AN ACT to establish a student protection fund for PROPRIETARY SCHOOL students.

The General Assembly of North Carolina enacts:

SECTION 1.  G.S. 115D‑93(c) is amended by adding two subdivisions to read:
"(10)	That the applicant for or a holder of a license has failed to provide a required bond or bond alternative.
(11)	That the applicant for or holder of a license has failed to pay assessments into the Student Protection Fund."
SECTION 2.  G.S. 115D‑95 reads as rewritten:
"§ 115D‑95.  Bonds required.
(a)	Requirement. – An applicant for a license must comply with the bond requirements in this section. The bond covers the potential loss by students of the school of prepaid tuition and other payments made by them to a school licensed under this Article by reason of the school ceasing to operate for any reason, including the suspension, revocation, or nonrenewal of a school's license, bankruptcy, or foreclosure.
(b)	Amount. – An applicant for a license must file a bond with the North Carolina State Board of Community Colleges executed by the applicant as a principal and by a bonding company authorized to do business in this State. The bond must be payable to the State Board of Community Colleges, must be conditioned on fulfillment of the school's obligations, and must remain in effect until cancelled by the bonding company. The bonding company may cancel the bond upon 30 days' notice to the State Board of Community Colleges.
The application must set out calculations made by the applicant to determine the amount of bond required with the application. The required amount is determined as follows:
(1)	Initial licensure. – For an applicant for initial licensure of a school, the bond amount is the amount determined by the State Board that is adequate to provide indemnification to any student, or the student's parent or guardian who has suffered a loss of tuition, fees, or any other instructional‑related expenses paid to the school. A bond amount shall be at least twenty‑five thousand dollars ($25,000).
(2)	First four renewals. – For a school that has been licensed for one year but less than six years, the bond shall be in an amount equal to the greatest amount of unearned paid tuition in the school's possession at anytime during the prior fiscal year. The bond amount shall be evaluated by the school quarterly and reported to the State Board or its representative. A quarterly evaluation requiring an increase of five percent (5%) or more in the amount of the bond held by the school shall require an immediate increase in the bond amount. Bond amounts also shall be evaluated pursuant to this subdivision and the rules of the State Board at the time of the school's annual license renewal and increased if necessary regardless of the amount of the change.
(3)	Schools in operation more than five years. – A guaranty bond shall be required for license renewal for a school that has been continuously licensed to operate for more than five years in the State, as follows:
a.	If the balance of the Student Protection Fund in G.S. 115D‑95.1 is below the catastrophic loss amount, the school shall file a guaranty bond in an amount equal to the maximum amount of prepaid tuition held by the school during the prior fiscal year multiplied by the percentage amount the fund is deficient.
b.	If the school held prepaid tuition in excess of the Student Protection Fund catastrophic loss amount during the prior fiscal year, in addition to any bond amount required by sub‑subdivision a. of this subdivision, the school shall file a guaranty bond for the difference between the prepaid tuition amount held in the previous fiscal year and the Fund catastrophic loss amount.
			
(c)	An applicant that is unable to secure a bond may seek a waiver of the guaranty bond from the State Board of Community Colleges and approval of one of the guaranty bond alternatives set forth in this subsection. With the approval of the State Board, an applicant may obtain in lieu of a bond:
(1)	An assignment of a savings account in an amount equal to the bond required (i) which is in a form acceptable to the State Board of Community Colleges; (ii) which is executed by the applicant; and (iii) which is executed by a state or federal savings and loan association, state bank, or national bank, that is doing business in North Carolina and whose accounts are insured by a federal depositors corporation; and (iv) for which access to the account in favor of the State of North Carolina is subject to the same conditions as for a bond in subsection (b) of this section.
(2)	A certificate of deposit (i) which is executed by a state or federal savings and loan association, state bank, or national bank, which is doing business in North Carolina and whose accounts are insured by a federal depositors corporation; and (ii) which is either payable to the State of North Carolina, unrestrictively endorsed to the State Board of Community Colleges; in the case of a negotiable certificate of deposit, is unrestrictively endorsed to the State Board of Community Colleges; or in the case of a nonnegotiable certificate of deposit, is assigned to the State Board of Community Colleges in a form satisfactory to the State Board; and (iii) for which access to the certificate of deposit in favor of the State of North Carolina is subject to the same conditions as for a bond in subsection (b) of this section."
SECTION 3.  G.S. 115D‑96 reads as rewritten:
"§ 115D‑96.  Operating school without license or bond made misdemeanor.
Any person, or each member of any association of persons or each officer of any corporation who opens and conducts a proprietary business school, a proprietary technical school, a proprietary trade school, or a correspondence school, without first having obtained the license herein required, and without first having executed the bond, paid the assessments into the Student Protection Fund, or both, as required by law, shall be guilty of a Class 3 misdemeanor, and each day the school continues to be open and operated shall constitute a separate offense."
SECTION 4.  Chapter 115D of the General Statutes is amended by adding a new section to read:
"§ 115D‑95.1.  Student Protection Fund.
(a)	Definitions. – As used in this section:
(1)	"Catastrophic loss amount" means the amount of funds required to protect prepaid student tuition in case of a large‑scale event that would draw against the Student Protection Fund. The amount is one million dollars ($1,000,000).
(2)	"Fund cap amount" means the catastrophic loss amount plus a reserve amount. The amount is one million five hundred thousand dollars ($1,500,000).
(b)	Student Protection Fund. – The Student Protection Fund is established in the Department of State Treasurer as a statewide fee‑supported fund. Interest accruing to the Fund is credited to the Fund. The State Board of Community Colleges administers the Fund. The purpose of the Fund is to compensate students enrolled in a proprietary school licensed under this Article who have suffered a loss of tuition, fees, or any other instructional‑related expenses paid to the school by reason of the failure of the school to offer or complete student instruction, academic services, or other goods and services related to course enrollment if the school ceases to operate for any reason, including the suspension, revocation, or nonrenewal of a school's license, bankruptcy, or foreclosure.(c)	Student Protection Fund Advisory Committee. – The President of the North Carolina Community College System shall appoint a Student Protection Fund Advisory Committee. Members of the Committee shall be appointed for terms of three years. The Committee shall advise the State Board of Community Colleges on matters related to the Fund, including, but not limited to, the adjustment of the catastrophic loss amount and Fund cap amount.
The Committee shall consist of seven members as follows:
(1)	Three professional staff members of the Community Colleges System Office.
(2)	An owner/director of a proprietary school with less than 100 students, or the owner/director's designee.
(3)	An owner/director of a proprietary school with between 100 and 750 students, or the owner/director's designee.
(4)	An owner/director of a proprietary school or group of proprietary schools with more than 750 students, or the owner/director's designee.
(5)	An owner/director of a proprietary school appointed at large, or the owner/director's designee.
(d)	Initial Payment. – Prior to its first year of operation in the State, each proprietary school shall pay an initial amount of one thousand two hundred fifty dollars ($1,250) into the Fund.
(e)	Annual Revenue Payment. – Each proprietary school operating in the State shall pay annually into the Fund an amount based on its annual gross tuition revenue generated in the State as follows:
Annual Gross Tuition Revenue	Amount of Assessment
$1.00 – $25,000	$200.00
$25,001 – $50,000	$250.00
$50,001 – $100,000	$300.00
$100,001 – $200,000	$400.00
$200,001 – $300,000	$500.00
$300,001 – $400,000	$600.00
$400,001 – $500,000	$700.00
$500,001 – $750,000	$1,000
$750,001 – $1,000,000	$1,250
$1,000,001 – $1,500,000	$1,500
$1,500,001 – $2,000,000	$2,000
Greater than $2,000,000	$2,000 plus one‑twentieth of one percent (.05%) of annual gross tuition revenue over $2,000,000.
(f)	Suspension of Payments. – If the Student Protection Fund balance is equal to or exceeds the Fund cap amount, the State Board of Community Colleges shall suspend payments into the Fund for schools that have been continuously licensed in the State for more than eight years. The State Board shall require schools to resume payments into the Fund if the balance of the Fund is less than the catastrophic loss amount.
(g)	Catastrophic Assessments. – If claims against the Student Protection Fund exceed the catastrophic loss amount, the State Board of Community Colleges may assess additional fees to the extent necessary to compensate students qualified for repayment under the Fund. The amount of the catastrophic assessment shall not exceed one‑half of the amount of the annual revenue payment required by subsection (e) of this section. If the amount of the catastrophic assessment will be insufficient to cover qualified claims, the State Board shall develop a method of allocating funds among claims.
(h)	Payment Required for Proprietary School Licensure. – The full and timely payment into the Fund pursuant to this section is a condition of licensure.
(i)	Payments Nonrefundable. – No payment to the Student Protection Fund shall be refunded in the event that a school's license application is rejected or a school's license is suspended or revoked. 
(j)	Student Repayment. – A student, or the student's parent or guardian, who has suffered a loss of tuition, fees, or any other instructional-related expenses paid to a proprietary school licensed under this Article by reason of the school ceasing to operate for any reason, including the suspension, revocation, or nonrenewal of a school's license, bankruptcy, or foreclosure, may qualify for repayments under the Student Protection Fund. The State Board of Community Colleges first must issue repayment from the bonds issued under G.S. 115D‑95. If the Student Protection Fund is insufficient to cover the qualified claims, the State Board must develop a method of allocating funds among claims.
(k)	Rules. – The State Board of Community Colleges shall adopt rules for the implementation of this section."
SECTION 5.  In addition to the payments required under G.S. 115D‑95.1, as a condition of license renewal for the 2010‑2011 fiscal year, each proprietary school shall pay into the Student Protection Fund an amount based on its total enrollment for the previous calendar year as follows:
Number of Students	Amount of Assessment
0‑49	$500.00
50‑99	$1,000
100‑499	$2,000
500‑999	$3,000
1,000‑1,499	$4,000
More than 1,500	$5,000.
Total enrollment equals the number of students enrolled on January 1, 2009, plus new starts during the calendar year plus students reentering from a period of nonattendance during the calendar year.

SECTION 6.  This act becomes effective July 1, 2010.
In the General Assembly read three times and ratified this the 11th day of August, 2009.

	s/	 Walter H. Dalton
	 President of the Senate

	s/	 Joe Hackney
	 Speaker of the House of Representatives

	s/	 Beverly E. Perdue
	 Governor

Approved 11:02 a.m. this 28th day of August, 2009