade schools were making a killing off California students. Some sold phony Ph.Ds. Others took money from students and then closed their doors. In a book on the subject, called Diploma Mills: Degrees of Fraud, researchers David Stewart and Henry Spille called California's oversight of the vocational school industry a "national joke."
Former state Assemblywoman Maxine Waters saw firsthand how bad the system really was. To help young people in her Los Angeles district find jobs, she actively encouraged them to enroll at vocational schools. But, according to her former staff, all she heard were complaints about how bad the schools were. Many young people left the schools no better prepared for careers than when they entered.
And many, unequipped to find work, were defaulting on their student loans, not just in South Central Los Angeles, but statewide, costing taxpayers millions of dollars. (Waters, now representing L.A. in Congress, said through a spokesman that she was too busy to comment for this article.)
For students to receive federally guaranteed loans, a school must be licensed by the state, and accredited by a federally authorized agency. But Waters, her former staffers say, found that the state's licensing division, essentially its first line of defense, was too lax, allowing too many bad schools into the system. To fix the problem, the assemblywoman convinced the state Legislature to enact the Maxine Waters School Reform and Student Protection Act, a series of laws forcing vocational schools to be more accountable.
The new laws created the Council for Private and Postsecondary Education to police the vocational schools. Supported by industry fees, the council scrutinized the colleges more closely than ever before, beginning with a pre-license review, followed by periodic inspections. The agency could suspend or revoke licenses of schools that did not comply with the new laws. It could also assess penalties on colleges that were out of line.
The act also required the schools themselves to publish their graduation and job placement rates, and prove that they were financially responsible and wouldn't stiff their students.
And to make sure taxpayers wouldn't have to foot the bill when students, victimized by bad schools, defaulted on their loans, Waters' bill required vocational schools to start making annual contributions to a statewide pool called the Student Tuition Recovery Fund. The fund was intended to reimburse students left stranded when trade schools went out of business or otherwise shortchanged them.
According to consumer advocates, the Waters Act was among the most stringent consumer protection laws in the country, and became a model for federal laws.
Council investigators hit the ground running, reviewing almost 1,000 complaints a year, and closing suspect trade schools right and left. In the six years preceding the Waters Act, 200 vocational schools in the state closed, largely for financial reasons, according to the Corporation for American Education, a vocational school trade association. In the six years after the legislation, 1,400 schools closed, mostly because they were unable to comply with the new laws.
In 1996, Spille, whose book had previously lambasted California, wrote a letter to the council, commending it for making "tremendous progress." By 1997, the student loan default rate for vocational schools in California had dropped to 14.7 percent, down from 23.9 percent in 1991.
"We really cleaned up the industry," says Stan Diorio, a legislative staffer who helped draft the act. "But with any strong piece of legislation, eventually there's a backlash."
That reaction came from trade school owners who thought the Waters Act was working a little too well. They regarded the council as a bureaucracy gone out of control, and accused the staff of being vindictive. "They ruled with a very heavy hand," says Robert Smith, owner of Pacific Coast Horseshoeing School. "They took a baseball bat and started beating everybody up."
The industry saw its chance to turn things around in June 1997, when the Waters Act was due to expire, and its author had made the jump to Congress.
In 1996, consumer advocates and public interest lawyers backed a bill to extend the legislation for another five years, but trade school owners convinced then-Gov. Wilson to veto it. In 1997, pro-regulation lawmakers decided that watering down the legislation was the only way to get any laws through the then-Republican-dominated Legislature.
Assemblyman Rod Wright, a protégé of Waters' representing her former district in Los Angeles, introduced a bill that at least maintained a semblance of the Waters Act. But the industry spent piles of money lobbying Republicans, hiring lobbyist Kevin Sloat, who just months before had served as Wilson's legislative secretary. The trade groups spent more than $114,000 on lobbying efforts that year, and tripled their campaign contributions to $29,800 that election cycle, giving mostly to Republicans.
Evidently, it was money well spent. When Wright's bill was approved in July 1997, much of the Waters Act had been dismantled: Schools had fewer reporting requirements, and many were exempted from the law altogether. In addition, the industry's assessment fees were cut across the board by as much as 15 percent, reducing the size of the tuition recovery fund.
Most damaging of all, however, the Legislature abolished the council, transferring its duties to a newly created bureau under the purview of the Department of Consumer Affairs. This new agency had to start from scratch. Only a few of the 80 bureaucrats from the council moved to the bureau, and all institutional memory was lost.