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The Education Department and an advisory committee wrapped up negotiations this week over potential changes to the rules governing how states oversee out-of-state online colleges.

Photo illustration by Justin Morrison/Inside Higher Ed | Craig Dennis/Pexels

The Biden administration can now move forward with its plans to give states greater authority over online programs after an advisory rule-making committee rejected a compromise proposal Thursday.

The Education Department said last week that it wants to change the terms of state authorization reciprocity agreements to give state regulators more authority to enforce their own laws on out-of-state institutions that enroll their residents. Currently, reciprocity agreements allow colleges to enroll out-of-state students online without getting direct approvals from the individual states—and they exempt institutions from some laws in the states where the students are located.

Department officials have said that the current structure fails to protect students and taxpayers by limiting states’ oversight. This “can hamper” efforts to “help students if there is evidence that an out-of-state school is taking advantage of students,” they said.

The advisory committee discussed the proposal and other potential regulatory changes at length this week. Committee members representing colleges and universities argued that the department’s plan would make current state authorization reciprocity agreements unworkable and lead to more work for institutions and state officials. They said smaller institutions would likely scale down their online offerings because they wouldn’t have the resources to comply with each state’s rules and regulations, which vary.

Robert Anderson, president of the State Higher Education Executive Officers Association and a negotiator representing state officials, said the contemplated changes would be “tectonic plates–shifting type of big.”

“We are going to undermine the states’ rights and decisions that they have made along the way in being part of this reciprocity agreement,” Anderson said. “It’s going to leave states underfunded, underresourced and overwhelmed by what’s in front of them … Be careful of what you ask for.”

All states except California have joined a voluntary interstate compact for distance education. Anderson and others argued that since states have set the terms for the compact known as the State Authorization Reciprocity Agreement (SARA), they should be able to decide its future. Not all states have the capacity or interest in enforcing their laws over the online colleges, they said. Department officials said they weren’t requiring states to take action but rather allowing them to do so.

Austin Reid, federal affairs adviser for the National Conference of State Legislatures, which is not part of the negotiations, said in an interview that states should be able to decide for themselves how the reciprocity agreements evolve.

“It’s best that states manage this,” he said.

Consumer protection advocates on the committee supported the department’s initial proposal, arguing that complying with state laws is part and parcel of doing business, even for online entities. Online students, they said, are in need of greater protection.

“It is easier to rip people off on the internet than it is to do so in person,” said Barmak Nassirian, vice president for higher education at Veterans Education Success and the negotiator representing veterans and military students.

The department is in the midst of a complicated process to update the regulations governing state authorization, accreditation and four other topics. By the time negotiations ended Thursday, the committee had only reached consensus on one proposal: opening up some of the federal TRIO programs to undocumented students.

In a bid to reach consensus, the department did retool its state authorization proposal this week.

Nassirian and others who backed the initial proposal didn’t support the proposed compromise, because department officials offered to walk back the changes to the reciprocity agreements while ensuring that states have oversight over colleges and universities that enroll large numbers of students in a state.

“At this table, we have profoundly different views on this,” said Greg Martin, the department’s lead negotiator. “This was an attempt by the department to recognize that there’s an admitted gulf between where people on this committee are.”

Under the new proposal, institutions that enroll 500 students or more in a certain state for two consecutive years would have had to get approval from that state in order to keep their virtual doors open.

Consumer protection advocates on the advisory committee said this represented a “retreat” that wouldn’t adequately protect online students and that the threshold, at least, should be lower. Committee members representing institutions—particularly private nonprofit and for-profit colleges—said the threshold was arbitrary. They sought more data about why exactly the department settled on 500 students as the trigger for direct authorization.

Because the committee didn’t reach consensus, the department can now propose whatever rules it likes, though the regulatory changes will still be subject to public comment. Any changes won’t take effect until July 2025 at the earliest.

The 500-student threshold for direct state authorization is likely to be part of any proposed rule, based on the discussions over the past week.

Department data shows that threshold would affect 5 percent of the more than 2,200 colleges and universities that are currently part of SARA. More than 70 percent of the affected institutions would have to seek approval from 10 states or fewer, while the other 20 percent or so would have to obtain approval from more than 25 states. The affected institutions enroll more than half of the 1.5 million students covered by the agreement, according to the department’s analysis.

Jillian Klein, the committee member representing for-profits and a senior vice president of government and external affairs for Strategic Education, which owns a number of for-profit colleges, pressed the department for information on the correlation between size and risk. She argued that enrollment numbers in a particular state aren’t a direct indicator of risk for students and said the department should take multiple factors into account—such as an adverse action from an accreditor—to more precisely target risky institutions.

Martin, the department’s lead negotiator, said there’s inherently a greater risk when there’s a higher number of students enrolled, and that institutions with a substantial presence in a state do warrant greater oversight.

Denise Morelli, an attorney with the Education Department’s Office of General Counsel, added that the department has seen the detrimental impact that institutional closures—particularly closures of colleges that enrolled large numbers of students—can have, which is something officials want to safeguard against.

“We’ve seen them over the years,” she said. “You’ve all seen them. They’ve been in the newspaper. And we’ve had to deal with the impact.”

Diana Hooley with the Massachusetts Attorney General’s Office, who represented state attorneys general on the committee, said she didn’t know if there was any threshold number that would give her comfort.

“If there’s fraud going on in our states, we should be able to investigate that and enforce it,” she said.

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