Court Rejects ED Rule on Distance Education

July 15, 2011

The United States District Court for the District of Columbia has thrown out the Department of Education’s new rule requiring institutions that offer distance education to be licensed in the states where their students reside, if state law so requires. Ruling on a suit brought by the Association of Private Sector Colleges and Universities (APSCU, formerly known as the Career Colleges Association), the Court found that ED had not provided sufficient notice and opportunity for comment on the provision, which was added at the final rule stage in response to comments received from the public on its proposed rule (which did not mention distance education). At the same time, the Court upheld ED’s rules on incentive compensation and misrepresentation.

The vacated provision, part of ED’s program integrity regulations, has created a great deal of angst among higher education institutions that offer distance education programs. Many were unaware that some states have laws on the books requiring licensure of institutions located in other states if students reside in the state under various circumstances. Even states were taken by surprise when they were inundated with inquiries from colleges and universities about their requirements. In April, ED announced that it would delay enforcement of the provision until 2014 for institutions that could demonstrate a good faith effort to comply.

The practical impact of the court’s ruling is unclear. ED’s regulation had tied the eligibility of distance education programs for Title IV student aid to state licensure, but the state laws and regulations are still in force. Those states with stringent requirements and, in these times of tight state budget outlooks, those with significant fees attached to licensure, may now be more inclined to enforce their rules. Further, ED is free to re-propose its regulation. The judge did not find that there was anything inherently wrong with the rule, but only that it was too different from the proposed rule as published to be imposed without providing an additional opportunity for comment.