NAICU Washington Update

Education Department Implements Obama-Era Rules for Online Colleges

July 23, 2019

In response to recent litigation, the Department of Education has, without any advance warning and with immediate effect, implemented Obama-era regulations governing state authorization for distance education. The most significant impact of this development is that students who are located in California and who attend online nonprofit institutions of higher education located in other states will not be eligible for federal student aid.
The Department’s move comes despite the fact that new distance education rules developed via a recent negotiated rulemaking are expected to go into effect by July 1, 2020.
Under the Obama-era regulations, institutions that offer online education in another state must document that that state has a process for reviewing complaints against the institution or that the state participates in a reciprocity agreement. Because California neither has such a process for receiving complaints about nonprofit institutions nor participates in a reciprocity agreement, nonprofit online institutions offering distance education to students located in California will be unable to meet this requirement and thus unable to disburse student aid to such students. Because California does have a complaint process for for-profit institutions, those institutions will be able to continue providing federal aid to students under the new regulations.
In newly released guidance, the Department has indicated it will pursue legal avenues for relief, but it is not clear if or when such relief will be available. Likewise, it is unclear how institutions are expected to handle disbursements that have already been made to students who are now ineligible.
Originally, the Obama-era regulations were set to go into effect on July 1, 2018, but the Trump Administration delayed the effective date of the rules for two years. The National Education Association sued over the delay, and a judge, in an unpublished opinion, ruled against the Department. The Department has appealed that ruling, but for reasons that remain unclear, the agency does not appear to have immediately sought a stay of the judge’s ruling pending the appeal, as is typically customary in such cases.
As a result, the Department is implementing the Obama-era rules now, despite the fact that it is poised to issue new regulations that would become effective in less than a year. Notably, the new regulations that emerged from negotiated rulemaking would eliminate the requirement for documenting a student complaint process, thus restoring eligibility for federal aid to California students enrolled in online programs at nonprofit institutions located in other states.

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