Duane Morris

July 23, 2019

The 2016 State Authorization Rule went into effect May 26, 2019, after the Department lost a challenge to its delay of the rule in federal court.

The U.S. Department of Education on July 22, 2019, clarified that the 2016 State Authorization Rule, which applies to online educational programs offered across state borders, among other topics, is undoubtedly now in effect. As this Alert explains, there are significant and immediate consequences for schools deemed to be noncompliant, even if through no fault of their own.

Here are the top three things schools need to know:

May 26, 2019, Effective Date

The 2016 State Authorization Rule went into effect May 26, 2019, after the Department lost a challenge to its delay of the rule in federal court. This effective date was confirmed by the Department in its July 22, 2019, announcement.

Evidence of State Authorization and State Complaint Processes Required

The rule requires that a school offering online educational programs to one or more students in a state meet, and be able to document that it meets, that state’s requirements applicable to distance education either through participation in a reciprocity agreement, such as SARA (State Authorization Reciprocity Agreement), or on a state-by-state basis by compliance with that state’s licensing requirements (if any) for distance education providers.

In addition, the school must be able to document that the state has a complaint process through which a student residing in that state may bring a complaint against an out-of-state school.

The Problem with California

California is the only state that has not joined SARA. California also does not currently have the requisite complaint process in place for nonprofit and public institutions of higher education that are not located in California yet are offering online programs to California residents. The Department’s July 22 guidance states in no uncertain terms:

Thus, under the 2016 regulation now in effect, students residing in California receiving distance education or correspondence courses from out-of-state public or non-profit institutions are ineligible for title IV programs until such time as the State of California provides those institutions with an appropriate complaint process or enters into a reciprocity agreement.

This development raises significant concerns for such institutions, including providing appropriate disclosures to students currently enrolled in such programs about the loss of their Title IV Federal Student Aid (FSA) eligibility as of May 26, 2019; timing of processing Title IV FSA returns; and assisting such students with finding alternative forms of payment. Because this is a fluid situation, schools should continue to monitor for potential legislative or other action in California and for additional guidance from the Department.

New Public and Individualized Consumer Disclosures Required

The rule requires substantial new consumer disclosure requirements for online educational programs, as well as programs offered by correspondence. Schools offering such programs should make every effort to comply with these requirements now.

Generally, the public disclosures to prospective and enrolled students include, but are not limited to, disclosure of:  (continue reading)