Opinion: Ed Dept’s State Authorization Rule Does More Harm than Good

The U.S. Department of Education’s recent effort to regulate the state authorization of online for-profit colleges was unnecessary and misguided — but not for the reasons the for-profit higher education industry has given.

Over the last half-dozen years or so, the Department of Education has distributed massive amounts of federal financial aid to online for-profit schools that were unlicensed in the states in which students were being enrolled. By doing so, the Education Department flagrantly violated the Higher Education Act, which requires schools to have a state license to participate in the federal aid programs. As a result, the Department wrongly allowed these unlicensed schools to feast on billions of dollars of Pell Grants and federally-backed student loans they received on behalf of their students.

Rather than admitting to this extraordinary mismanagement, the Education Department put into effect a “state authorization” regulation that basically reiterates what’s already in the law: that online schools must obtain a license from states in which students are being enrolled to benefit from federal financial aid. Issuing a regulation that simply repeats the existing Higher Education Act requirement is counterproductive — as it suggests that the statute, by itself, does not already include this mandate.

The for-profit higher education industry would like nothing more than to undermine the statutory requirement. That is abundantly clear from a lawsuit that the industry’s main lobbying group filed against the Education Department in the U.S. District Court for the District of Columbia, challenging the state-authorization rule. In the lawsuit, the Association of Private Sector Colleges and Universities complains that the Department did not provide schools with adequate notice that the licenses issued by the state must contain the name of the school licensed. Yes, you read that right — the group is actually arguing that states can authorize an institution without employing that institution’s name. Added to this voodoo legal stance is the schools’ argument that requiring the states to actually put the name of the school in the license is an unconstitutional encroachment by the federal government on the states rights to issue blanket licenses.

In July, the federal district court in DC ruled that the proposed state authorization regulation was not published sufficiently in advance to apprise the online schools they are required to obtain a license in every state where they are enrolling students. The state licensing requirement has been on the books since the Higher Education Act was first passed in 1965! The case now moves to the DC Court of Appeals. Should the appeals court side with the lobbying group, it could do great damage to the authority of states to license online schools, despite the failure to join the parties most essential to a fair and complete adjudication of the licensing issue, i.e., the 50 States whose licensing authority is under challenge. The states’ attorneys general should seek dismissal of this action tried without their participation.

The state attorneys general can not afford to sit idly by while their licensing authority over online colleges is under assault. They must get involved in this case to ensure that the Education Department’s ill-conceived regulation does not result in a court decision that quietly revokes the power of the states to license and govern the online schools enrolling their students. In addition, the state attorneys general should also sue the Education Department to immediately block any further payment of Title IV federal student aid funds to schools that do not have a license to offer courses in their states.

For years, the Department of Education has looked the other way while the for-profit college industry operated in brazen disregard of the most basic requirements for receiving federal student aid funds, causing untold damage to students and taxpayers alike. No matter how well intentioned, the Department’s state authorization regulation cannot remedy the harm that has been done. And in fact, it could very well make things much worse.

Scott Levy practices law in Houston, Texas. He has litigated claims on behalf of the federal government for fraud, neglect, waste, and abuse, both directly and under the False Claims Act, throughout his career. Levy worked at the New York office of Milberg LLP pursuing accounting malpractice claims on behalf of the FDIC. He is a graduate of Columbia University and Tulane Law School. His views are his own and do not necessarily reflect those of Higher Ed Watch or the New America Foundation.


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