Court Deals Second Blow to Federal State Authorization Regulation

This afternoon (June 5, 2012), the U.S. Court of Appeals agreed with a lower court ruling to ‘vacate’ the distance education portion (§600.9c) of the U.S. Department of Education’s ‘state authorization’ regulation.  In last summer’s ruling on a lawsuit challenging the regulation, the U.S. District Court ruled to vacate the distance education portion, but purely on procedural grounds.

When proposing a regulation, the Department of Education is supposed to follow a Notice of Proposed Rulemaking process, which allows the public to comment on suggested rules.  The District Court found that “the State authorization regulations, as this subsection, or any variation thereof, was not included in the notice of proposed rulemaking.”

Dow Lohnes Analysis

Here is an initial analysis on today’s ruling by Michael Goldstein from Dow Lohnes, the Washington, D.C. law firm:

The U.S. Court of Appeals for the DC Circuit has issued its decision in the lawsuit brought by the Association of Private Sector Colleges and Universities (APSCU) to overturn or revise key aspects of the “Program Integrity Regulations” that were published on October 29.2010 and went into effect, with minor exception, on July 1, 2011.   

On the key issue of state regulation of cross-border distance learning, the Court upheld the lower court decision that the rule requiring institutions to demonstrate that they have secured all required state approvals wherever they enroll online students may not be enforced, but it did so on the same basis as the District Court: that the issuance of the rule was procedurally defective. 

As has been often stated, the Administration could choose to reissue the rule, except this time do it right: that is, with appropriate notice and opportunity for the community to provide comments.  However, it is also clear that the Department did not anticipate such a strong push-back on this rule from across the higher education spectrum: virtually every higher education association joined in support of blocking the distance learning authorization rule.   While it is therefore conjectural whether there will in fact be an effort to reissue the rule after the election (depending of course on the outcome), it is also clear that the hornets’ nest of state regulation has been forcefully kicked.  Whether or when the several efforts to arrive at common state standards, reciprocity or some other non-federal mechanism will bear fruit is unclear, but at least for the time being there is no risk of federal enforcement of state requirements.

Otherwise, while for the most part the Court sustained the Department of Education’s rules, there are significant portions of the decision that bear careful analysis.  Notably, the court questioned the reasonableness of parts of the “Misrepresentation” rules as not affording adequate due process protection, and questioned whether the Department had adequately taken into account some key elements in eliminating at least two of the Incentive Compensation “Safe Harbors.”  Stand by.

Don’t Forget — State Regulations are Still in Place

It’s important to note that this ruling affects only the federal regulation and its impact on federal financial aid.  Today’s outcome has NO IMPACT on the regulations of each state.  Those regulations remain in effect and the states still expect you to follow their laws.

Thank you to Michael Lambert from DETC for tipping me on the ruling and to Michael Goldstein for the analysis that he produced in a very short time.

As we learn more, we’ll keep you informed.

Russ

Russell Poulin
Deputy Director, Research & Analysis
rpoulin@wiche.edu

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