Dispute over federal rules on state authorization imperils thousands of California students

Years-long fight over federal rules governing state standards for online education could imperil standing of tens of thousands of students.

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For years, the U.S. Education Department (over two administrations) has battled with states, college leaders and consumer advocates over rules requiring institutions operating online to secure approval from each state in which they intend to enroll students. The issue has often seemed arcane and the debate impersonal.

No longer.

Education Department officials announced Monday that Californians who are enrolled in online programs at public or private nonprofit colleges and universities in other states will be ineligible for federal financial aid under the 2016 state authorization rules that took effect in May because of a judge’s ruling.

The federal judge, acting in a lawsuit brought by two faculty unions, had ordered the department to put in place the long-delayed state authorization rules drafted in the waning days of the Obama administration rather than a new version of the rules negotiated last spring by a panel appointed by the Trump administration, which consumer advocates (and their allies in the faculty unions) said would loosen restrictions on for-profit online providers.

Ironically, though, the students who are put in harm’s way by the impasse between the Education Department and the unions over the state authorization rules are enrolled at public and private nonprofit colleges, not for-profit institutions.

That’s because the 2016 rules require states to have a process through which online students can submit complaints to a state agency about their institutions. While California has such a process for for-profit colleges operating in the state, through the Bureau for Private and Post-Secondary Education, it does not have an equivalent process for nonprofit colleges because it has not had a functioning statewide coordinating board for nearly a decade.

California is also the sole state (the only other holdout is the Commonwealth of the Northern Mariana Islands) that is still not participating in the State Authorization Reciprocity Agreement, which provides a workaround to the issue.

“Until California establishes such a process for out-of-state public and nonprofit institutions or enters into an appropriate reciprocity agreement, those institutions will be unable to comply with the now-effective 2016 regulation if they provide distance education or correspondence courses to students residing in California,” the Education Department guidance said, noting that its own version of the state authorization rules would eliminate the complaint requirement. “Thus, under the 2016 regulation now in effect, students residing in California receiving distance education or correspondence courses from out-of-state public or nonprofit 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.”

Exactly how many students could be affected is hard to say, but it is almost certainly multiple tens of thousands. In 2017-18, data from the National Council for State Authorization Reciprocity Agreements showed there were more than 141,000 students enrolled in online courses in states that were not part of the consortium. At that time, Massachusetts and Puerto Rico had joined California and the Marianas as nonparticipants. California over all has about 80 percent of the nearly 50 million in total population of those four states or territories, so if its residents enroll online in anywhere near a similar proportion, more than 100,000 students could be affected.

What might the impact be? Anything that would make multiple tens of thousands of students ineligible for federal financial aid is a big deal. And the situation could be even more complicated if some of the financial aid due to these students for the fall semester has already been distributed, the president of the National Association of Student Financial Aid Administrators, Justin Draeger, said on Twitter Tuesday.