[State_authorization_update] Additional information on the proposed federal regulations for State Authorization

[Stone, Kia]

We are very grateful to Cooley, LLP for offering the following additional analysis and comment ideas regarding the proposed federal regulations for State Authorization of Distance Education.  They shared this analysis with WCET/SAN and allowed them to share it with us.


I.          Federal and National Developments Affecting State Authorization

A.        The Department Issues New Federal Regulations

The major headline this week was the U.S. Department of Education's (ED or the Department) formal release of a Notice of Proposed Rulemaking (NPRM)<https://www.gpo.gov/fdsys/pkg/FR-2016-07-25/pdf/2016-17068.pdf> to reissue regulations requiring state authorization for distance education programs. The proposed rules would make proof of state authorization for online programs a condition of institutional eligibility to participate in the Title IV federal loan and grant programs, to the extent such authorization is required by state law, and impose a number of new and potentially burdensome requirements with respect to consumer disclosures, particularly for programs that lead to professional licensure.

The major takeaway from the new rules is that the proposal is a substantial improvement over the Department's recent efforts to regulate distance education programs. In particular, the State Authorization Reciprocity Agreement (SARA) remains a viable compliance option for many of the new requirements.

However, institutions and educational providers must appreciate that being a SARA participant is not a cure-all under these proposed rules. Many of the new consumer protection requirements will be burdensome for all institutions-regardless of participation in SARA-and the proposed rules dramatically raise the consequences for compliance errors.

The proposed rules reflect the Department's continued unease with online programs generally, not just online programs offered by proprietary schools. The proposed rules would impact virtually all sectors of higher education, including not only all public and private universities, but also some ed-tech providers, such as online program management companies. Indeed, we expect that the initial regulatory burden may fall more heavily on traditional institutions of higher education, many of which have expanded into online learning in recent years.

We anticipate the Department will issue final rules prior to November 1, which means the rules may take effect as early as July 1, 2017.

Key aspects of the proposed rules that may warrant further consideration are outlined below, and we strongly encourage institutions to submit comments.

You can also read our full summary of the NPRM here<https://www.cooley.com/eds-proposed-rules-for-online-learning-new-compliance-challenges>.

Authorization for Online Programs Under State Law

The proposed rule requires institutions participating in the Title IV federal student aid programs to meet all state requirements for legally offering distance education in any state in which they are offering distance education courses. To be clear, the proposed rule would only require institutions to meet such state requirements as exist in a particular state; they do not require authorization in states that have chosen not to regulate online offerings by out-of-state institutions.

The current proposal explicitly considers participation in a state reciprocity agreement-such as NC-SARA<http://nc-sara.org/>-as sufficient to satisfy this requirement, as long as both the state where the program is offered and the institution participate in the agreement.

Consumer Disclosure Requirements for Distance Education Offerings

The proposed rule requires that institutions make a number of significant consumer disclosures regarding their distance education programs, including the following:

1.      Professional Licensure and Certification Requirements. Institutions must disclose all "prerequisites" for professional licensure in the relevant occupation(s) in any state in which they enroll students in a program designed to prepare students for a specific vocation. The institution must state whether its program(s) meet those requirements.

If an institution has not determined whether its programs meet applicable state pre-requisites for licensure, it must publish a statement to that effect.

If an institution determines that a program does not meet a given state's professional licensure or certification prerequisites, it must disclose that fact directly and individually to each prospective student seeking to enroll in that program located in that state prior to enrollment and obtain a letter of acknowledgement from any student who subsequently enrolls in the program.
2.      Refund Policies. Institutions must disclose all refund policies with which the institution is required to comply under the laws of any state in which enrolled students reside. SARA-participating institutions must still make this disclosure.

3.      State Authorization. Institutions must disclose whether they are authorized to provide the program in each state in which enrolled students reside, or whether the institution is authorized through a reciprocity agreement, such as participation in SARA.

4.      Adverse Actions. Institutions must disclose any "adverse action" an accrediting agency or state entity has initiated in the prior five calendar years related to distance education programs.

5.      Student Complaints. Institutions must include a description of the process for (1) submitting complaints to the appropriate agency in the state of the institution's main campus; (2) if the institution participates in a reciprocity agreement, submitting complaints under the agreement at the appropriate state authorities (such as the institution's home state under SARA); and (3) submitting complaints to the appropriate agency in each state in which the program's enrolled students reside.

Note that the proposed federal requirements apply to distance education programs that are offered solely online, as well as correspondence courses, and appear to include online programs with an internship or practicum component. The proposed rule may not include hybrid or blended programs, at least in the current draft.

Note also that the required consumer protection disclosures will significantly heighten an institution's exposure to potential liabilities in the form of monetary penalties for noncompliance, as well as state or federal misrepresentation claims, consumer lawsuits and potentially claims for reimbursement under the proposed borrower defense to repayment rules, which the Department is simultaneously promulgating. Institutions must plan to address these new requirements once the rules are finalized, but before they become effective.

For many institutions, preparing these disclosures (particularly with respect to licensure prerequisites and state refund policies) will be a significant new compliance burden, which we believe will far exceed the Department's stated cost estimates.

Student Complaints Under State Law

Under the current proposal, as a condition of eligibility, institutions must also document that they are subject to a state process for reviewing complaints from any student located in that state enrolled in a distance education program. This requirement would apply even if state law does not require the institution to be authorized in a given state. While an institution's "home state" can generally satisfy this requirement for institutions participating in a reciprocity agreement, SARA participation would not protect those same approved institutions when operating in nonparticipating states, such as California, New York, or Massachusetts. For those states, an institution would need to document that there is a state process for reviewing out-of-state complaints in that state. The Department has never officially indicated which states it thinks have inadequate student complaint processes, which in turn exposes intuitions to second-guessing whether they are validly authorized under the Department's rules. This exact scenario has in fact happened to institutions in the context of on-ground locations (which also must be covered by "valid" student complaint processes), resulting in significant delays for some institutions during the recertification process. Given past experience with this issue, the ambiguity in the proposed rules remains an unfortunate oversight.

New Requirements for Foreign Locations

The proposed rule, for the first time, would extend authorization requirement to schools offering programs at an on-ground foreign location, either independently or in partnership with a foreign institution. For every foreign location at which a school offers more than 50% of an educational program, the institution must be able to provide evidence to ED on request demonstrating that the foreign government authority is aware that the location provides postsecondary education and that the government does not object to those activities. Similarly, foreign locations at which less than 50% of a program is offered must satisfy the legal requirements for authorization to operate in that country. Finally, the rule would make a location ineligible for Title IV purposes if the state in which the main campus of the institution is located considers the foreign location to be outside the scope of its authorization.

Institutions offering programs at additional locations abroad should promptly evaluate the impact these requirements might have on their operations.

Comment Period

Comments on the NPRM are due August 24, which allows less than 30 days for you to comment. Given the proposed rule's potential impact on your online and foreign offerings, and that the consumer advocacy community can be expected to file comments urging that the rules be made even more robust, we urge you to read the proposed rule carefully and ensure your voice is heard in the comment period. The following is a non-exhaustive list of suggested issues that, depending on your institution, you may decide warrant comment.

-          Scope
o   To head off future issues, we encourage schools to seek clarification from ED as to whether institutional eligibility or programmatic eligibility is at risk for failure to obtain authorization for distance programs in any particular state. In other words, if one fails to demonstrate state authorization in a particular state, does that mean the eligibility of the institution is at issue, or just the eligibility of particular programs in a state?
-         Disclosures
o   The Department should clarify the requirement that schools disclose any "adverse action" an accrediting agency or state entity has initiated in the prior five calendar years "related to distance education programs." While adverse action is a term widely used in accreditation, the term is unclear in relation to state law.  Does ED mean adverse action by a state authorization agency?  What about an attorney general subpoena?
o   The Department should clarify that the disclosure requirements include distance education programs with an internship or practicum component, in addition to distance education programs offered solely online.
o   Institutions may want to advocate that the more burdensome requirements, such as disclosure of state-specific licensure prerequisites and refund policies, should be phased in over one or more years to give institutions more time to conduct the research necessary and comply. ED does not seem to have a grasp on what is involved in making such determinations on a multistate basis.
-         Foreign Locations
o   It is not clear how the Higher Education Act, which requires institutions to be authorized in "a [U.S.] State," would give the Department (or the states, for that matter) authority to require that schools be authorized to operate in foreign locations abroad. We encourage schools to question the Department's authority on this issue. What, for example, should a school do if its state authorizing agency declines to issue such an authorization because it does not believe it has the authority to do so?
o   Schools should seek clarification on how and when ED plans to enforce the foreign locations requirement. At a minimum, because this is a new requirement, a phase-in on the effective date of this mandate may be needed to give institutions time to secure proof of foreign authorization.
-         Student Complaints
o   We encourage schools to press the Department to identify which states, in the agency's view, currently do not have an adequate student complaint system to satisfy the new distance education requirements. Elementary principles of due process would require that institutions have some notice and opportunity to cure any defects with regard to state law (over which they may have no control) prior to losing access to Title IV funds.
o   Schools should consider asking for clarification on whether home state complaint procedures, if disclosed to students, could afford sufficient consumer protections to satisfy the Department. If a state chooses not to assert jurisdiction over an online program, and therefore no authorization is required under the federal rule, arguably that decision should simply be respected consistent with the principles of federalism.
-         Procedural Issues with the Rule
o   Given the scope of the proposed rule and its potential impact on all of higher education, we encourage schools to press the Department for a longer comment period.


Thanks!
Kia

[OHIO University]
Office of Instructional Innovation
Kia D. Stone, Coordinator of Compliance & Quality Assurance
115 Haning Hall  | Ohio University |  Athens OH 45701-2979
T: 740.593.2558 | stonek1 at ohio.edu<mailto:stonek1 at ohio.edu>
https://www.ohio.edu/instructional-innovation/state-authorization/index.html

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