Navigating the ‘Patchwork Quilt’ of State Authorization Requirements Remains a Huge Challenge for Online Programs

State authorization of online programs is one of the biggest issues confronting higher ed institutions seeking to expand their reach to more distance learners. Since the introduction of federal regulations in October 2010 (section 600.9), institutions have been scrambling to respond to a myriad of state requirements.

The Department of Education’s state authorization regulation (commonly referred to as 600.9) says, in part:

  • Institutions must be authorized to conduct business in a state and may not be exempt from this requirement on the basis of accreditation or years in operation.
  • Institutions that offer education through distance education to students in a state in which they are not physically located, must meet that state’s requirements.
  • Therefore, all institutions must be licensed in any state where they do business, as defined by that state’s specific licensing regulations.

While certain elements of the regulations were overturned in July 2011, most notably the requirement enforcing the Title IV loss of federal funds for failure to comply, they were only overturned on procedural grounds as the Department did not take appropriate steps to allow commentary on the state authorization requirements, said Bruce Chaloux, PhD, executive director and CEO of the Sloan Consortium (Sloan-C).

The department appealed this ruling and the legal process is moving forward, with briefs shared and oral arguments expected later this month. While a date for a final decision is not known, one is expected in the second half of 2012. Chaloux, however, suggests that institutions shouldn’t wait for the outcome. He noted that while the court decision removed the possible Title IV penalty, it did not change any existing requirements for institutions to seek authorization from states in which they are enrolling students and offering instruction.

“I think a key point here is this: Whether the Department wins or doesn’t win the lawsuit, many tracking this situation believe we’re going to have these regulations,” Chaloux said. “So my advice to institutions, a stance shared by most who we have been working with on 600.9, has been and continues to be that you should assume that these requirements, likely in the same form or shape they have come out before, will become effective in the future.”

In part one of a two-part seminar series titled State Authorization: Strategies for Online Providers, Chaloux, an active participant in several regional and national efforts to help institutions respond to the renewed focus on state authorization, provided an overview of many of the emerging legal issues. He also outlined the onerous challenges facing institutions who must try to navigate the patchwork quilt of state authorization requirements in each state it operates – challenges that are compounded given that the definitions of “operating” or “physical presence” vary greatly from state to state and may include issues related to server location, marketing efforts, proctors, and adjuncts.

It’s because of this complexity, and the cost incurred by institutions who must make sense of it all, that Chaloux and others are working with the President’s Forum/Council of State Governments to develop a national interstate reciprocal agreement. Using the analogy of a driver’s license, which is issued by one’s home state but recognized by all states as proof that you’re authorized to operate a motor vehicle, Chaloux said getting states to participate in a reciprocal compact could create a more financially efficient model for states and institutions alike, while ensuring a higher level of consumer protection in terms of quality programming.

“Essentially, this would flip the existing process of an institution having to deal with 49 [other] states, Washington, D.C. plus territories to secure approval for institutions with a national footprint. It would place the impetus on your home state to take certain actions to certify you as being a legitimate provider,” he said. “But I do want to point out that there are some very significant challenges, one of those being to get 50 disparate states that all have their own idea about how this ought to be done onto the same page. So, while I’m extremely optimistic that this has some real potential, I don’t want to oversell it by saying that we think it’s going to be easy.”

Participants in the two-part seminar series will receive a draft of the proposed Compact when it is finalized and it will be discussed in greater detail during seminar two, to be scheduled later this year once a decision has been made on the Department of Education’s appeal. If you missed the first seminar, you can get a copy of the recording on CD. You’ll also get live access to part two once it’s available.