As the distance learning market continues to grow, state agencies charged with regulating the industry continue to operate in a "fragmented environment," according to a report presented Thursday at the 2006 Education Industry Finance & Investment Summit, in Washington.

One of the main questions these agencies must consider is what constitutes an institution having a "physical presence" in their state. In other words, what is an appropriate test to determine whether  regulation is needed?

More than 80 percent of agencies that are included in the report said that they use some sort of "physical presence" test. But few agree on how to define the word "presence," in part because there are so many elements to consider.

That's clear in  "The State of State Regulation of Cross-Border Postsecondary Education," the report issued by Dow Lohnes, a firm with a sizable higher education practice. (The firm plans to release an updated report early next year after more responses arrive.) 

“What is most apparent is the lack of consistency among the states in terms of how they view the regulation of e-learning,” the report says. “Some states have established rigorous criteria to determine when an institution is engaged in sufficient activity within its border to mandate an assertion of its regulatory authority.”

So what are the triggers for jurisdiction? That was asked of 51 state agencies representing 43 states who participated in the survey.

Some of the responses seem intuitive. Four in five surveyed say requiring students to take an examination at a location within the state constitutes a physical presence. Slightly fewer respondents said the presence of recruiters or agents in the state fits the definition.

Nearly one in four agencies said that they exercise jurisdiction at the point at which an institution enrolls state residents in a strictly online class. Four out of five said in-state mailing addresses constituted a physical presence, and the same number said in-state telephone or fax lines meet their definition.

Even the presence of an Internet server or other institution-owned telecommunications equipment is enough to justify jurisdiction for more than 6 in 10 agencies surveyed. And about 90 percent said that an institution with an in-state office at which no teaching occurs, but where recruitment and admissions activities take place, has established a physical presence.

A relatively small number of agencies said that an institution merely holding a college fair in a state or advertising on local television has established a presence there.

Michael B. Goldstein, the report's main author and the head of Dow Lohnes's higher education practice, said that states need to be clear on their definitions.

Kentucky’s regulating agency takes the broad view that an institution has a presence when it is “acting upon a student in Kentucky.” The agency pays particular attention after a student has exercised a complaint, the report says.

In South Carolina, the legislature enacted a code saying that “operating” means that an institution actually has brick and mortar facilities in the state.  

Many have looked to New York in recent months to gauge the climate for regulation of for-profit institutions. The state's Board of Regents, which had announced a moratorium on new commercial colleges, earlier this week decided on new guidelines that will increase oversight when those institution's switch owners or seek to enter the state. 

But New York's tight restrictions are hardly indicative of the rest of the country, Goldstein said, as plenty of states still have loose guidelines.

Some agencies reported that different licensing requirements apply to institutions with different levels of accreditation. More than half said that they have license requirements that distinguish between institutions that are degree-granting and those that are non-degree-granting.

Goldstein said as distance learning institutions continue to "enroll thousands of students in many states, regulation policy matters a lot more."

The trouble with the current climate?

“Ironically, the varied triggers of state jurisdiction appear to have the perverse effect of discouraging innovations in e-learning,” the report says. It follows by explaining that if contacts with students beyond interactions on the Internet -- such as group learning projects -- subject an institution to a variety of confusing regulatory obligations, it will be safer to stick with purely e-learning.