United States: Getting Ready For ED's New State Authorization Rule

As institutions with online programming are well aware, the U.S. Department of Education's new "state authorization" rule is set to become effective this coming July 1, 2018. Among other things, the rule will require institutions offering online programming to demonstrate that they are authorized to offer their programs in every state where they enroll students who receive federal financial aid. In addition, the rule will require institutions to make a wide range of required disclosures to students enrolled in online programs. Finally, though not discussed here, the rule includes new requirements for additional locations located in foreign countries.

As has been widely reported, confusion abounds regarding various aspects of the regulation, with recent efforts having been made to solicit guidance from the Department. There is some possibility that the current administration will act to delay the rule (it was noted as a target for reform as early as January 2017), but it remains unclear whether and to what extent such reform might occur. Similarly, there are those in Congress who would like to see the rule eliminated as part of the current reauthorization of the Higher Education Act (see Section 495 of the PROSPER Act). But again, whether such language will appear in any final reauthorization legislation is entirely unclear, as is when reauthorization may actually occur.

Amidst this uncertainly, institutions of higher education are left to interpret the rule to the best of their ability and to make a good faith effort to comply with the rule's various requirements by the current deadline. In an effort to assist those institutions that may be grappling with this new regulation, we are offering this brief outline of the regulation's key requirements. In addition, next week we will be hosting a free webinar during which we will delve into the rule and its complexities in more detail. If you are interested, the webinar will be broadcast on April 17, 2018 at 12pm CST, and you can sign up [here]

State Authorization

The current regulations governing state authorization of postsecondary institutions participating in the federal financial aid programs are located at 34 C.F.R. § 600.9. The new rule adds several new concepts to this section, including the foundational requirement that institutions offering programs through distance education must obtain state authorization to offer such programs from any state (1) that determines it has jurisdiction over the school or (2) in which a student in the program resides.

As is always the case with the Department's regulatory packages, the new rule has various caveats and qualifications that must be digested. With regard to the state authorization requirement, for example, schools must keep in mind the following:

  • The state authorization rules only extend to programs that are Title IV-eligible and to students receiving Title IV aid.
  • Schools participating in state authorization reciprocity agreements like those coordinated through NC-SARA can satisfy the basic state authorization requirement, but subject to any limitations in the agreements and to any additional requirements of any applicable state.
  • Institutions must be prepared to document authorization to the Department upon request (such requests might be made during program reviews, recertification, or compliance investigations).
  • Institutions also must be able to document that in each state where they are authorized, there is a state process for reviewing and acting on student complaints. Schools participating in state authorization reciprocity agreements can rely on the complaint resolution process in their home state, but only if the reciprocity agreements designate the home state for this purpose.

The commentary to the final regulations addresses additional complexities, such as the application of the rule to hybrid programs and the treatment of students who experience a change of residency mid-program. We'll delve into these and other issues during next week's webinar.

Disclosure Requirements

The new rule also adds a significant set of new disclosure requirements that apply to any institution that offers a program that is provided, or can be completed, solely through distance education. Notably, the rule still covers online programs that have an on-ground internship or practicum, specifically excluding them from the "solely" online determination.

The required disclosures are broken into two categories: public disclosures and individualized disclosures. The public disclosures must be "made available" to enrolled and prospective students, which means the information need not be distributed directly, but can be disclosed through written and online publications. The individualized disclosures, however, must be disclosed "directly and individually." Moreover, institutions must obtain and maintain evidence of receipt from any prospective student who received a direct disclosure and subsequently enrolled in the program.

Though seemingly simply in concept, postsecondary administrators have quickly discovered that a wide range of issues arise when attempting to operationalize these disclosure requirements. As with the state authorization rule, we'll consider some of these questions during next week's webinar. For those unable to attend, we encourage you to review the discussion that accompanied the promulgation of the final rule, and to keep an eye out for further guidance (or other action) from the Department.

For purposes of this post, we leave you with the following summary of the new disclosure requirements.   

Public Disclosures (must be made available to enrolled and prospective students)

  • Whether the institution is authorized by each State in which enrolled students reside and how it is authorized in each state (with an authorization from each specific state agency or as part of a state authorization reciprocity agreement).
  • The consequences of relocating to a state where the institution does not meet state requirements, or in the case of a gainful employment program, where the program does not meet licensure or certification requirements in the state.
  • A description of the process for submitting complaints, including contact information to make complaints in the state where the institution has its main campus, contact information to make complaints to the state in which the student resides, and, if applicable, the appropriate contact information for complaints under any state authorization reciprocity agreement the institution has entered into.
  • Any adverse actions taken by a state or accrediting agency against the institution related to distance or correspondence education and the year that the action was initiated, for the previous five calendar years.
  • Any refund policies that it must comply with in any state in which a student resides.
  • Applicable licensure or certification requirements for the occupation the program prepares a student to enter and whether the program meets those requirements, including:
    • The applicable educational prerequisites for professional licensure or certification for the occupation for which the program prepares students to enter in any state in which the program's enrolled students reside and for any other state for which the institution has made a determination regarding such prerequisites.
    • Whether the institution's distance education program or correspondence course satisfies those applicable educational prerequisites for professional licensure or certification. For any state for which the institution has not made a determination with respect to the licensure or certification requirement, an institution is required to disclose a statement to that effect.

Class A Individualized Disclosures (must be directly disclosed to prospective students)

  • Any determination by the institution that the program does not meet licensure or certification prerequisites in the state of the student's residence. If this is the case, any student who receives that notice and subsequently enrolls must provide acknowledgement to the institution that they received the disclosure.

Class B Individualized Disclosures (must be directly disclosed to prospective and enrolled students)

  • Any adverse action initiated by a state or accrediting agency related to programs offered by the institution solely through distance education or correspondence within 30 days of the institution becoming aware of the action.
  • Any determination by the institution that the program ceases to meet licensure or certification prerequisites of a state within 14 calendar days of that determination.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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