New federal rule could have worst impact on small states

Online schools could face high registration fees in many states.

Colleges with online programs might withdraw from states, mostly in the northeast, that have small populations and stringent requirements for distance education courses when the Education Department’s (ED’s) “state authorization” regulation kicks in July 1.

Decision makers from online schools from across the country gathered March 28 in Washington, D.C. for the annual Presidents’ Forum, hosted by web-based Excelsior College. Presidents, provosts, and deans decried the state authorization rule, which will require schools to gain approval from every state in which they have a student.

Robert Mendenhall, president of Western Governors University, said during his address to the forum that certification fees vary widely from state to state, with many of the toughest approval processes in small states such as Massachusetts and New Hampshire.

If an online college doesn’t have many students in one of those small states, the high fees could mean the school would simply leave the state and no longer offer classes there.

“There’s a whole different return on investment now. We have to look at costs for each state and see if we can justify” hosting web-based classes there, Mendenhall said, adding that students who move to a state with strict regulations wouldn’t be able to finish their degree with their original college. “This could be a big problem for a lot of students.”

Colleges that don’t comply with the new regulation would lose access to federal funds, without which many schools could not operate.

Other officials at the Presidents’ Forum pointed to New York, Ohio, and Minnesota as states whose requirements will prove expensive for online programs. Several forum attendees raised the prospect of attorneys general from small states banning together and filing a lawsuit or injunction to prevent the state authorization rule from taking effect.

ED officials spoke at the forum, assuring college administrators that federal regulators would work with schools to comply with the potentially-costly state-by-state certification process, and reminding the crowd that ED will only mandate a “good faith effort” to meet the standards before the July 1 deadline.

“We don’t intend to penalize institutions if they haven’t received” authorization from every state by July 1, said Eduardo Ochoa, assistant secretary for postsecondary education. “When there’s a change like this, the kind of reactions I see are fear, uncertainty, and doubt. … I’m optimistic that … the fear will diminish and things will sort themselves out.”

Responding to educators’ concerns about state authorization, Ochoa called any negative impact of the federal rule “hypothetical” until it is enforced this summer. Nightmare scenarios spelled out by higher-education officials, he said, implied that ED would take a “very rigid approach” in enforcing the regulation from the start.

“We want to foster innovation and not suppress it,” Ochoa said. “This is all speculation right now.”

ED decertifies an average of two colleges and universities annually, said David Bergeron, the department’s acting deputy secretary for policy, planning, and innovation.

“We work with schools to bring them into compliance,” he said. “We don’t want to begin from a position of terminating an institution’s eligibility [for federal funds]. That’s just how we do things.”

Speakers at the Presidents’ Forum cited examples of how the state authorization regulation would force online programs large and small to comply with different sets of rules in every state.

Terry Hartle, senior vice president of governmental affairs for the American Council on Education (ACE), said a community college in Illinois was told by regulators in Tennessee that it would cost the institution about $40,000 to comply with state rules.

The community college, Hartle said, has one student in Tennessee.

“That student is about to find his or herself disenfranchised,” said Hartle, whose organization joined 60 other higher-education groups in a letter asking ED Secretary Arne Duncan to rescind the state authorization regulation. “The [state authorization rule] is not an incentive to the expansion of distance education. … If this had happened 10 years ago, online education wouldn’t look anything like it does today.”

Colleges and universities have consulted with states – mostly in the western part of the country – that have little or no state regulations to comply with, said Michael Goldstein, co-leader of the law firm DowLohnes’ Higher Education Industry Practice.

“The institution is essentially required to prove a negative,” he said, adding that state regulators usually are hesitant to submit a letter admitting the state has no regulations for out-of-state colleges because the document would effectively cede the state’s authority.

Goldstein, who did not identify states while criticizing their policies, said one state has two agencies that handle colleges’ paperwork required to certify programs within that state. The redundancy, he said, is complicated by the varying standards each of the agencies enforces.

“At a certain point, you have to decide whether to withdraw from the state or jump through hoops,” he said. “This is an immensely complex situation that people are dealing with.”

Decision makers from colleges that offer strictly online classes to students nationwide said the new federal regulation could threaten online education’s business model by forcing presidents and deans to decide on which states to operate in, and which states to withdraw from.

“I don’t think it has sunk in for what this might actually mean for colleges,” said Henry van Zyl, vice provost for Thomas Edison State College, an online institution based in New Jersey. The rule “certainly has the potential to impact enrollment, and that’s a very scary thought.”

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