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State Authorization in a Post-Appeals Court World

Since a federal appeals court upheld a lower court ruling vacating the U.S. Department of Education’s regulation on state authorization in relation to distance learning, views on what that means and what comes next have varied widely. Today’s Campus conducted a video interview on these issues with David LeFevre, “an expert in regulatory compliance and risk management for postsecondary institutions” with the law firm of Dunn and Davison. After first providing an overview of the case, LeFevre argues that the loss of the regulation most likely will not have much impact on the Department’s enforcement efforts because of other changes in the section of the regulations that included the distance education provision.

Specifically, LeFevre indicates that the department revised the relevant section (600.9) to read that state authorization requirements in relation to federal student aid eligibility no longer apply just to institutions “physically located” in a state, but rather to institutions that “operate” in the given state. He then explains that different states define what it means to “operate” in their jurisdictions as postsecondary education providers in different ways, some of which may be quite minimal (e.g., advertising courses or programs in the states). He concludes that this gives the Department latitude to hold institutions accountable for meeting state authorization requirements in order to preserve the Title IV (federal student aid) eligibility of their students in states where the threshold on “operating” requires it. He further makes the point that this doesn’t apply solely to distance learning programs, either—it’s entirely possible that institutions may take actions on behalf of their face-to-face courses and programs that constitute operating in a state in a way that triggers that state’s authorization requirements.

In reviewing the regulations, I’m not sure I agree with LeFevre’s interpretation. Let me say upfront that I am not an attorney specializing in this space, so I do not write my comments to argue that you should accept my interpretation and not his. Rather, I want to highlight that this continues to be a very tricky area of the federal student aid regulations even following the federal appeals court ruling. Thus, it is imperative that those who provide executive or administrative leadership to an institution’s online learning programs work proactively with the institution’s general counsel to determine what steps the institution should still take on state authorization in relation to both federal student aid AND the laws of states in which the institution might have exposure. Regardless of how the regulations impact federal student aid eligibility in relation to online/distance education programs, state laws on when an institution must be authorized by the state to deliver postsecondary education within its jurisdiction are not affected at all by the federal appeals court action. Institutions need to be aware of those laws and the potential consequences of their enforcement, no matter how unlikely, and make decisions on how best to comply.

To help with that process, I have included below the two sections of the regulations to which I believe LeFevre is referring in his interpretation—600.4, which defines what constitutes an “institution of higher education” under the regulations, and 600.9, which discusses the state authorization requirements for federal student aid programs. I think LeFevre has 600.9(a)(1)(i)(A) in mind as he talks about the shift from “physically located” to “operate.” I’ve bolded that part of the regulations below so you can more easily review it for yourself, but it connects the state authorization requirement to state approval to “operate educational programs beyond secondary education.” However, 600.9 references the definition of “institution of higher education” provided in 600.4, part (a)(3) of which (also bolded below) ties state authorization to “the State in which the institution is physically located.” (I’ve also bolded 600.4(b), which defines what constitutes “physical location” under the regulations.)

So, with 600.9(c) out of the picture per the federal appeals court ruling, I read the surviving part of 600.9 related to operating postsecondary educational programs as still bounded by the concept of physical location as established in the definition of “institution of higher education” under 600.4. IF I’m right, then the federal student aid eligibility of online/distance education programs continues to hinge on state authorization by the state in which the institution is physically located, under whatever definition of “operate” that state has. However, as I’ve written, you should rely on the legal opinion of your general counsel given in light of your institution, its programs, and where they are delivered. What may be more critical to note is how the regulations now define what the Department accepts as state authorization for the purposes of federal student aid eligibility. Such provisions include a state-level process for handling student complaints against an institution as well as authorization of the institution by name in a valid state-issued instrument. And again, federal student aid eligibility may be beside the point if your institution is violating the laws of states that consider it to be operating without the legally required state authorization.

LeFevre does highlight the Department’s position that the Title IV (federal student aid) regulations have always required an institution to have state authorization by any state that requires it if the institution was delivering courses or programs in such a state, regardless of the institution’s physical location. In reference to this, he cited an unspecified “Dear Colleague Letter” (DCL) from the Department explaining its interpretation and planned enforcement of the Title IV “program integrity” regulations it had issued. I believe he means the March 2011 DCL, which essentially answers a series of FAQs in relation to the program integrity regulations. Pages 5-7 of the letter discuss the distance education provisions of the regulations, with Question 19 being the one I think LeFevre has in mind:

Question 19: If an out-of-State institution does not obtain a required State approval for a distance education program in the future, could the Department declare the residents of that State enrolled in the institution’s distance education program to have been ineligible for any title IV, HEA funds received and hold the institution liable for those funds? Could the Department also take other actions if it determines the school acted in disregard of the rule?

Answer 19: Institutions have always been responsible for knowing when such approvals are needed, and are expected to have obtained them when required to do so as an integral aspect of obtaining State authorization. As a result, as it has done in the past, the Department expects to continue to hold institutions responsible for the return of title IV funds that were obtained without the requisite State authorization to receive them, and it likewise retains the ability to take other actions against noncompliant institutions.

However, following the federal appeals court ruling, valid questions about the Department’s opinion of what the regulations require might be raised given the relationship between state authorization and physical location that sections 600.4 and 600.9 seem to reflect. That certainly doesn’t mitigate concerns about how state laws may apply to your institution’s online/distance education offerings. It is something your general counsel’s office may wish to evaluate, though, as it considers federal student aid eligibility in relation to the institution’s online/distance education programs following last month’s federal appeals court ruling.

 

PART 600—INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT OF 1965, AS AMENDED
§ 600.4   Institution of higher education.

(a) An institution of higher education is a public or private nonprofit educational institution that—

(1) Is in a State, or for purposes of the Federal Pell Grant, Federal Supplemental Educational Opportunity Grant, Federal Work-Study, and Federal TRIO programs may also be located in the Federated States of Micronesia or the Marshall Islands;

(2) Admits as regular students only persons who—

(i) Have a high school diploma;

(ii) Have the recognized equivalent of a high school diploma; or

(iii) Are beyond the age of compulsory school attendance in the State in which the institution is physically located;

(3) Is legally authorized to provide an educational program beyond secondary education in the State in which the institution is physically located in accordance with §600.9;

(4)(i) Provides an educational program—

(A) For which it awards an associate, baccalaureate, graduate, or professional degree;

(B) That is at least a two-academic-year program acceptable for full credit toward a baccalaureate degree; or

(C) That is at least a one academic year training program that leads to a certificate, or other nondegree recognized credential, and prepares students for gainful employment in a recognized occupation; and

(ii) May provide a comprehensive transition and postsecondary program, as described in 34 CFR part 668, subpart O; and

(5) Is—

(i) Accredited or preaccredited; or

(ii) Approved by a State agency listed in theFederal Registerin accordance with 34 CFR part 603, if the institution is a public postsecondary vocational educational institution that seeks to participate only in Federal student assistance programs.

(b) An institution is physically located in a State if it has a campus or other instructional site in that State.

(c) The Secretary does not recognize the accreditation or preaccreditation of an institution unless the institution agrees to submit any dispute involving the final denial, withdrawal, or termination of accreditation to initial arbitration before initiating any other legal action.

(Authority: 20 U.S.C. 1091, 1094, 1099b, 1141(a))

[59 FR 22336, Apr. 29, 1994, as amended at 64 FR 58615, Oct. 29, 1999; 74 FR 55932, Oct. 29, 2009; 75 FR 66946, Oct. 29, 2010]

 
§ 600.9   State authorization.

(a)(1) An institution described under §§600.4, 600.5, and 600.6 is legally authorized by a State if the State has a process to review and appropriately act on complaints concerning the institution including enforcing applicable State laws, and the institution meets the provisions of paragraphs (a)(1)(i), (a)(1)(ii), or (b) of this section.

(i)(A) The institution is established by name as an educational institution by a State through a charter, statute, constitutional provision, or other action issued by an appropriate State agency or State entity and is authorized to operate educational programs beyond secondary education, including programs leading to a degree or certificate.

(B) The institution complies with any applicable State approval or licensure requirements, except that the State may exempt the institution from any State approval or licensure requirements based on the institution's accreditation by one or more accrediting agencies recognized by the Secretary or based upon the institution being in operation for at least 20 years.

(ii) If an institution is established by a State on the basis of an authorization to conduct business in the State or to operate as a nonprofit charitable organization, but not established by name as an educational institution under paragraph (a)(1)(i) of this section, the institution—

(A) By name, must be approved or licensed by the State to offer programs beyond secondary education, including programs leading to a degree or certificate; and

(B) May not be exempt from the State's approval or licensure requirements based on accreditation, years in operation, or other comparable exemption.

(2) The Secretary considers an institution to meet the provisions of paragraph (a)(1) of this section if the institution is authorized by name to offer educational programs beyond secondary education by—

(i) The Federal Government; or

(ii) As defined in 25 U.S.C. 1802(2), an Indian tribe, provided that the institution is located on tribal lands and the tribal government has a process to review and appropriately act on complaints concerning an institution and enforces applicable tribal requirements or laws.

(b)(1) Notwithstanding paragraph (a)(1)(i) and (ii) of this section, an institution is considered to be legally authorized to operate educational programs beyond secondary education if it is exempt from State authorization as a religious institution under the State constitution or by State law.

(2) For purposes of paragraph (b)(1) of this section, a religious institution is an institution that—

(i) Is owned, controlled, operated, and maintained by a religious organization lawfully operating as a nonprofit religious corporation; and

(ii) Awards only religious degrees or certificates including, but not limited to, a certificate of Talmudic studies, an associate of Biblical studies, a bachelor of religious studies, a master of divinity, or a doctor of divinity.

(c) If an institution is offering postsecondary education through distance or correspondence education to students in a State in which it is not physically located or in which it is otherwise subject to State jurisdiction as determined by the State, the institution must meet any State requirements for it to be legally offering postsecondary distance or correspondence education in that State. An institution must be able to document to the Secretary the State's approval upon request.

(Authority: 20 U.S.C. 1001 and 1002)

[75 FR 66946, Oct. 29, 2010]

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