Final Program Integrity Rules: Expectations for State Authorization Set

Final regulations were published on October 29, 2010, based on a Notice of Proposed Rulemaking (NPRM) published on June 18, 2010. This article is the final article in a series highlighting details of the changes and additional information contained in the preamble to the final rules in response to comments submitted on the proposed rules. Most provisions are effective July 1, 2011 (verification being the notable exception, with an effective date of July 1, 2012). Unlike previous final rule packages in recent years, early implementation at an institution's option has not been approved for any provision.

A basic requirement of any type of institutional eligibility to participate in the Title IV programs is that the institution be legally authorized to provide an educational program beyond secondary education in the state in which the institution is physically located. State authorization is one-third of the "triad" of authorities that ensure that all qualifications to operate as a legitimate educational institution are met (the other two components are the U.S. Department of Education and either a recognized accrediting agency or, for postsecondary vocational institutions, a recognized state licensing agency).

In an effort to ensure adequate oversight as a combined effort of this triad, the Department of Education (ED) has added a new section 600.9 to the institutional eligibility regulations. Under these new rules, generally effective July 1, 2011, an institution is considered 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 one of the following sets of criteria:

(1) 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; and
  • 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 ED-recognized accrediting agencies or based upon the institution being in operation for at least 20 years.

(2) 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 as described above, the institution:

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

(3) The institution is exempt from state authorization as a religious institution under the state constitution or by state law. A religious institution is one that:

  • Is owned, controlled, operated, and maintained by a religious organization lawfully operating as a nonprofit religious corporation; and
  • 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.

An institution is considered to meet the state authorization requirement described in (1) above if it is authorized by name to offer educational programs beyond secondary education by:

  • The Federal Government; or
  • An Indian tribe as defined in 25 U.S.C. 1802(2), 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.

Although the rules summarized above are generally effective July 1, 2011, institutions unable to obtain state authorization may request a one-year extension of that effective date to July 1, 2012, and if necessary, an additional one-year extension to July 1, 2013. To receive an extension, an institution must obtain from the state an explanation of how a one-year extension will permit the state to modify its procedures to comply with 600.9.

The revised rules also specifies that if an institution offers 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.

The final rule also amends section 668.43(b) of the general provisions regulations (student consumer information rules). Under this revision, the institution must make available for review to any enrolled or prospective student upon request, a copy of the documents describing the institution's accreditation and its state, federal, or tribal approval or licensing. The institution must also provide its students or prospective students with contact information for filing complaints with its accreditor and with its state approval or licensing entity and any other relevant state official or agency that would appropriately handle a student's complaint.

ED explains in the preamble to the final rule that the final regulations do not mandate that a state create any licensing agency for purposes of federal program eligibility; the final regulations allow alternatives for an institution to be legally authorized by the state based on methods such as state charters, state laws, state constitutional provisions, or articles of incorporation that authorize an entity to offer educational programs beyond secondary education in the state. If the state had an additional approval or licensure requirement, the institution must comply with those requirements. In the case of an entity established as a business or nonprofit charitable organization, i.e., not as an educational institution, the entity would be required to have authorization from the state to offer educational programs beyond secondary education.

If a State declines to provide an institution with legal authorization to offer postsecondary education in accordance with the revised regulations, the institution will not be eligible to participate in federal programs.

In the preamble, ED elaborates upon its view of state authorization to offer postsecondary educational programs as a substantive requirement where the state takes an active role in authorizing an institution to offer postsecondary education. A state may choose a number of ways to authorize an institution either as an educational institution or as a business or nonprofit charitable organization without specific authorization by the state to offer postsecondary educational programs. These legal means include provisions of a state's constitution or law, state charter, or articles of incorporation that name the institution as established to offer postsecondary education. In addition, such an institution also may be subject to approval or licensure by state boards or state agencies that license or approve the institution to offer postsecondary education.

If a legal entity is established by a state as a business or a nonprofit charitable organization and not specifically as an educational institution, it may be subject to approval or licensure by state boards or state agencies that license or approve the institution to offer postsecondary education. The key issue is whether the legal authorization the institution receives through these means is for the purpose of offering postsecondary education in the state. In some instances, multiple state entities must authorize an institution to offer postsecondary programs. In this circumstance, to comply with section 600.9, ED expects that the institution would demonstrate that it was authorized to offer postsecondary programs by all of the relevant state entities that conferred such authorizations to that type of institution.

ED clarifies that the regulations only require changes where a state does not have any authorizing mechanisms for institutions other than an approval to operate as a business entity, or does not have a mechanism to review complaints against institutions. If the legal entity is established by a state as a business or a nonprofit charitable organization and not specifically as an educational institution, the state must have a separate procedure to approve or license the entity by name to operate programs beyond secondary education, including programs leading to a degree or certificate. For an institution authorized under these circumstances, the state may not exempt the entity from the state's approval or licensure requirements based on accreditation, years in operation, or other comparable exemption.

ED does not believe it is relevant that an institution may have been established prior to any state oversight; ED's concern is that institutions currently be authorized by a state to offer postsecondary education, although a state's current approval for an institution may be based on historical facts. If a private college or university is operating under a state-approved charter specifically authorizing the institution by name to offer postsecondary education in the state, a state may exempt an institution from any further state licensure process. The requirement to be named specifically in a state action also applies if the institution is exempt from state licensure based upon another condition, such as its accreditation by a nationally recognized accrediting agency or years in operation.

ED further notes that it does not limit a state's oversight of institutions, and only sets minimum requirements for institutions to show they are legally authorized by a state to provide educational programs above the secondary level. The regulations neither increase nor limit a state's authority to authorize, approve, or license institutions operating in the state to offer postsecondary education. ED points out that the regulations do not limit a state's authority to revoke the authorization, approval, or license of such institutions. While a state must have a process to handle student complaints for all institutions in the state except federal and tribal institutions, the regulations neither require nor prohibit any process that would lead to continual oversight by a state.

ED clarifies that deferring authorization to accrediting agencies would be permissible so long as it does not eliminate state oversight and clearly distinguishes the responsibilities of the state and accreditor. Accreditation may be used to exempt an institution from other state approval or licensing requirements if the entity has been established by name as an educational institution through a charter, statute, constitutional provision, or other action issued by an appropriate state entity to operate educational programs beyond secondary education, including programs leading to a degree or certificate. For such an educational institution, a state could rely on accreditation to exempt the institution from further approval or licensing requirements, but could not do so based upon a preaccredited or candidacy status.

ED emphasizes in the preamble that states retain the primary role and responsibility for student consumer protection against fraudulent or abusive practices by postsecondary institutions. For an institution to be considered legally authorized to offer postsecondary programs, a state would be expected to handle complaints regarding not only laws related to licensure and approval to operate but also any other state laws including, for example, laws related to fraud or false advertising.

States may fulfill this role through a state agency or Attorney General as well as other appropriate state officials. A state may choose to have a single agency or official handle complaints regarding institutions or may use a combination of agencies and state officials. All relevant officials or agencies must be included in an institution's institutional information under 668.43(b).

Directly relying on an institution's accrediting agency for this function would not comply with the final regulations; however, to the extent a complaint relates to an institution's quality of education or other issue appropriate to consideration by an institution's accrediting agency, a state may refer a complaint to the institution's accrediting agency for resolution.

ED's Student Loan Ombudsman is not an appropriate alternative to a state complaints process.

ED cautions that clarifications regarding legal authorization across state lines in relation to reciprocity between states and to distance education and correspondence study do not preempt any state laws, regulations, or other requirements regarding reciprocal agreements, distance education, or correspondence study. To demonstrate that an institution is legally authorized to operate in another state in which it has a physical presence or is otherwise subject to state approval or licensure, the institution must demonstrate that it is legally authorized by the other state. ED believes that it does not need to regulate or specifically authorize reciprocal agreements.

The preamble to the final rule includes a chart with examples that illustrate the basic principles of the regulatory revisions.

 

Publication Date: 12/2/2010

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