Pumpkins on a stone fence lining a leaves covered path
Image by David Mark from Pixabay

‘Tis the season for all things pumpkin, brisk mornings, and the release of new U.S. Department of Education final regulations! WCET and the State Authorization Network (SAN) have been closely following and reporting about the 2021-2022 Federal Negotiated Rulemaking process. In our most recent update last summer, we shared about two sets of proposed regulations and the release for public comment of the Notice of Proposed Rulemaking (NPRM) for both.

Those two packages were released as final regulations in the last several days. The first package of regulations addresses:

  • The Pell Grants for Prison Education Programs – expands Pell Grant eligibility for incarcerated students,
  • Determining the Amount of Federal Education Assistance Funds Received by Institutions of Higher Education (90/10) – lowers the percentage of funds for-profit institutions can acquire from federal aid sources,
  • Change in Ownership and Change in Control – updates and clarifies requirement for mergers, acquisitions, and closures of institutions (NOTE: the proposed change to the “Distance Education” definition was dropped).
Image reads: Top issues for our members to watch:

The earlier proposed (and confusing) change to “Distance Education” definition was dropped.

Now more opportunities to serve incarcerated students.

Institutions need to be aware of responsibilities when offering programs that lead to a license or certification for incarcerated students.

The second package of regulations addresses:

  • Borrower Defense to Repayment – regulations were developed to streamline and improve the rules for student loan relief program if a student, as a borrower, has been defrauded by their institution.

The release of these regulations prior to the November 1 rulemaking calendar deadline for Title IV financial aid regulations allows for the regulations to become effective on July 1, 2023 (for the Change of Ownership, Pell Grants for Prison Education Programs and Borrower Defense to Repayment Rules). The Federal Register Announcement indicates that the 90/10 regulations will apply to institutional fiscal years beginning on or after January 1, 2023, consistent with the effective date specified in earlier legislation regarding the 90/10 calculation.

Today, we will summarize each package of new final regulations and share key takeaways. We acknowledge that this set of regulations has less direct impact on the work of our members than some previous packages of regulations for which we have reported. We will also provide a short update on the status of the remaining issues from the 2022 rulemaking that have yet to be released as proposed regulations.

Proposed Change to “Distance Education” Definition Withdrawn

Spoiler alert, upon review of the proposed regulations last summer, we believed that the top issue of concern to our WCET & SAN members was going to be additions to language in the definition of Distance Education. The language would have “associated” (an undefined term) all distance education courses with the main campus. This would have caused confusion and problems on several fronts.

The Department acknowledged WCET and SAN’s public comment and the public comments of others on the proposed rules and chose to remove that additional language when issuing the final rule. We thank the Department for listening and acknowledging our concerns about potentially confusing additional language about location as it pertains to the delivery distance education. It is important for members to consider providing public comments to proposed regulations to provide insight and request clarifications. These public comments help in form that Department as they develop the final language.  More on this issue later in the article.

Package #1: Pell Grants for Prison Education Programs; Determining the Amount of Federal Education Assistance Funds Received by Institutions of Higher Education (90/10); Change in Ownership and Change in Control

Pell Grants for Prison Education Programs (PEP)

As we shared in August, Pell Grants for incarcerated individuals enrolled in qualifying programs was established by Congress through the Consolidated Appropriations Act, 2021, which included the end to a ban on providing Pell grants to incarcerated students. These regulations to implement Pell Grants for prison education programs were developed by a negotiated rulemaking committee that reached consensus on the language in Fall 2021.

Of particular interest to our members addresses elements of an eligible prison education program and the required notifications when the program leads to a professional license or certification.

Eligible Prison Education Programs:

  • Must satisfy the educational requirements for a license or certification. Such requirements allow students to sit for the licensure examination required to practice or obtain employment in the specific occupation in the state where the state correctional facility is located or, in the case of a federal correctional facility, the state where most of the incarcerated individuals will reside upon release (34 CFR 668.236.(a)(7)).
  • The program does not have prohibitions on the licensure or employment of formerly incarcerated individuals in the state where the state correctional facility is located or, in the case of the federal correctional facility, the state where most of the incarcerated individuals will reside upon release (34 CFR 668.236 (a)(8)).

Required Notifications:

  • For prison education programs, an additional professional licensure notification must be offered to indicate whether any state for which the institution has made a determination about any state or federal prohibitions on licensure or employment in an occupation for formerly incarcerated individuals (34 CFR 668.43(a)(5)(vi)).
·Image reads" Top issues to watch re: Pell for Prison Education changes:

Signal increased opportunities to serve this population.

·Signal the Department’s continued concern that students know whether the program meets professional licensure requirements.

The key takeaway from this set of regulations is that here is yet another reason that institutions should remember to be aware of the variety of state requirements when offering programs that lead to a license or certification. Additionally, notifications about prohibitions to licensure or employment of formerly incarcerated individuals is required. While this required notification is only for prison education programs, SAN and WCET have often discussed ethical duties to inform students of any barriers to licensure or employment including prohibitions for undocumented individuals and formerly incarcerated individuals for any educational program that leads to a license or certification.

Remember, earlier this year during negotiated rulemaking, the Department proposed regulatory language that institutions “ensure” that their programs meet professional licensure requirements in each state in which they offer aid. Some form of that proposal language might be released in a rulemaking package due out in the Spring.

The effective date for these regulations is July 1, 2023.

90/10 Rule

New regulations direct the implementation of the American Rescue Plan Act of 2021 that was enacted to address for-profit institutions that are required by law to obtain at least 10% of their revenue from sources other federal student aid Previously, “federal aid” included only Title IV aid. The federal law was enacted to close a perceived loophole as institutions formerly included some other types of federal aid sources in the 10% calculation. The new regulations specifically identify and expand the sources that can no longer be counted toward the 10% non-federal aid revenue requirement. Additional sources of revenue will now include U.S. Department of Defense’s Tuition Assistance program and GI Bill benefits. There are also other requirements regarding the timing of when a when revenue is received.

The military related aid was at the center of the call for a revision. It was alleged that for-profit institutions were aggressively recruiting military students and veterans as their aid was not originally excluded from the 10% of the revenue obtained from other sources as is required for the institution to participate in Title IV aid. The negotiated rulemaking committee came to consensus on the regulatory language of this issue in March 2022 (34 CFR 668.28).

The key takeaway from the 90/10 Rule is that for-profit institutions must expand their list of federal aid sources. These sources must include the 10% of the revenue that must come from other sources as is required for the institution to participate in Title IV Federal Financial Aid. The effective date of this set of regulations is indicated by Federal Register Announcement to be institutional fiscal years beginning on or after January 1, 2023, consistent with the effective date of the statutory changes to the 90/10 calculation.

Change in Ownership and Change in Control

WCET and SAN were very pleased to see the words “we were persuaded by the commenters” in the preamble of the announcement of the regulations. We do not often see those words indicating substantial wording change from the Department when final rules are released! The statement was regarding our public comment and perhaps others that raised the concern about confusion that could be caused if the definition of “Distance Education” included language that the distance programs are to be “associated with” the main campus. What made it even more confusing was the Department’s comments in the NPRM that the intention of the proposed language was to clarify how the programs “offered through distance education or correspondence courses should be considered in the context of reporting students’ locations…” We certainly scratched our heads and wondered how to make sure institutions would distinguish this view when considering state requirements where students are located and compliance with other federal regulations addressing state authorization and licensed professions. Crisis averted!

The proposed language to add to the definition of “Distance Education” was removed in the final regulations. We hope members appreciate that we are watching out for them in suggesting regulatory language that reduces confusion.

Thank you to the Department for withdrawing the proposed addition to the “Distance Education” definition.

Members with a Branch Campus or Additional Location should consider more fully exploring the changes to those definitions in the “Change of Ownership” rules.

As we explained in August, the primary purpose for the Change of Ownership issue is to address the increased number of for-profit institutions that have recently sought a change in status nonprofit institutions. The Department felt these changes were high-risk and wished to impose a more robust process for ensuring the changes meet compliance through the Higher Education Act and other regulations. Of primary importance to our members is the new regulations that amend several definitions including: Main Campus, Branch Campus, Additional Location, and Non-profit institution. 34 CFR 600.2 You may wish to note that the Change of Ownership regulations did not reach consensus in March 2022. Therefore, the rules were written by the Department meaning that it was unknown what the language would include prior to the NPRM released in July 2022.

The key takeaway for our members is that our concern about addressing the location of students for purposes of distance education was not included in the final regulations. We do not have a conflict for which we would have been seeking guidance. Again, we thank the Department for carefully considering the public comments.

The effective date for these regulations is July 1, 2023.

Package #2: Institutional Eligibility Under the Higher Education Act of 1965, as Amended; Student Assistance General Provisions; Federal Perkins Loan Program; Federal Family Education Loan Program; and William D. Ford Federal Direct Loan Program

Borrower Defense to Repayment

The Department advises that The Borrower Defense to Repayment regulations will expand eligibility, remove barriers to relief, and encourage automatic discharges for borrowers who are eligible for loan relief because their school closed, have a total and permanent disability, or their loan was falsely certified. The rules are also expected to provide a fairer process for borrowers to raise a defense to repayment, including preventing institutions from requiring students as borrowers to agree to using mandatory arbitration agreements and class action waivers.

In the Department’s press release introducing the regulations, Under Secretary James Kvaal stated that these regulations will “streamline a needlessly complicated system and give borrowers a simpler and more often automatic path to the discharges they deserve.” For a full review of the nuanced elements of these new regulations, we suggest that you review the description of the nuances of the new regulations provided by our colleagues at NASFAA.

 It is interesting to note that this Department acknowledged the important information provided from the public comments that followed the release of the proposed regulations last July. The Department reviewed more than 5000 public comments and indicated these comments served to inform and improve the final regulations.

The effective date for these regulations is July 1, 2023.

Update on Remaining Issues from the 2022 Negotiated Rulemaking

Our readers may remember that we reported in June that we learned that dates placed on the Office of Information and Regulatory Affairs (OIRA) website (reginfo.gov) seemed to indicate that the Department was going to delay the NPRM for several issues that had been raised during rulemaking. The OIRA website provides an important clue as Executive Order 12866 directs agencies to follow certain principles in rulemaking, such as a review for economic impact before the release of proposed rules and then must obtain another review before the release of final regulations. The OIRA website identifies Spring 2023 as the target time for review prior to a release of the NPRM for the remaining issues which include: Ability to Benefit, Administrative Capability, Gainful Employment, Financial Responsibility, and Certification Procedures.

It is the Certification Procedures issue that we followed very closely during Negotiated Rulemaking as there were sub-regulatory issues that addressed programs leading to a license or certification as well as state authorization reciprocity. In short, the Department sought to develop additional rigor to the Program Participation Agreement (PPA) to increase student protections. The student protections would be raised through increasing the institution obligations within the agreement (the PPA) between the institution and the Department in order for the institution to participate in Title IV HEA Programs.

One additional obligation intended to raise the bar for professional licensure programs by requiring that an institution ensure that the curriculum satisfies state educational prerequisites where the student is located when participating in the program. Another proposed obligation intended to require the institution to comply with all state consumer protection laws where the student is located which could undermine an institution’s participation in reciprocity through the State Authorization Reciprocity Agreements (SARA).

The Certification Procedures issue did not reach consensus last spring which means that the Department may write the rules. We intend to continue to collaborate with other higher education agencies and consumer advocates to help inform the Department on these nuanced issues.

Timeline for the Remaining issues:

  • The Department will issue proposed rules for comment, possibly in Spring 2023. There will likely be only 30 days in which to comment.
  • The Department will respond to comments and develop a final rule that must be reviewed by OIRA before it can be issued to the public.
  • Final rules issued by November 1, 2023, go into effect July 1, 2024.

The key takeaway on the remaining issues, at this point in the rulemaking process, is to understand that the effective date addressing any of these remaining issues will not be until at least July 1, 2024. Meanwhile, institutions must continue to follow existing federal regulations. WCET & SAN will continue to work behind the scenes on these issues and keep you updated on any developments. We will provide analysis when an NPRM is released and inform you of questions, clarifications, and concerns that you may wish to address in a public comment.

Looking Forward

Image by Vlad Vasnetsov from Pixabay

Looking forward, you may want to share with other institution colleagues that new final Federal regulations have been released that have an effective date in the near future. This information may be of particular importance to your Financial Aid Office, which was informed of these issues by their organization (NASFAA).

As for future regulations, WCET and SAN will continue to monitor, collaborate, and report on the development of new regulations that would have an impact on our members. Meanwhile, please continue to be aware and comply with currently effective state and federal requirements.

You can review the process of rulemaking and any future progress of the rulemaking here:

Stay tuned for more from WCET and the State Authorization Network (SAN)!

Cheryl Dowd

Senior Director, State Authorization Network & WCET Policy Innovations


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