CFED Scorecard

CFED Assets & Opportunity Scorecard

Education
For-Profit School Regulation
Overview

In recent years, the for-profit post-secondary education industry has grown at a considerable rate and with it, so have fraudulent practices. Such practices include recruiting students illegally by advertising misleading post-graduation job placement information and inflating grades. Additionally, for-profit schools often prioritize profit over quality of education. As a result, students are left with substantial student loan debt, but without the skills and experience to enter the labor market. Many of these schools have historically targeted students who are not adequately served by traditional post-secondary institutions, including minorities and low-income individuals. Federal oversight and restitution for students is limited, which is why states play an important role in regulating for-profit institutions.

What States Can Do

States can protect students from abusive practices by for-profit schools by creating a State Tuition Recovery Fund, which provides students with financial compensation when a for-profit school closes, goes bankrupt or commits fraud through its recruitment and enrollment processes. State Tuition Recovery Funds are generally funded by fees the state collects from schools approved to operate in the state.

States can also require for-profit schools that operate exclusively online to apply for authorization to recruit or enroll students in their state. Authorization allows states to judge the qualifications and legitimacy of new post-secondary institutions and assures students that schools are complying with state administrative, operational and educational standards.

The U.S. Department of Education has recognized the importance of states regulating distance learning programs offered by schools that do not have a physical presence in the state. The Department is currently considering regulations that would require states to authorize all distance education programs. Unfortunately, The National Council for State Authorization Reciprocity Agreements and four higher education regional compacts are attempting to circumvent these regulations by drafting State Authorization Reciprocity Agreements (SARAs) that allow state oversight agencies in states where the distance education programs are offered to adopt the authorization of a school’s home state, or where it is physically located.

Essentially, SARAs allow states to claim they have authorized an institution to recruit and enroll students in their state because the school is authorized by its home state. While the home state might regulate a for-profit institution’s brick and mortar operations, it is not necessarily regulating the distance learning program and thus, SARA allows distance learning programs to go unregulated.  

Strength of State Policies: For-Profit School Regulation

Does state compensate students if a for-profit school
closes or commits fraud? 1
Does state regulate for-profit schools
that operate exclusively online? 2
StateTuition compensation?Effective online regulation?Requires distance learning authorization? 2Authorization undermined by State Reciprocity Agreements? 3
Alabama Yes Yes
Alaska No Yes
Arizona No Yes
Arkansas 4 Yes Yes
California No No
Colorado No Yes
Connecticut No No
Delaware 5 No No
District of Columbia 6 No No
Florida No No
Georgia Yes Yes
Hawaii No Yes
Idaho No Yes
Illinois No Yes
Indiana Yes Yes
Iowa 7 No Yes
Kansas Yes Yes
Kentucky 8 No No
Louisiana No Yes
Maine 9 No Yes
Maryland No Yes
Massachusetts No No
Michigan No Yes
Minnesota 10 No Yes
Mississippi No Yes
Missouri No Yes
Montana Yes Yes
Nebraska 11 No Yes
Nevada No Yes
New Hampshire No Yes
New Jersey 12 No No
New Mexico No Yes
New York No No
North Carolina No Yes
North Dakota No Yes
Ohio No Yes
Oklahoma 13 No Yes
Oregon No Yes
Pennsylvania No No
Rhode Island 14 No No
South Carolina No No
South Dakota Yes Yes
Tennessee No Yes
Texas 15 No Yes
Utah Yes Yes
Vermont No Yes
Virginia 16 No Yes
Washington 17 No Yes
West Virginia No Yes
Wisconsin Yes No
Wyoming Yes Yes

Notes on the Data

1. States are given credit if National Consumer Law Center's Student Loan Law Manual lists a State Tuition Recovery Fund agency for that state. State Tuition Recovery Funds are deposits of money collected from schools approved to operate in the state. Loonin, Deanne, Student Loan Law: Fifth Edition, (Boston: National Consumer Law Center, 2015), 290.

2. States are given credit for regulating for-profit schools that operate exclusively online if the state requires distance learning classes and schools to be authorized by the state and state oversight agencies have not signed on to State Authorization Reciprocity Agreements (SARA) or legislation has NOT passed allowing higher education oversight agencies to sign on to SARA, which undermines state distance learning authorization. Loonin, Deanne, Student Loan Law: Fifth Edition, (Boston: National Consumer Law Center, 2015), 547-559.

3. States that sign on to SARA do not authorize distance learning education programs in their state but adopt the authorization decisions made by the institution's home state or territory. "State Actions Regarding SARA," National Council for State Authorization Reciprocity Agreements. Accessed July 8, 2015.

4. In addition to a State Tuition Recovery Fund, Arkansas also has surety bonds for certified institutions. Surety bonds, which schools maintain, will typically refund a student's tuition if the school closes or if the school fails to uphold the contract it signed with the student. For more information see "State Inaction: Gaps in State Oversight of For-Profit Higher Education," National Consumer Law Center, December 2011.

5. Delaware requires for-profit and nonprofit schools offering business or trade and industrial distance learning courses to be authorized, but does not require all other distance learning programs to be authorized.

6. According to the State Higher Education Executive Officers Association, the District of Columbia does not regulate schools that operate exclusively online. "State Higher Education Executive Officers Association: State Authorization Surveys," State Higher Education Executive Officers Association. Accessed July 8, 2015.

7. Iowa requires every person, firm, association or corporation conducting any post-secondary educational course by correspondence to be authorized but degree granting courses are not required to be authorized.

8. Kentucky requires for-profit schools offering distance learning programs that lead to an associate degree or lower to be authorized but does not require distance learning programs that lead to a higher degree to be authorized.

9. Maine determined that State Board of Education requiring authorization of distance education programs without a physical presence in the state is unconstitutional based on interference with inter-state commerce and policing beyond state borders.

10. Minnesota requires degree granting institutions to be authorized. Non-degree granting institutions do not require authorization.

11. Nebraska requires private postsecondary career schools distance learning programs that do not offer baccalaureate or higher degrees to be authorized but does not require all other distance learning programs to be authorized.

12. New Jersey requires for-profit or non-profit entities that recruit or instruct for entry-level employment to four or more students at one time to be authorized, but all other degree-granting institutions are not required to be authorized.

13. Trade schools offering distance learning programs to Oklahama students are required to be authorized, but the state does not require all other degree-granting distance learning programs to be authorized.

14. Rhode Island requires individuals or organizations offering distance learning courses for consideration in or from a place of business in the state to be authorized. All other degree-granting private schools are not required to be authorized.

15. Texas requires for-profit or non-profit career schools offering distance education courses to prepare a person for a business, trade, technical or industrial occupation to be authorized. All other private postsecondary educatinal institutions are not required to be authorized.

16. Virginia requires non degree-granting courses to be authorized by the state. Degree-granting programs are not necessarily required to be authorized.

17. Institutions offering distance learning programs that lead to educational credentials as a prerequisite to an academic or professional degree must be authorized in Washington. All other distance learning programs do not require authorization.

How States Are Assessed

States receive credit for Student Tuition Recovery Funds if the National Consumer Law Center’s Student Loan Law Manual Fifth Edition lists a State Tuition Recovery Fund agency for that state.

States receive credit for regulating for-profit schools that operate exclusively online if the states meet the following two requirements: (1) they require distance learning classes and schools to be authorized by the state and (2) they do not undermine that authorization by: (a) passing legislation allowing higher education oversight agencies to apply to become a SARA state, (b) applying to become a SARA state, or (c) already being approved as a SARA state by the National Council for State Authorization Reciprocity Agreements. "Being a SARA state" means the state permits the use of State Authorization Reciprocity Agreements (SARAs) that allow state oversight agencies (in states where the distance education programs are offered) to circumvent their own authorization of a school by adopting the authorization of a school’s home state, or where it is physically located.

What States Have Done

Many states recognize the importance of creating and sustaining State Tuition Recovery Funds. Twenty-one states have State Tuition Recovery Funds.

Fewer states have recognized the importance of authorizing for-profit schools without a physical presence in the state. Only ten states require for-profit schools that operate exclusively online to be authorized by the state. Thirty-three states have passed legislation allowing their higher education oversight agencies to circumvent regulations by signing on to State Authorization Reciprocity Agreements. Twenty-nine states have already been approved to join these Agreements, which is up from nine in July 2014. In total, only one state—Wisconsin—actually regulates for-profit schools and students that operate exclusively online by requiring for-profits online schools to be authorized and by not signing on to SARA.

Acknowledgements

CFED thanks Robyn Smith from National Consumer Law Center for her input and expertise on this policy issue.

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