Alerts and Updates

California-Based Institutions Exempt in Other States Could Also Be Impacted by U.S. Department of Education's Rules for Online Programs

July 26, 2019

The 2016 State Authorization Rule requires that states have a process for resolving complaints against out-of-state schools in the state in which the student resides and the home state where the institution’s main campus is located.

We reported earlier this week on the U.S. Department of Education’s July 22, 2019, announcement, which clarified that California students attending online programs offered by out-of-state nonprofit and public institutions are not currently eligible for Title IV Federal Student Aid because of lack of a student complaint process. This issue is not limited to California students and could similarly impact students in many states across the country attending online programs offered by all California colleges and universities, including nonprofit, public and for-profit schools. California-based colleges and universities offering online programs in other states must seek state-by-state authorization or exemption because California does not participate in SARA (State Authorization Reciprocity Agreement). Many of these states do not provide a complaint process for exempt institutions.

The 2016 State Authorization Rule requires that states have a process for resolving complaints against out-of-state schools in the state in which the student resides and the home state where the institution’s main campus is located. According to departmental guidance provided with the rule, under 34 C.F.R. 600.9(c)(2):

If an institution offers postsecondary education or correspondence courses to students residing in a state in which the institution is not physically located, the institution must document that there is a State complaint process in each State in which the institution’s enrolled students reside or through a State authorization reciprocity agreement which designates for this purpose either the State in which the institution’s enrolled students reside or the State in which the institution’s main campus is located.

Thus,… if a State does not provide a complaint process as described in a State where an institution’s enrolled students reside, the institution would not be able to disburse Federal student aid to students in that State.

States that exempt institutions offering fully online programs to their residents often do not assert jurisdiction over those out-of-state institutions, and therefore do not have authority to investigate or resolve student complaints against these schools.

We are currently reviewing state laws and have determined that a number of states that exempt out-of-state institutions from authorization (or do not allow such institutions to seek authorization) do not provide the requisite complaint process under these circumstances. For example, a California school offering only online programs to Arizona residents is exempt from the state’s authorization requirements and there is no applicable complaint process for such exempt schools. Similarly, in Colorado, if a resident attending an online program offered by a California school files a complaint with the Colorado state agency, the agency would forward that complaint to the California Bureau for Private Postsecondary Education.

As a result, the Department’s July 22 guidance appears to require that until these states also establish a complaint process for California institutions operating under an exemption, these institutions, and any others similarly situated, will be unable to comply with the now-effective 2016 regulation. Moreover, students residing in these states taking online courses offered by California institutions may similarly be ineligible for Title IV funds until the appropriate complaint process is provided. California colleges and universities need to determine whether the states of residence for their out-of-state online students contain adequate complaint processes and work with the applicable state agencies to make such complaint processes available to exempt institutions where necessary. They should also continue to monitor for additional Department guidance on this topic.

For More Information

If you have any questions related to this Alert, please contact Katherine D. Brodie, Anthony J. Guida Jr., Kristina Gill, Brandi A. Taylor, any of the attorneys in the Higher Education Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.