Court Rules Against Distance Ed Portion of ‘State Authorization’

The distance education provision of the state authorization rule was struck down by a U.S. District Court on grounds that institutions were not given proper time to comment or comply with the regulation.  The ruling was part of larger lawsuit against the Department of Education (ED) by the Association of Private Sector Colleges and Universities (APSCU), challenging the validity of three areas of the program integrity rules that were released on Oct. 29, 2010: state authorization, misrepresentation, and incentive compensation.

The decision to invalidate the distance education provision hinged on a procedural flaw, holding that ED did not follow the standards required for the development of new regulations, as required by the Administrative Procedures Act.  Judge Rosemary M. Collyer found that the ED’s extension of the distance education provision to online institutions was not done in a manner that allowed for public comment since the expansion was made after the close of the comment period on the proposed rules, but before the release of the final regulations.  As such, the court argued that interested parties had no way of expressing comment—a required component of the regulation promulgation process.   In addition, the ruling argued that the expansion to include distance education was not a “logical outgrowth” of the initial regulation. 

The court, while noting flaws in their logic, upheld the remaining components of the state authorization regulation as well as the entire misrepresentation and incentive compensation regulations.  The ruling effectively applies temporary relief for institutions, though ED may appeal the ruling or craft a new regulation in a way that would pass judicial questioning.  In April, the Department stated that it will take no compliance actions based on the distance education component of the state authorization rules for institutional activities undertaken prior to July 1, 2014, so long as the institution makes good faith efforts to meet the requirements.

Under the state authorization component of institutional eligibility rules, all higher education institutions must be legally authorized by the state in which they reside to establish eligibility for their students to attain Title IV programs funds. When the Department of Education revised the state authorization rules in the Oct. 29, 2010 final program integrity regulations, ED included a provision to ensure institutions are in compliance with regulations of states in which the institution does not have a physical presence but does offer distance education. Many institutions have encountered a number of problems in attempting to comply with the new rules. 

NASFAA has joined other higher education organizations and accrediting organizations in voicing concern about the revisions to state authorization rules, and recently signed a letter in support of the Protecting Academic Freedom in Higher Education Act, a House-passed bill that would block both the state authorization and credit hour regulations.  A bipartisan companion bill was recently introduced in the Senate but has not been voted upon yet.


Publication Date: 7/15/2011

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