Big changes could be in store for institutions that offer programs in other states and for the students they serve. This might surprise you as recent press articles about the Department of Education’s new proposed regulations focused solely on Gainful Employment programs. Our readers need to know that the new package of proposed Federal regulations has significant reach beyond that one issue.

We understand and support the consumer protection goals that motivated additional safeguards for students and Federal financial aid investments. We believe there are better paths to implementing and expanding protections than what is proposed. Meanwhile, institutional personnel should learn about the proposed changes and be vocal in support or opposition of these pending requirements and inform the Department about the impact on their institution and students if implemented as written.

We will post two blog posts this week on these regulations. These posts will provide background on the rulemaking process, give our opinions on the impact of what is being proposed for state authorization reciprocity and for programs leading to professional licensure, inform you on the commenting process, and encourage you to participate. Your voice matters.

New proposed U.S. Department of Education rules will have a deep impact on students enrolled in out-of-state institutions, specifically for:
•	state authorization reciprocity, and 
•	programs leading to professional licensure.

This first post covers:

  • Background of the Notice of Proposed Rulemaking,
    • Use of the Program Participation Agreement to implement the rules.
    • The reasoning behind the proposed rules,
    • Next steps in the rulemaking process.
  • Background on proposed rules and their impact on state authorization reciprocity,
    • Which state laws are now subject to SARA?,
    • What changes are proposed?,
    • Our predictions of what would happen if enacted,
    • Our recommendations.
  • Members should prepare to comment.

Background on the New Notice of Proposed Rulemaking

In late 2021 and into early 2022, the Department of Education held a Negotiated Rulemaking process that included several higher education issues around “institutional and programmatic eligibility” for federal financial aid. As a result of negotiations, the Department released a set of proposed regulations for comment. After responding to those comments, the Department can release final regulations and set an implementation date.

What Was Proposed?

Last week, a U.S. Department of Education press release announced the publication of the unofficial version of a Notice of Proposed Rulemaking (NPRM) on the remaining issues from those negotiations. Coverage of the announcement (Inside Higher Ed, USA Today) would lead you to believe that Gainful Employment was the only issue addressed. Not so.

Immediately after the release last week, we alerted WCET and SAN members via email about two proposals under the “Certification Procedures” issue. Included are two proposals that are of particular interest to those at institutions serving students in other states, whether through distance education or in-person:

  • Programs leading to professional licensure must “satisfy” the educational prerequisites for professional licensure or certification in that state where the student is located.
  • Institutions using state authorization reciprocity will be affected by the expectation that they comply “with all State consumer protection laws related to closure, recruitment, and misrepresentations, including both generally applicable State laws and those specific to educational institutions.”

These two issues are extremely easy to miss as they are buried in the unobvious “Certification Procedures” section, and they have received little notice in the press or by higher education organizations. We will get to the particulars of each of those proposals later in these blog posts.

How Are They Planning to Implement the Proposal?

SAN and WCET have been closely following those issues since they were first proposed in the “Certification Procedures” issue in rulemaking last year. The idea is to add this new language to the Department’s Program Participation Agreement (PPA). ” The PPA sets the conditions for “the initial and continued participation of an eligible institution in any Title IV, HEA program upon compliance with the provisions…” of the agreement. By signing, institutional leadership asserts that the college or university agrees to abide by the detailed conditions so as to remain eligible to disburse Federal financial aid.

Why Did They Make These Proposals?

We encourage you to comment. From the Department: 

“We seek feedback on the best way to construct this requirement, so that students are protected, financially and otherwise, without creating unnecessary burden on institutions.”

The proposals are based on concerns about protecting students as consumers and to assure that Department of Education financial aid investments are sound.

For professional licensure, they say: “We are aware of institutions enrolling students in programs that do not meet such requirements. Students in these programs often find themselves struggling to find employment and owing student loans on credentials that do not qualify them to work in the occupations for which they were trained“ (page 496 of the unofficial version. Note that we reference the unofficial version because it is easier to read and to reference by page number).

For reciprocity, they say: “We are concerned about past situations in which States have raised concerns about institutions that are physically located outside of its borders and taking advantage of students while the State is limited in its ability to apply its own consumer protection laws in these areas to protect its residents” (page 497-498).

It would be interesting to have data about the extent of these concerns and how often they happened overall and, for reciprocity purposes, with SARA-participating institutions.

What Are Next Steps?

Remember that these are proposed rules and are not yet effective. In brief, next steps include:

  • The Department will accept comments until Tuesday, June 20. Anyone may comment. We encourage anyone who supports or decries a proposal to participate. The Department is especially interested in hearing about the impact on institutions and students. We will give you more details on how to comment in the next post.
  • The Department will review and create responses to all the comments. As a result, they may make some changes to the final language.
  • The Department will release final language with its reaction to the comments, changes it made, and a timeline for implementation. If they release the final rules by November 1 of this year, they could become effective as early as July 1, 2024.

Meanwhile, you should probably start thinking about what you and your institution would do if this were to become effective in the summer of next year. Remember that volume matters. The more than 1,100 comments on Third-Party Servicers made a difference.

State Authorization Reciprocity – Background and Proposal defines “reciprocity” as “the relation or policy in commercial dealings between countries by which corresponding advantages or privileges are granted by each country to the citizens of the other.” While there could be multiple agreements for state authorization reciprocity, the big player is the State Authorization Reciprocity Agreement (SARA). By joining SARA, its members (49 states, DC, Puerto Rico, and the Virgin Islands) have voluntarily agreed to a standard set of regulatory requirements and to acknowledge the institutional recognition granted by another member. That recognition is limited to conducting distance education and additional enumerated activities (e.g., marketing, limited in-person instruction, practical experiences) in member states. For most states, its path to becoming a member of SARA required a bill to be passed by the legislature and signed by the governor. It is a voluntary process that required much thought and work in each state.

SARA and the Applicability of State Laws

For out-of-state institutions operating in a SARA member state, territory, or the District, those governments have agreed that they will follow SARA policies in recognizing and overseeing those colleges and universities. The state where the student is located may also enforce other rules not included in the SARA agreement, such as requirements overseen by other state agencies, such as for professional licensure programs, and enforcement of “general purpose” laws. Those “general purpose” laws include laws that any business would need to follow, such as conducting fraud or misrepresentation in dealing with customers…or, for institutions, students.

This concept of “general-purpose” laws is actually included in the Department of Education’s definition (Chapter 34, § 600.2) of a “state authorization reciprocity agreement”:

“An agreement between two or more States that authorizes an institution located and legally authorized in a State covered by the agreement to provide postsecondary education through distance education or correspondence courses to students located in other States covered by the agreement and cannot prohibit any member State of the agreement from enforcing its own general-purpose State laws and regulations outside of the State authorization of distance education.”

A Change to the Applicability of State Laws is Being Proposed

The new language proposed by the Department of Education (page 957-958) states:

“(32) In each State in which the institution is located or in which students enrolled by the institution is located, as determined at the time of initial enrollment in accordance with 34 CFR 600.9(c)(2), the institution must determine that each program eligible for title IV, HEA program funds-…
…(iii) Complies with all State consumer protection laws related to closure, recruitment, and misrepresentations, including both generally applicable State laws and those specific to educational institutions.”

During negotiated rulemaking talks last year, representatives of consumer protection groups sought to allow each state to be able to enforce ANY laws specific to educational institutions. They suggested that the benefits that would remain for those participating in reciprocity are a common application and common fee. We believe the Department staff heard the concerns and suggestions of those groups.

If implemented as they suggested last year, it would not have officially ended reciprocity, but it would have severely lessened the value of participating in SARA. We liken it to having a driver’s license, except instead of zooming across the border at 75, you have to stop, take an eye exam, pay a fee, and pass a quick test..and what happens at those border checks would vary each time you crossed state lines

We believe that the Department was trying to seek a compromise. They proposed limiting the expansion of the applicability of laws specific to institutions to “closure, recruitment, and misrepresentations” as a way to expand consumer protections while still preserving more elements of reciprocity. One piece of evidence that the Department wishes to limit the impact is that the Department suggests (page 498) this change would NOT include “tuition refund policies, rules on site visits, and State-specific outcomes metrics.” They also allude to this compromise as they solicit comments giving feedback by saying (page 499):

“Therefore, we seek feedback on the best way to construct this requirement so that students are protected, financially and otherwise, without creating unnecessary burden on institutions.”

We are heartened to see the attempt at compromise. It is a worthy goal to find a way to expand student consumer protections even if it means a slightly less robust version of reciprocity. As long as it does not leave only a shell of reciprocity.

State Authorization Reciprocity – Our Analysis and Possible Comments You Might Make

In this section, we will give you observations on the proposed language and give our readers some ideas about comments that you might wish to make. Remember that comments are strongest if you reflect your support or concerns based upon experiences that you can share. Below are our questions…

Now, we hate to applaud compromise and then turn immediately to the antithesis of cooperation – legal action. But we feel we must.

In the United States, higher education is under the purview of the states. SARA is a state-to-state agreement. While federal financial aid is run by the U.S. Department of Education, can it actually use the backdoor of institutional eligibility to force the states to change? This is both a legal and political issue.

It’s a technical issue, but the state authorization and transcript withholding proposals were both raised during the second session of the rulemaking committee, well after the agenda was set for the rulemaking panel. Typically, the agenda is frozen at the first meeting. The Department and facilitator even warned negotiators to stop raising new topics, but they did anyway.

There are two other technical issues in which this proposed requirement is at odds with other state authorization regulations from the Department:

  • The proposed requirement conflicts with Department’s own definition of “state authorization reciprocity agreement” (Chapter 34, § 600.2) that we cited above. It’s an easy fix, but we know that the Department has four wildly definitions (we found three in this WCET analysis and forgot about “clock hour” as a fourth) of “distance education.” We do not want to see the practice of multiple definitions repeated here if their goal is understanding and compliance by institutional personnel.
  • The proposed “at the time of enrollment” language conflicts with the Department’s regulatory section on state authorization (Chapter 34, § 600.9(c)(2)(iii)). In that section, institutions also must act if “the student’s location has changed to another State.”

If this proposal is legally tenuous, actively working on a compromise with SARA might be a better path. More on that later.

How and Who Will Interpret the Meaning of “Closure, Recruitment, and Misrepresentations”?

So…this question arises from WCET as an organization that has been trying to interpret (with only partial success) the term “regular and substantive interaction” since 1992.  WCET and SAN members have similar fears for the words “closure, recruitment, and misrepresentations.”

If left as they are, who interprets these terms? We are feeling déjà vu with the recent “Third-Party Servicers” guidance where it appeared the language was clear to the Department, but was not clear to anyone else.

If interpretation is left to each State, there will be a crazy patchwork and for some states the number of laws that could be included for reciprocity-participating institutions could be massive and could be minimal for others. It would be better if the same requirements were common across all states. Otherwise, we would be driving back towards uneven consumer protections and much time could be spent in discussing what the rights of each state are.

Taking an initial try at defining what additional rules states might consider as being relevant “State consumer protection laws” and thus subject to the variable application of this proposed rules in each State leads us to this list:

  • Closure
    • Contributing to tuition recovery funds,
    • Submitting to institutional surety bonds,
    • State catastrophic event policies,
    • Records retention processes,
    • Teach-out process.
  • Recruitment
    • Marketing requirements and restrictions.
    • Advertising requirements and restrictions.
    • The need to register recruiters or staff who physically appear in a state.
    • Certain requirements for staff or faculty residing or present in a state.
    • Physical presence requirements.

This may also have a detrimental effect on a student who moves from state to state. For example, a student moves to a state where the institution no longer enrolls students due to additional compliance requirements of that state. Regulators in other states often are willing to grant exceptions for “one-off” situations, but that becomes more difficult when needing to obtain that exception from multiple state agencies. As a result, the student may need to discontinue enrollment at the institution.

In the reasoning for adding their proposal, the Department focuses (497-498) on “tuition recovery funds” in which institutions pay a portion of their income to cover losses to students at institutions that close. A quick review shows that about 10 states have tuition recovery funds and another six have such funds for a subset of institutions. If implemented, in the future institutions would have to contribute to the fund in each of those states in which it wishes to recruit or enroll students. A proposal to add a tuition recovery fund requirement in the current SARA Policy Modification Process would collect 0.25% of all institutional income from SARA enrollments. Some state-based tuition recovery funds collect a much higher rate of tuition and fees for students enrolled in that state.

Finally, for misrepresentation, we are surprised by this one. Through SARA, states are already able to enforce fraud and misrepresentation rules on SARA-participating institutions. There have been those in some of the consumer protection groups who have, themselves, misrepresented this point. We are at a loss at to what adding this term adds to protections. Perhaps it is here to guard against other reciprocity agreements that do not address misrepresentation?

Our Predictions on What Would Happen If the Proposal is Implemented

The Department wishes feedback on how to expand consumer protections “without creating unnecessary burdens on institutions. We will start with the latter and end with our consumer protection recommendations.

We predict that:

  • Without further clarification, some states will take great latitude in trying to fit every regulation they can into one of the “closure, recruiting, or misrepresentation” buckets.
  • Meanwhile, other states will continue to underperform in student protections. This is true with or without SARA, but SARA raised the bar for many of these states and it does not get sufficient credit for that.
  • Institutions will cease accepting students from some states. The cost of compliance and compliance staffing will simply be too high. The accompanying professional licensure proposal will hasten that retreat from some states.
  • With less competition in some states, the beneficiaries will be the remaining for-profit institutions and the large public and non-profit colleges and universities. We doubt that enriching these institutions was a desired outcome of the proposal.

Our Take on State Authorization and Our Recommendations

We applaud the intent to compromise, but think it lands short of doing the hard work to expand consumer protections in a much more meaningful way. We make a couple recommendations below.

Very Specifically Define the Terms

We believe the phrase “closure, recruitment, and misrepresentations” has the nugget of a good idea, but this particular choice of words is far too broad. Those words leave too much to interpretation. And unevenness in interpretation by states will undermine reciprocity and leave students with uneven protection.

We also believe that leaving the terms broadly or undefined could lead to some unexpected outcomes in some states. First, it is rarely stated that some forms of “protection” are actually “protectionism” serving as methods for eliminating out-of-state competition. Additionally, given the current political climate, the term “recruitment” could be weaponized. For example, one state may introduce a rule disallowing any mention of diversity, equity, and inclusion by institutions serving its citizens. Another state may require culturally-sensitive content and the use of chosen pronouns by faculty. We do not wish to explore the culture or moral underpinnings of those suggestions, but states are in very different places on these matters.

Instead, if the Department wishes to continue down this path, we suggest a limited set of definitive terms that narrowly target common consumer protection problems witnessed in both in-person and distance education. Here are some concepts that could be expanded:

  • Truth in advertising and truth in marketing requirements.
  • Prohibitions against high pressure sales.
  • Prohibitions against recruiters being paid on a per student basis.
  • A tuition recovery fund or institutional surety bond, but not both.

Be Brave and Expand Certain Consumer Protections to ALL Students

Alternative to the above recommendation, we pose an audacious challenge with broader impact.

We agree that more can be done to protect students against closure. Therefore, we challenge the Department, SARA, and consumer protection groups to seek a consensus path that expands protections to ALL students.

A major problem with what the Department is suggesting is that consumer protection will be dependent on the state in which the student is located. The critics of SARA often condemn it as creating a two-tiered set of student protections. We fail to see how a 52-tiered (the 49 states plus 3 other governmental entities that are SARA members) set of consumer protections is a better option.

Additionally, the actual benefits provided by existing state tuition reimbursement programs are variable. The Institute for College Access & Success (TICAS) is a consumer advocacy group) that reviewed California’s Student Tuition Recovery Fund (STRF). They found that: “Unfortunately, thus far STRF has only provided financial relief to a relatively small number of students affected by school failure. While STRF has the potential to be a critical resource for California students harmed by failing schools, it is clear that improvements to visibility and accessibility to students are needed in order to accomplish that goal.”

Therefore, we challenge the Department to work with SARA (the regional compacts and NC-SARA) and us (SAN and WCET) in creating a national review to plan how reciprocity can best include a program for tuition recovery fund or an institutional surety bond. Note this would not be a federal program, but one that would be part of a state-to-state agreement with broad coverage among the member states.

Simply put, ALL STUDENTS SHOULD HAVE EQUAL PROTECTION. What is proposed falls far short.

Before the Department’s recommendation was made, we commented on a proposal from several of the consumer protection organizations for “Protecting Students from Abrupt Closures” as part of the SARA Policy Modification process. The consumer protection groups proposed a single tuition recovery fund to be operated by SARA.

In our response, we concurred that they are on the right track, but observed that “what they proposed is far from a complete, implementable proposal.” We raised a host of legal and operational questions that need to be considered in implementing either a single tuition recovery fund or surety bonding requirement. Alternatively, SARA could require its member states to meet minimum requirements for a tuition recovery fund or surety bond.

This will be hard. This will take time. It can be done.

Russ was on the first two committees that led to the creation of SARA and we were hopeful of getting 15 states involved. Cheryl made the State Authorization Network what it is today. Both tasks were impossible, but we should not shy away from doing the impossible. Let’s protect more students.

What the Department can do is help and be part of the solution.

What’s Next?

Stay tuned for our next blog post. In that one we will cover:

  • Another Departmental proposal regarding programs that lead to professional licensure, in which that recommend that “the institution must determine” that each program eligible for Title IV, satisfies the educational prerequisites for professional licensure or certification in that state.” (Bold added, see page 957-958).
  • Why and how you should submit a comment to the Department.

Meanwhile, we hope that you examine this post, talk to others at your institution or organization…and submit a comment.

…oh yes, did we tell you that the rulemaking document was 1,077 pages long and that Cheryl was on vacation in England when it came out?

Let us know if you have questions or observations.

Cheryl Dowd

Senior Director, State Authorization Network & WCET Policy Innovations

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Russ Poulin

Executive Director, WCET & Vice President for Technology-Enhanced Education, WICHE


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