Briefing: Recent State Authorization Issues Gregory Ferenbach, Dow Lohnes, PLLC

Overview The Federal State Authorization Rule(s) Related Provisions and Enforcement Methods Upcoming Negotiated Rulemaking The “On-Ground Rule” Controversy Reciprocity Agreements

THE FEDERAL STATE AUTHORIZATION RULE(S)

Background – The Department’s State Authorization Rules State authorization is a condition to Title IV eligibility Traditionally, Department of Education only required state authorization by the state in which an institution is physically located In 2010, 14 new “program integrity” rules, including several provisions relating to state approvals – 75 Fed. Reg (Oct. 29, 2010) The new rules apply to all types of educational institutions – public, for-profit and private non-profit Two parts—the distance education rule and the “on- ground” rule

The Now Infamous “Distance Education Rule” (Vacated) 34 CFR 600.9(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 distance or correspondence education in that State. An institution must be able to document to the Secretary the State's approval upon request.“ (emphasis added)

APSCU v. Duncan June 12, 2011 – US District Court in District of Columbia vacated new section 600.9(c) on procedural grounds (lack of prior notice) June 5, 2012 – Court of Appeals for DC Circuit upheld lower court – 600.9(c) vacated again But holding makes clear that Department has clear statutory and constitutional authority to issue state authorization rules – Career Coll. Ass’n v. Duncan, 796 F. Supp. 2d 108, 134 (D.D.C. 2011) aff’d in part, rev’d in part sub nom. Ass’n of Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 463 (D.C. Cir. 2012)

RELATED PROVISIONS AND ENFORCEMENT MECHANISMS

Related Provisions The Student Disclosure Rule – Section (b) – All institutions must disclose to all students, or prospective students, the complaint agency in all states where students reside – May be posted on your website – May link to a third-party list. See DCL GEN – Note – must also make state approval documents available “on request” to students (and ED)

Related Provisions Enhanced Federal Misrepresentation Rule – 34 CFR – Exceptionally broad and vague rules ban any form of “misrepresentation” – Rule mostly upheld by Court of Appeals – Specifically references state authorization or accreditation of a program. 34 CFR – Sanctions include possible loss of Title IV – Some accreditors/states have followed suit – Disclosure of any state and programmatic authorizations must be 100% accurate

Alternate Enforcement – the States Underlying state authorization requirements unaffected by recent court decisions Most states require licensure where “physical presence;” some states even without a presence Federal actions and related publicity energized many states State regulators appreciate their role in “triad” more than ever State law continues to evolve rapidly

Alternate Enforcement – State Boards Professional Licensure – Separate approval required state by state – May trigger institutional authorization (“presence”) in some states – Additional risk of misrepresentation claims Examples: – Teacher Education – Nursing Education

UPCOMING NEGOTIATED RULEMAKING

Upcoming Negotiated Rulemaking Announced on April 16, 2013 – 78 Fed. Reg (Apr. 16, 2013) Initial Public Hearings held in May 2013 Department seeks comment on vacated 600.9(c) (the Distance Education Rule) – ED also plans a discussion regarding the authorization of foreign locations of US institutions – May also be a chance to revise 600.9(a) (the On- Ground Rule)

Upcoming Negotiated Rulemaking Negotiation sessions not yet scheduled – Earliest likely timeframe is November 2013 – January 2014; could be later Due to ED’s “Master Calendar” restrictions, the earliest a new Distance Education Rule is likely to be in effect is July 2015 (See 20 U.S.C. § 1089(c)) Possible overlap with HEA reauthorization

THE “ON-GROUND” RULE

The On-Ground Rule “On-Ground Rule” defines minimum state requirements for valid Title IV state authorization. See 34 C.F.R (a). Until recently, not a concern except in a very few states State must have a process for state oversight over student complaints Confusing Home State Authorization Standards – Institutions may be established “by name” as educational institutions May be exempted from state requirement due to accreditation or years in operation – Institutions may also be established as businesses or charitable organizations May not be exempted due to accreditation or years in operation

The On-Ground Rule – Controversy Spring 2013 – ED staff apparently interprets the “by name” provision as applying only to public institutions, in their home state No official guidance issued; informal response to Florida law Under this interpretation, no private institutions may be exempted from state authorization requirements This interpretation contrary to the plain language of the rule – Rule permits state authorization “by name” through “charter… or other action” of any institution – Interpretation also contrary to Preamble. See 75 Fed. Reg – In FLA, ED decided licensure “by means of accreditation” did, in fact, constitute valid authorization of a private institution, based on what state required (really a “facts and circumstances” test)

The On-Ground Rule – Controversy Doubts remain about the sufficiency of the authorization processes in numerous states Any institution that holds an “exemption” or abbreviated approval based on its accreditation or years in operation in a state where it has a physical location is at risk – States that may have a noncompliant process under the current ED interpretation: Alaska, California, Georgia, Hawaii, Montana, New Mexico, Oregon, South Dakota, Texas, and Utah Still no official guidance!!! ED staff taking ad hoc “case by case” approach Shouldn’t all similarly situated institutions in a state be treated the same way? Absent guidance, how do institutions in a state even know they may be at risk of a loss of Title IV?

The On-Ground Rule – Extension Enforcement initially stayed until July 1, 2013 to allow states time to become compliant – 75 Fed. Reg Last month, ED issued guidance extending the stay for an additional year, until July 1, 2014 – 78 Fed. Reg Institutions lacking sufficient authorization must obtain a letter from the state indicating how an additional year will allow the state to become compliant But compliant with what? Absent coherent guidance, how do you know if your state is compliant?

The On-Ground Rule – Ongoing Controversy – The Western Association of Schools and Colleges (WASC) recently issued an advisory to member institutions in California: “[W]e do not believe that your representatives in Sacramento and Washington are sufficiently aware of the challenges that state authorization is presenting to WASC accredited institutions.” – ED holding school re-certifications in Utah (and possibly other states) based on alleged insufficient authorization– even after the extension. – APSCU v. Duncan be damned!

RECIPROCITY

Reciprocity Model State Authorization Reciprocity Agreement (SARA) – Participating States – Eligible Institutions Accredited by a US DOE-recognized accreditor Degree-granting Public, non-profit, and for-profit Offering distance education

Reciprocity How Will SARA Work? – “Home” state maintains jurisdiction – Set of common state standards, including definition of “physical presence” – Managed by regional compact organizations (e.g., WICHE) – Overseen by a national governing board – Does not address professional licensure

Reciprocity Current Status of SARA – Regional organizations currently developing their own standards – National board and staff (in place by Fall 2013) – Likely requires legislative changes in most states Some states unlikely to join in the foreseeable future – Current Draft:

Resources NACUA Resources Page: State Authorization Rule – nRule.asp nRule.asp “Status of Federal Regulation of State Authorization,” Gregory Ferenbach and Matthew Johnson, NACUANOTES Vol. 11, No. 8 (Mar. 29, 2013) – SHEEO State Authorization Survey – Western Interstate Commission for Higher Education – SARA –

Questions? Gregory Ferenbach