Online Learning Across State Borders Assessing state regulation of out-of-state schools

1. Online Learning Across State Borders Assessing state regulation of out-of-state schools UMassOnline Speaker Series 19 April 2011 Continuing and Professional Education Learning Collaborative (CPE-LC) Online Higher Education Learning Collaborative (OHE-LC)

2. Table of Contents • Introduction • State Regulation of Out-of-State Distance Learning • Eduventures January 2011 report- key baseline data • Update on School Responses • Update on State/Agency Responses • Update on the U.S. Department of Education’s position • Institution Licensing Volume • Conclusions • Summary • What Should Schools do Now? 2

3. Introduction Overview- Why is this issue suddenly in the limelight? • Federal Intervention- On 28th October 2010, the U.S. Department of Education released the final “Program Integrity” rules under the latest round of negotiated rulemaking. The following language was an unexpected addition to the draft: • “If an institution is offering postsecondary education through distance or correspondence education in a State in which it is not physically located, the institution must meet any State requirements for it to be legally offering distance or correspondence education in that State. An institution must be able to document upon request from the Department that it has such State approval.” • In some respects, this ruling acknowledges the status quo. Historically states have authority over a higher education institution's license to operate, and states are free to determine approval processes for out-of-state schools judged to in some sense "operate“ in the state. In other respects, this is uncharted territory. This is the first formal federal statement on state regulation and out-of-state distance learning • It is important to note that this rule applies to ALL Title IV eligible schools, whether public, private or for-profit, 2 or 4-year, regionally or nationally accredited • In line with the regulations as a whole, this rule will go into force July 1, 2011 • Commentary from the Department suggests that by that date schools must be able to show, upon request, that approvals are either in place, in process, or that the state does not require approval (WCET Blog1/12/2011) • The Department’s “Program Integrity” rules are designed to protect public funds for higher education. The Department’s ultimate sanction for schools judged non-compliant is loss of Title IV funding eligibility

4. Introduction Overview- Why is this issue important now? • Significance- Eduventures estimates that in Fall 2010 online headcount in higher education drew close to 2.5 million people. To date, most of this activity has taken place without direct state oversight of out-of-state schools. Federal intervention raises the following questions: • Is it practical for the many hundreds of universities and colleges that now offer online programs across state lines to seek approval from up to fifty separate jurisdictions? Should it matter whether a school has one v. 1000s student in a state? • Is state-by-state oversight the best means to protect consumers when the activity in question crosses state lines? • Is multi-jurisdiction oversight the best way to raise school quality, and avoid duplication of effort? Is this approach more likely to cause confusion, raise costs and create bureaucracy than meaningfully impact consumer protection? • Are there “Commerce Clause” implications, and how might they be resolved? • What are the prospects for inter-state reciprocity and collaborative agreements to find an alternative solution? • Might strict enforcement of state-by-state regulation dampen online market growth, and potentially limit consumer choice? • Is state regulation the wrong answer to the right question? Has the rapid growth of online delivery, large draw on public funds, plus limited outcomes information forced the DOE’s hand?

5. Introduction Overview- The January 2011 Eduventures Report • Rationale- Eduventures has tracked the expansion of online higher education for over a decade, and has long been involved in discussions concerning state regulation. Post-federal intervention, when many of our school clients expressed concern about next steps, we saw an opportunity to pull together some foundational data and commentary to help higher education leaders make decisions • Methodology: Eduventures reviewed regulations and licensing volume in all 50 states plus District of Columbia. Eduventures 2007 study “Understanding the National Online Higher Education Market”, which included analysis of state regulation, and the 2006 Dow Lohnes report “The State of State Regulation of Cross-Border Postsecondary Education” provided useful historical benchmarks. Where regulations were unclear, Eduventures contacted the regulator concerned • N.B. Throughout this report, the word “licensed” is used as a generic term to indicate permission to operate. Individual state regulators may use a different term. “Pure” online refers to a state asserting jurisdiction over an out-of-state school which enrolls a state resident in its online/course program, even if the school has no physical presence of any form in that state • Disclaimer- While Eduventures has made every effort to locate and explain all relevant regulation, precise application by specific activity is often less than transparent. Readers are advised to seek legal counsel on specific activities, states and circumstances. Moreover, a number of states are in the process of reviewing their arrangements

6. Table of Contents • Introduction • State Regulation of Out-of-State Distance Learning • Eduventures January 2011 report- key baseline data • Update on School Responses • Update on State/Agency Responses • Update on the U.S. Department of Education’s position • Institution Licensing Volume • Conclusions • Summary • What Should Schools do Now? 6

7. State Regulation Categorization- Online Learning State regulation is inconsistent, complex and “behind” online boom • Some states regulate, some don’t. The majority of states do not have regulation that takes into account the contemporary scale of online higher education across state borders. Ten states (AL, AR, IL, IN, KY, LA, MN, NM, WI, and WY) explicitly assert jurisdiction over “pure” online, and only MD, NH, PA, RI, SC, and VA appear explicitly to disavow jurisdiction (N.B. some important/contested nuances, e.g. PA) • Most state regulation of out-of-state higher education assumes forms of physical presence, but aside from branch campuses and in-person recruitment other forms of physical presence are rarely spelt out • Few states explicitly exempt “pure” online delivery, but equally there is little evidence that many states wish to regulate such delivery when no conventional physical presence is involved • Online scale exceeds state licensure. At present, the scale of cross-border online higher education far exceeds out-of-state licensing volume; and there is no consistent pattern of licensing by state, school type or school activity. Licensing is a revenue source for states, but also raises capacity issues around awareness and enforcement. For many state regulators, comprehensive enforcement of rules seen to encompass “pure” online learning from out-of-state schools would require considerable additional resources • Aside from a sub-section of wholly online schools, almost all cross-border online higher education operates without regard to any asserted/implied state jurisdiction

8. State Regulation Categorization- Online Learning Definitions, institutional type and regulator powers/interpretation are crucial to understanding state regulation Conventional physical presence often important for “online” programs. Where online-related licensing does exist, forms of physical presence that complement wholly online delivery, whether recruitment, instruction or support, are where online delivery often most clearly triggers state jurisdiction. Treatment of For-Profits. Only RI bars for-profits from offering degrees, but a number of states have distinct rules for proprietary schools, and/or bundle all such institutions under a “career school” category even if some grant doctoral degrees and others are cosmetology or truck driving schools More than one regulator. In some states (e.g. TX), two regulators claim oversight of out-of-schools, and it is not always clear, nor do the regulators necessarily agree where authority lies Interpretation. Some state statutes pre-date online learning, and contemporary application may be as much case-by-case interpretation by officials as the letter of the rules. Equally, schools have cited cases to Eduventures where different staff employed by the regulator offered contradictory interpretations of regulations Non-state territory. Many states do make full or partial exceptions for military bases and (less explicitly) Tribal nations

9. State Regulation Categorization- Online Learning Majority of states restricted to physical presence; explicit coverage of online uncommon; ambiguity elsewhere This chart shows Eduventures interpretation of the character of out-of-state licensing across the 50 states, plus D.C. See # of states in boxes. See following sides for explanation of each category, plus examples 28 7 10 6

10. State Regulation Categorization- Online Learning Summary of State Regulation of Out-of-State Online Higher Education N.B. Summary based on Eduventures interpretation. Each state and school representation should be considered on a case-by-case basis

11. State Regulation Categorization- Recruitment In-person recruitment viewed as presence for many states , and some seek to also regulate other marketing • There is little evidence that states’ positions have changed significantly on these issues in recent years; but some conversations with state regulators suggest oversight over recruitment will tighten in the near term (e.g., North Dakota cited that it plans to discuss increased regulation over in-state recruitment going forward). This chart shows Eduventures interpretation of the character of out-of-state licensing for recruitment across the 50 states, plus D.C. See # of states in boxes. % States 2 14 12 23

12. State Regulation Categorization- Recruitment State Oversight of Recruitment Activities In-Person Recruitment Marketing No Oversight Unclear N.B. Summary based on Eduventures interpretation. Each state and school representation should be considered on a case-by-case basis

13. Table of Contents • Introduction • State Regulation of Out-of-State Distance Learning • Eduventures January 2011 report- key baseline data • Update on School Responses • Update on State/Agency Responses • Update on the U.S. Department of Education’s position • Institution Licensing Volume • Conclusions • Summary • What Should Schools do Now? 13

14. Update on School Responses- concern, uncertainty; seeking information, reform, withdrawal • Update on Schools. To date, school responses have been one or more of the following: • Lack of awareness, particularly outside “distance learning units” and personnel • Uncertainty, panic; claims that the rule will stifle innovation • Extreme reactions- i.e. planning to either seek licensure in every state, or halt distance enrollment in all but the school’s home state • Speculation over the relationship between the new rule and numerous distance learning circumstances (e.g. military students, students moving states mid-program, summer students studying online from their home state, noncredit students, community college or employer partnerships etc) • Dispatch of letters to state regulators seeking authorization or asking about the need to comply; a few schools, typically for-profit, are deep in the midst of applications in certain states • Mapping distance enrollment by state, and prioritizing states to target for prospective authorization • Speculation as to what the DoE might , by July 1st 2011, consider compliance or a good faith effort • Various collective attempts to collect better information on state requirements (Presidents’ Forum, WCET) and/or seek reform or withdrawal of the rules (multi-agency letters under ACE, APSCU suit, senator’s letter). Mention of nascent efforts by some accreditation regions to craft reciprocity agreements among member states

15. Update on State/Agency Responses As of March 27th 2011, 14 state agencies (21%) known to have published a new/updated statement on out-of-state schools/distance learning  Broad Jurisdiction (enrolling residents in pure online programs)  Medium Jurisdiction (recruitment or faculty, not pure online); or ambiguity Narrow Jurisdiction (conventional physical presence)

16. Update on State/Agency Responses About 1/3 of agencies with new statements imply conventional, narrow jurisdiction; but not every circumstance highlighted Comparison with Eduventures January 2011 report- recent statements essentially in line, but leave ambiguity in some cases • Eduventures reading of clarified state positions to date (if state has more than one agency, the specific agency is named): Narrow Jurisdiction (MI, MS, ND, NV, VA) • Michigan- no jurisdiction over pure online, in-state marketing, faculty or in-state course components (e.g. internships, practicums). No jurisdiction over in-state recruiters if schools awards bachelor’s degrees or above. Next Step: for schools that consider themselves exempt, no further action implied • Mississippi- no jurisdiction over pure online. Next Step: no further clarification or guidance offered. Implied that schools “not domiciled, incorporated, or otherwise located” in MS are exempt from authorization • North Dakota- notice of pending legislation to exempt pure online and modest forms of physical presence, such as practicums. Next Step: implied that schools may await outcome of legislative proposal • Nevada- pure online, in-state faculty and non-physical in-state marketing do not require authorization. Next Step: As MI • Virginia- reiterates prior disavow of jurisdiction over pure online. Online plus physical presence does require authorization. Next Step: As MI

17. Update on State/Agency Responses About 60% of agencies with new statements disavow pure online for all/some schools; but assert marketing, faculty and/or perpetuate significant ambiguity • Medium Jurisdiction (or Ambiguous) (CO, GA, IL, MO, OR, WA, WI), Part 1 • Colorado (Division of Private Occupational Schools- associates’ degree and below)- no jurisdiction over pure online; but jurisdiction over any marketing to CO residents (exact scope unclear). Next Step: implied that schools need only take action if marketing to CO residents • Georgia- no jurisdiction over pure online; but jurisdiction over marketing that “originates in GA” (unclear) and in-state paid faculty. Next Step: schools either need to seek licensure or write to seek exemption and will get a letter confirming status • Illinois- (Board of Higher Education- regulates out-of-state degree-granting schools and credit-bearing programs)- authorization for pure online “may not be necessary”. Implies that home state approval/accreditation may remove need for authorization for some forms of physical presence (detail unclear). Next Step: schools should submit a status determination via an online submission form, and Board staff will respond • Missouri- out-of-state public schools exempt from jurisdiction over pure online; non-public schools referred to “proprietary school” rules, which appear to offer no new clarification. Next Step: out-of-state public schools that enroll MO residents online must send a letter confirming recognized accreditation. No new next step for non-public schools save to review existing rules and respond accordingly

18. Update on State/Agency Responses …continued from previous slide Comparison with Eduventures January 2011 report- most recent statements essentially in line, but leave some ambiguity. GA, IL and WI statements suggests a more limited stance • Medium Jurisdiction (or Ambiguous) (CO, GA, IL, MO, OR, WA, WI), Part 2 • Oregon (Office of Degree Authorization)- no jurisdiction over pure online. No further clarity on in-state marketing or faculty. Next Step: schools may, voluntarily, seek confirmation of exemption via ODA form ($250, at least 3 weeks for processing) • Oregon (Private Career School Office)- emphasis on conventional physical presence, plus in-state marketing (detail unclear). Next Step: for schools that consider themselves exempt, no further action implied • Washington (Higher Education Coordinating Board- regulates out-of-state degree-granting schools and credit-bearing programs)- emphasizes conventional physical presence (including servers), but includes marketing to state residents. Next Step: invites schools to seek determination, but implied voluntary if school sees no infringement • Wisconsin- asserts jurisdiction over pure online, but notes statute that historically has allowed exemption for out-of-state public schools. Main rules imply, irrespective of control, that “equivalent” approval in another state may also merit exemption. No new clarity on in-state marketing or faculty. These caveats suggest somewhat limited jurisdiction but considerable ambiguity remains, particularly for non-public schools. Next Step: schools invited to contact agency if they require formal exemption, but implied that many schools may assume exemption until further notice

19. Update on State/Agency Responses Only one agency with a new statement asserts unambiguous jurisdiction over pure online Broad Jurisdiction (KS) Kansas- The Regents’ site makes no explicit reference to the DoE intervention but includes the following statement: "Kansas statutes require any school serving Kansas students, no matter the means of delivery, to be approved by KBOR (Board of Regents).  However, many schools offering programs and degrees via the Internet do not seek KBOR approval. To protect themselves, students should contact KBOR before enrolling in schools offering distance learning programs." This language implies a stricter stance than summarized in Eduventures January 2011 report, but may be clarification rather than a new position. Federal intervention suggests KS may be able to address perceived widespread non-compliance. Next Step: this is a state that schools might be advised to prioritize for formal compliance. See “What should schools do now?” section for further guidance

20. Update on DoE’s Position “Dear Colleague” reiterates DoE’s position; offers little new information • On March 17th, the U.S. Department of Education (DoE) released the much anticipated “Dear Colleague” letter concerning implementation of Program Integrity regulations. State Authorization was one topic covered, including out-of-state schools and distance learning • Main Points on Out-of-State Schools and Distance Learning: • Status Quo. Reiteration of the DoE’s view that out-of-state schools have always been required to obtain any required state authorization prior to awarding Title IV to students residing in a particular state • “Good Faith” Effort? By July 1st 2011, “good faith” efforts from schools will include authorization and applications for authorization in states where this is required of the school concerned. Schools must notify the DoE when an application is ruled on. A school is considered legally operating in a state if that state does not regulate out-of-state distance learning • Complaints. A school must provide current/prospective students with contact information to file a complaint with its accreditor and any relevant state agency/official, regardless of whether the State otherwise regulates out-of-state distance learning • Exceptions? Military students, and students who move state, must be reviewed on a case-by-case basis. The DoE’s interest is limited to Title IV eligible students/programs only; although states are free to regulate other provision • Professional Licensure. If a state requires an out-of-state school offering distance learning to state residents to seek that states’ professional licensure for a certain program, as well as or instead of more general authorization, then the school must comply

21. Update on DoE’s Position Recent public DoE comments seek to calm sector’s fears • On March 28th 2011, The Presidents’ Forum convened it’s “Federalization of Higher Education” meeting, in Washington, DC. The main focus of the event was federal intervention on state regulation of out-of-state schools and distance learning • One panel at the meeting featured two senior representatives from the U.S. Department of Education: • Eduardo M. Ochoa, Assistant secretary of Postsecondary Education • David A. Bergeron, Acting Deputy Assistant Secretary for Policy, Planning & Innovation • Key Points from this Panel • Emphasized the rule will be enforced in a “reasonable” manner, and school concern is understandable but unwarranted. Federal intervention will spur states to clarify their position • Judged state regulation to not impede federal purpose- hence declined to preempt state law • See compliance as a longstanding “cost of doing business”, and dispute school claims that the cost is burdensome • DoE does not have an internal digest of state requirements, will rely for the time being on third party digests, and will accept, until further information becomes available, a school’s citation of such a digest as a “good faith” effort to understand which states require it to be authorized (assuming the school has then acted accordingly) • No new, special oversight is planned on this issue. Rather, school compliance will be considered as part of routine Title IV audits and accreditation processes • The objective, in line with DoE reviews generally, is to bring schools into compliance, not “suddenly” remove Title IV eligibility for a certain state by July 1st 2011 or any other date

22. Table of Contents • Introduction • State Regulation of Out-of-State Distance Learning • Eduventures January 2011 report- key baseline data • Update on School Responses • Update on State/Agency Responses • Update on the U.S. Department of Education’s position • Institution Licensing Volume • Conclusions • Summary • What Should Schools do Now? 22

23. Institution Licensing Volume Change in volume significant overall, but inconsistent across states • From 2007 to 2010/11 out-of-state licensing volume increased by 35%. However, this shift can be explained by large increases in only a few states and disguises relative stability elsewhere • The vast majority of licenses are held by four-year institutions. Only a handful of community colleges and other two-year institutions are included on state lists. Less-than-two-year schools are excluded from this analysis. While for-profits are most visible, private and public schools are also licensed

24. Institution Licensing Volume In 2010, only about one-third of states had 20+ out-of-state degree-granting institutions licensed, but proportion has risen over recent years

25. Institution Licensing Volume Volume of Out-of-State School Licenses, 2010/11 Note: Map displays total number of degree granting out-of-state institutions licensed for any reason (including physical presence and/or online presence).

26. Institution Licensing Volume While overall licensing volume increased about 35% from 2007 to 2010/11, the majority of states experienced only slight shifts • The change in out-of-state licensing volume can be attributed to large increases in a few states, specifically Oregon (+30), Utah (+19), and Wyoming (+18); out-of-state licensing volume from 2007 to 2010 has remained relatively stable in most states 36 2 1 12

27. Institution Licensing Volume Change in Volume of Out-of-State School Licenses, 2007-2010/11 Note: Map displays total number of degree granting out-of-state institutions licensed for any reason (including physical presence and/or online presence).

28. Institution Licensing Volume Licensing Volume by Type- “pure” online licensing rare • An estimated 2,300 degree-granting (2- and 4-year) schools offer online programming as of 2010, but only 56 (2.4%) of schools have “pure”/ “potential” online out-of-state licenses. Among online active 4-year schools, the ratio is estimated to be <5% 51 9 6

29. Institution Licensing Volume Type of Out-of-State Licenses by State, 2010/11 • This map emphasizes that in 2011 most states appear to not yet be actively licensing “pure” online delivery, and even states to the contrary exhibit low license volume • A handful of for-profit schools, notably 100% or vast majority online, such as Capella University, Grand Canyon University, and Walden University are most visible on the “pure” list, although also show up on “Physical Presence” lists for other activities

30. Table of Contents • Introduction • State Regulation of Out-of-State Distance Learning • Eduventures January 2011 report- key baseline data • Update on School Responses • Update on State/Agency Responses • Update on the U.S. Department of Education’s position • Institution Licensing Volume • Conclusions • Summary • What Should Schools do Now? 30

31. Conclusions and Recommendations Tension between federal requirement and current practice • Major Gap. There is a major gap between current out-of-state licensing type and volume and the new explicit federal expectation that every school obtaining Title IV funds for out-of-state distance students gain necessary approvals or be in process in each relevant state by 1 July 2011 • This gap is partly a matter of limited state clarity and enforcement on licensing requirements for nonstandard forms of presence, not least around distance education; but also suggests that the vast majority of online programming takes place with no reference to non-home state oversight • For-Profit v. Nonprofit. Current licensing volume disproportionately features large for-profit schools; the category of school that is often most visible, most scrutinized by regulators, and best structured for compliance. It remains rare for a nonprofit school active online, even at scale, to have an out-of-state license • This may point to some states, perhaps informally, effectively exempting all or most nonprofits from oversight. Given the limited resources of many state regulators, licensing volume may be driven by visibility or complaints rather than activity. However, this calls into question the validity of targeting some school types rather than others, or treating certain school groups differently • Value. There is very little evidence of schools using licensure for marketing purposes, beyond basic statement; nor clear evidence that state-by-state jurisdiction positively impacts consumer protection or institutional quality

32. Conclusions- regulatory imperative appears more limited, but much ambiguity remains • Summary of Situation. Few states have declared, but trend to date suggests a limiting of jurisdiction, and a growing awareness among agencies of the impracticality of enforcing broad jurisdiction • This trend suggests that most states will disavow jurisdiction over pure online • In-state marketing/recruitment and faculty remain more ambiguous, but will likely prove relevant to relatively few schools. As with pure online, any broad jurisdiction over marketing/recruitment or faculty will pose comparable administration challenges for states. • The significance of in-state professional licensure remains very unclear at present • Many states that have limited their jurisdiction imply, if few explicitly state, that no further action is required from schools that consider themselves exempt • No sign yet of any state or agency using a numerical threshold approach- e.g. authorization only required for schools with an online student or faculty headcount above a certain size • The coming months should see remaining agencies declare, which will test the above hypotheses • DoE public comments suggest that the sectors’ worst fears, in terms of enforcement and consequences, may be unfounded; but much uncertainty remains about scope of compliance at school level, and the detail of DoE action post-July 1st

33. What should schools do now? In Eduventures view, schools should proceed as follows: Public Schools with Modest or Average Online Headcount- based on prior and current evidence, most relevant agencies are unlikely to require authorization for pure online, faculty presence or in-state recruitment/marketing; and other agencies may rely on home state approval or accreditation. Based on our prior and present report, a few states (AL, AR, IN, KS, KY, LA, MN, NM, WY) suggest broadest jurisdiction, and should be prioritized in terms of seeking clarification from agencies and acting upon advice. The situation is fluid, and clarifying information will emerge about these and other states/agencies Private NonProfit Schools- as “Public Schools” above, plus cases where non-public schools are treated differently (MO, discussed in this report, is a clear example) Public or Private Schools with Large Online Headcount- as “Public Schools” above, plus attention to states where in-state recruitment/marketing is called out. Such schools may be visible test cases for particular agencies For-Profit Schools- as “Public Schools” above, plus heightened “visibility” caution compared to larger nonprofits. No evidence that proprietary-specific agencies, where applicable, will take a broader stance, but few have declared All Schools- beyond the above comments, if a school considers that it’s activity in a state may require authorization or formal exemption, it should seek clarification from the relevant state agency

34. The SHEEO Intervention- what does it mean? • On Friday April 15th, SHEEO (State Higher Education Executive Officers) put out a press release committing to an “authoritative” study of state regulation of out-of-state schools (with NCHEMS): • List of contacts- mid-May • Overview of regulations- mid-June • Comprehensive overview of regulations- mid-August • This is a very welcome development. SHEEO is best placed to coordinate this work, and the press release emphasized the need for rationalization, clarity and moots the value of reciprocity • Implications? • Short Term: 1) Reason for schools to delay until mid-August? or 2) Reason for schools to do no more than send explanatory letter to some/all states? or 3) No more than important sidebar for major online schools, for whom compliance imperative in certain states is already clear? • Long Term: SHEEO intervention may be key to accelerating a practical solution to the online learning v. state regulation tension • Unknowns: 1) SHEEO’s capacity to shape state action, 2) DOE’s stance on school delay until mid-August SHEEO report

35. Next steps for Eduventures on this issue • Eduventures will continue to monitor developments, and will provide another update around the end of April 2011 • Eduventures member institutions are encouraged to contact the author, or their Account Manager, to seek clarification on particular circumstances • Eduventures Consulting Services is working with a number of schools to coordinate specific authorization processes • Eduventures will continue to work with The Presidents’ Forum, WCET, SHEEO, Dow Lohnes and others focused on state regulation and distance learning • To address questions to the author, please contact: Richard Garrett Managing Director Continuing & Professional Education Learning Collaborative Online Higher Education Learning Collaborative 617-532-6081 rgarrett@eduventures.com