A Foolish Move to Hobble For-Profit Colleges

Curbing for-profit colleges has been a goal of the Obama administration’s department of education. The plan was to erect regulatory hurdles to a very profitable product: online courses. In pursuit of that plan, the department issued a regulation last October requiring institutions offering Internet classes to seek permission from every state in which they enroll so much as a single student. But the department failed to take one crucial fact into account: This is the 21st century, and Web-based courses aren’t just a dodge employed by educational hustlers to lure masses of gullible students into cheap, shoddy programs of the kind that used to be advertised on matchbooks.

From the Ivy League on down, hundreds of respectable non-profit colleges, public and private, offer online classes and even online certificates or degrees. It is the smaller and more budget-pinched of those institutions that are feeling the brunt of the education department’s new rule: liberal-arts schools with limited administration personnel and cash-strapped state universities and community colleges. Some of those, citing the high costs of complying with 50 different sets of state licensing criteria plus stiff licensing fees in some states, already have plans to stop accepting online students living in the more expensive jurisdictions, even though the rule isn’t scheduled to be enforced until 2014.

Ah, the law of unintended consequences. Penalizing community colleges and small liberal-arts institutions probably wasn’t what Education Secretary Arne Duncan had in mind when his department issued the state-authorization rule. It was part of a package of regulations issued in the wake of a series of hearings on the for-profit higher-education sector that began soon after President Obama took office. “These new rules will help ensure that students are getting from schools what they pay for: solid preparation for a good job,” Duncan declared.

The department’s “gainful employment” regulations, which apply to all post-secondary institutions offering occupational training and receiving federal aid—as nearly all do—do not explicitly target proprietary schools, but it is clear that they were issued in a climate of intense administration focus on the for-profit sector. Career colleges enroll about 3.8 million students nationwide. Nearly all of them have come under fire for their students’ high dropout and student-loan default rates, and for the failure of many graduates to find jobs in fields that the schools trained them for. The new Education Department rule says that “if an institution is offering postsecondary education through distance or correspondence education to students in a state in which it is not physically located, the institution must meet any state requirements for it to be legally offering postsecondary distance or correspondence education in that state.”

But when the University Professional and Continuing Education Association and the WICHE Cooperative for Educational Technologies (WCET), an advocacy group for online education, conducted a recent survey of colleges’ and universities’ plans for compliance with the state-authorization rule, only four for-profit institutions even bothered to respond to the survey (215 colleges with online programs responded in total). Russell Poulin, director of research and analysis for WCET, said that proprietary colleges, many of which are large multi-state operations, tend to have the resources to deal with a patchwork of state regulations, but community colleges don’t and will likely be the hardest hit. Indeed, 59 percent of respondents to the survey, or 119 colleges, said they would cease to enroll students in at least some states rather than try to comply with their authorization standards.

Twenty-nine colleges cited Massachusetts as one of the states from which they would almost definitely pull out because of its strict authorization rules (other states included Minnesota and Arkansas). Massachusetts, which has one of the most onerous permission schemes for colleges, requires a nine-page application, a $10,000 application fee, a $4,000 annual fee for the first five years, and a $2,000 fee for every degree awarded. It also sometimes requires a site inspection, to be paid for by the affected college. “The states that were mentioned were the ones where there’s probably the most difficult application process and the highest cost,” Poulin told Inside Higher Ed.

Smaller colleges, with enrollments of fewer than 10,000, tended to report that they would limit their online student population to residents of 10 or fewer states, citing the cost of compliance with dozens of conflicting regulatory schemes. “Every community college everywhere is facing budget constraints,” Jean Runyon, chairwoman of the Instructional Technology Council of the American Association of Community Colleges, told Inside Higher Ed. Her own college, Anne Arundel Community College in Maryland, currently enrolls students in 38 states in campus-based and online classes, she said, but that could change in the future, given the time and costs associated with complying with 38 sets of regulations.

If the Education Department’s state-authorization rule seems unusually perverse in its likely effects, that may be because it was slipped into the larger package of gainful employment rules at the very last minute, just before they were official issued. A set of proposed regulations issued in July 2010, four months before the final version emerged in October, contained no reference to distance learning. That lapse on the department’s part recently occasioned the only court victory won so far by the Association of Private Sector Colleges and Universities (APSCU), the trade organization for career colleges. In January, APSCU filed a sweeping lawsuit against the Education Department in the U.S. District Court for the District of Columbia over a range of provisions in the gainful employment rules. On July 12 U.S. District Judge Rosemary Collyer upheld most of those contested provisions, ruling that they were within the scope of the department’s authority. She did rule, however, that the agency, by not making it clear in its proposed rules that it “was contemplating a particular change to the authorization obligations of distance educators," deprived colleges of their right to comment on the provision and perhaps persuade the agency to withdraw it.

Of course, all that means in the long run is that the Education Department can simply go back and reissue the rule following proper procedures well before the scheduled 2014 enforcement date—and the department may also win a reversal of that part of Collyer’s ruling on appeal. A bill pending in Congress supported by all sectors of higher education would simply repeal the state-authorization rule altogether for online courses, but it is unlikely to pass the Democrat-dominated Senate, much less be signed by Obama, who would have to gainsay his own education secretary. And even if the repeal became federal law, that law would likely have no effect on state regulations, as WCET’s Poulin told Inside Higher Ed. “Those are all still in place, and the states still expect that institutions will be complying,” he said. As Inside Higher Ed reporter Libby Nelson pointed out, “[I]n at least one way, the rule has already accomplished the department’s goal of applying more scrutiny to institutions whose students receive federal financial aid. It has drawn attention to state regulations and authorization requirements that were previously overlooked, or ignored, by all parties.”

Furthermore, those state regulations don’t potentially apply just to for-profit colleges or even just to occupational courses. Should states wish to do so, they could conceivably try to regulate strictly academic offerings as well. For example, on Aug. 15 Stanford University announced that it will offer a free online course on artificial intelligence taught in state-of-the-art fashion by two Stanford professors. So far, 58,000 people across the country have signed up. Stanford can probably afford the headache of obtaining authorization from 50 states plus the District of Columbia and assorted U.S. territories, and to pay the fees. But most colleges aren’t Stanford, and many likely won’t have the resources to thread their way through a maze of time-consuming authorizations now that the regulatory cat is out of the bag. Humble community colleges and small liberal-arts institutions may find themselves paying a steep price for the Education Department’s war against for-profits.