You asked how the private occupational school student protection account works, why private occupational schools must maintain a letter of credit, and why schools object to how the account operates.

SUMMARY

Each private occupational school must pay . 5% percent of its quarterly net tuition revenue to the state treasurer for deposit into a special account from which students can get tuition reimbursement if a school fails. Each school must maintain a $ 10,000 irrevocable letter of credit guaranteeing its payment. This latter requirement is excused once a school pays $ 10,000 into the account or five years from the date it receives its initial approval to operate, whichever occurs first.

Schools that began paying into the account before October 1, 1987 can stop when the balance reaches $ 2. 5 million; newer schools continue paying according to a statutory schedule. But if the account falls below 5% of all schools’ annual net tuition, schools that stopped paying must resume. The law also permits the Department of Higher Education (DHE) to assess the account for its direct expenses in administering it, and language in the FY 03–05 biennial budget makes specific amounts from the account available to DHE in each fiscal year of the biennium. (Previous statutory language had shifted $ 170,000 a year from the account to DHE to pay for its general oversight of occupational schools. )

The combination of a legislative fund transfer for budget balancing purposes, DHE’s use of the account, and the requirement for renewing payment appears to be the basis for schools’ problems with its operation. In 2002, the legislature transferred $ 1 million from the protection account to the General Fund. This dropped the account balance below $ 2. 5 million and the 5% floor, thus requiring schools that had stopped making fund payments to resume them (PA 02-1, May Special Session, § 40).

Schools also believe the law authorizes DHE to use funds from the account only to administer it, according to Ray Clark, vice president of Porter and Chester Institute (which has been operating since 1968). DHE interprets the law to allow it to use the money for all of its occupational school-related activities such as licensing. DHE’s draw on the account, Clark believes, keeps the balance below the 5% of net tuition floor and thus requires schools to keep paying. Table 1 shows account balances and DHE’s draw on it since FY 00.

Table 1: Student Protection Account Activity, FY 00 to FY 04

Source: DHE

PRIVATE OCCUPATIONAL SCHOOL PROTECTION ACCOUNT

Each private occupational school must pay . 5% percent of its net quarterly tuition revenue to the state treasurer for deposit into a special account. The account is used to reimburse students who cannot (1) complete a course or unit of instruction because the school becomes insolvent or ceases operations and (2) obtain a refund from the school or any other source (CGS § 10a-22u(a)).

Paying into the fund is a condition of doing business, and failure to make a payment within 30 days of its becoming due can lead to a school losing its authority to operate. Each school must maintain a $ 10,000 irrevocable letter of credit guaranteeing its payment. This requirement is excused once the school pays $ 10,000 into the account or five years from the date it receives its initial approval to operate, whichever occurs first (CGS §§ 10a-22c(c) and –22u(b)).

In determining its quarterly payment obligation a school can deduct money it (1) received for expendable materials or equipment that becomes the students’ property; (2) received for services other than instructional services, such as nonrefundable application and registration fees that are not applied to tuition; and (3) refunded to students who did not complete their instruction or training. With advanced approval from the higher education commissioner or her designee, a school can identify and deduct other specific amounts (Conn. Agency Regs. , § 10a-22x-2 and 3)

If a DHE audit shows that a school has paid less than required, it must pay the difference plus a 10% penalty. If an audit shows an overpayment, the school is credited that amount against future payments (CGS § 10a-22u(c) and (d)).

The treasurer invests the account funds, and any interest and dividends earned are credited to it. The law permits the DHE commissioner to assess the account for all direct expenses the department incurs in implementing the protection account law that exceed its normal spending on accounting, auditing, and clerical services. (CGS § 10a-22u(a)). (Previously, this law allowed DHE to take specified amounts from the fund, $ 170,000 in FYs 00 and 01, up to the annual interest accrued, for its personnel and administrative expenses in overseeing the schools. This authority lapsed on June 30, 2001. But language in the FY 03-05 budget makes $ 206,000 from the fund available to DHE in FY 04 and $ 216,000 in FY 05, (PA 03-1, June 30 Special Session, § 39). This budget provision does not specify how DHE must use this money. )

The treasurer annually determines the account’s balance. If it exceeds $ 2. 5 million, schools that began paying into the account on or before October 1, 1987 do not have to pay again until the balance falls below 5% of net tuition, at which time they must resume payment. But schools that began paying after that date must keep paying for the same number of calendar quarters as elapsed between October 1, 1987 and the date the account balance first reached 6% of net tuition. Then, if the balance falls below 5% of net tuition, they must begin payment again (CGS § 10a-22w).

Once the account balance reaches $ 2. 5 million, 75% of the annual interest on it must be transferred to a separate financial aid fund for private occupational school students (CGS § 10a-22q).

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