States

States have played a role in the oversight of public colleges within their borders since the formation of public colleges in America’s early days.¹ Well over half of states have adopted performance-based funding models that seek to redirect some or all funding to public institutions that meet key outcome metrics like graduation and retention rates.²

But more often, states have taken a back seat in overseeing the private colleges that enroll their students, beyond providing basic approvals. Many do not include private colleges in their state data systems.³ Without access to good data, those states have less information about private colleges and their outcomes than they do about public schools. State authorization and oversight requirements also vary considerably from state to state. Some states require only a minimal application from colleges located there; others require a more involved process, financial contributions to protect students, and/or disclosures. Some states ceded (or did, until the last decade) their role in the triad entirely to accreditors for the purposes of federal student aid eligibility under the HEA, permitting institutions to consider themselves authorized if they had obtained accreditation.⁴

In part, state authorization has often fallen short of its potential as a regulator of colleges because of deep constraints in staff capacity. A recent study from the State Higher Education Executive Officers association (SHEEO) found that, of 70 state authorizing agencies across the country, all have consumer complaint systems, but there is considerably more variation on other consumer protection measures. For instance, only 62 have required refund policies; just 23 require a student protection fund; and many do not require institutions to meet any student outcome metrics, with 43 looking at graduation rates and only 31 requiring any student outcome data beyond that.⁵

There have been attempts, albeit sometimes short-lived, to improve states’ oversight of institutions. Chief among those was the development of state postsecondary recognition entities, or SPREs. In the wake of the Nunn hearings that found such ineffective oversight by the triad, the 1992 Higher Education Act created SPREs specifically to beef up states’ roles. The law provided funds to states in exchange for increased capacity and oversight activities with respect to colleges.⁶

Over the objection of the higher education lobby, the version included in the law took an expansive view of oversight, requiring states to look at academic quality and student outcomes like dropout rates, job placement rates, and licensure exam pass rates, rather than just asking states to prevent predatory practices, as had been originally proposed.⁷ Around the same time, President George H. W. Bush lost the election, leaving the implementation of SPREs to the brand-new Clinton administration, which required that states develop SPREs, that each SPRE submit a plan to the Education Department for approval, and that SPREs conduct reviews of any institution that triggered even one of 11 statutory criteria—which the Department later determined included about 2,000 institutions.

With 2,000 colleges in the crosshairs, it was not long before industry voices—led by the National Association of Independent Colleges and Universities (NAICU)—won out. After a loud fight from the sector, the SPREs were swiftly killed when Congress changed hands after the 1994 elections, during the so-called “Republican Revolution.”⁸

"With 2,000 colleges in the crosshairs, it was not long before industry voices won out. The SPREs were swiftly killed during the so-called 'Republican Revolution.'"

If there are lessons to be learned from SPREs, they are clearest in the constraints of the effort. The higher-education industry, particularly beyond the for-profit sector, is unaccustomed to oversight and accountability; it chafed at the very notion of SPREs and fought vigorously against the law. States have significant variability in capacity, and have substantially different problems within their borders; they chafed under a one-size-fits-all regime. And once the money was off the table when Congress defunded SPREs in 1995, most of the capacity and oversight structures states had built up for colleges receiving student aid dollars fell away, returning most states to just where they had been a few years earlier.⁹

But that was not the last time policymakers would seek to bring some order to the chaos of state authorization. Concern over inadequate authorization requirements came to a head again in 2007, when California entirely eliminated its state authorizing agency for for-profit colleges by letting the legislation that authorized it lapse.¹⁰ When the state’s lack of any oversight body for an entire swath of colleges resulted in absolutely no consequences for schools—including no loss of federal financial aid eligibility, despite a requirement in the Higher Education Act that schools be authorized by the state in order to access Pell Grants, student loans, and other aid—it became clear that there were untenable cracks in the triad.

The Education Department sought to remedy the situation by clarifying for colleges and universities what “state authorization” meant. Regulations published in 2010 laid out several new requirements for state authorization. In short, institutions would be required to follow a process for affirmative approval by the state, meaning either the state named the institution as authorized through state law or constitution, as is often the case for public colleges, or the institution met any state requirements to obtain and maintain authorization, with a few exceptions.¹¹ All institutions were also required to ensure their states had a process to “review and appropriately act on” complaints about the college.

The regulations were delayed to allow adequate time (and then some) for implementation, and the Department worked with states and colleges to ensure compliance when they were ultimately implemented in 2015. But while the rules established a firm baseline for the oversight of institutions in every state, they did not require that oversight to be effective. In fact, no institutions actually lost eligibility because of the new rules, and some states continued to rubber-stamp authorization for their colleges.

In 2014, the Department conducted another rulemaking—finalized two years later—to clarify the circumstances of institutions operating online programs in multiple states.¹² Institutions with online programs had always been subject to state requirements for distance-education programs, but states often did not have effective enforcement mechanisms to monitor schools without a physical presence in the state. Without federal consequences, institutions with fully online programs could state-shop, setting up their headquarters in a state with lax rules and leaving the residents of states with stricter rules unprotected. The final regulations required that colleges offering online programs meet the authorization rules of states where they enroll students, if any; and that those states must have complaint processes that include a process for reviewing and acting upon the complaints of their residents enrolled in institutions that are based out-of-state.

The Department also clarified, in that regulation, that colleges could meet the authorization requirements for online programs through an interstate reciprocity agreement, like NC-SARA, an organization founded by industry members to ease cross-state authorization, of which 49 states and nearly 2,000 institutions are participants.¹³ But, the Department warned, reciprocity agreements could not, as NC-SARA currently does,¹⁴ forbid states from enforcing their other higher education laws, like requirements that schools comply with state refund policies or make certain disclosures to students. NC-SARA would have to make a change.

That rule was published just weeks before the transition to the Trump administration and was scheduled to take effect 18 months later. Just before the effective date, the Department set about re-writing the regulation through negotiations with industry. And after a delay of the regulation by Education Secretary Betsy DeVos later determined by a court to be unlawful, the Department summarily announced that out-of-state private nonprofit and public colleges operating in California (the lone holdout in joining NC-SARA) were ineligible to receive federal aid for California residents, because the state lacked an adequate complaint system. Within a week, the state had set up such a system, and the Department dropped its claims of ineligibility. But the Department-created crisis had spooked enough policymakers to give cover for the Trump Administration to walk back the 2016 requirement that every state have a comprehensive complaint system covering its own residents enrolled online, further undermining states’ roles and responsibilities in the program integrity triad.¹⁵ The Department recently published a regulation back-tracking on the complaint system provision and in preserving states' authority to enforce their laws—another step forward and two steps backward for state authorization.

In many ways, states are the least consistent of the members of the program integrity triad. There are, and always will be, states that spend few resources on oversight, and other states that work hard to ensure colleges serve their residents well. Moreover, some states face challenges far more significant than other states, thanks to a heavier concentration of for-profit and poor-quality colleges. Many states also face serious political challenges; taking action against poor-performing institutions often leads powerful, popular institutions to appeal to state political leaders or to bring their concerns to the court of public opinion. Yet all states should be held to a minimum bar, a baseline that ensures basic consumer protections for all students, regardless of the state in which they live. These recommendations seek not just to bolster states’ roles, but also to rebalance and strengthen the entirety of the program integrity triad.

"All states should be held to a minimum bar, a baseline that ensures basic consumer protections for all students."

• Require states to do more than rubber stamp colleges. The current authorization requirements set a baseline for state responsibilities, but it is a very low baseline. In response to the 2010 regulations, some states that were not inclined to spend time or resources on oversight simply started printing authorization documents with words that mimicked the regulations, but did not require colleges do anything more than send a name and address to receive the authorization.¹⁶ States should be required to perform at least minimal oversight over colleges and should report to the Department on the types of oversight they perform. The federal government should require states to play a role in protecting students, rather than make possible meaningless bureaucracy for states that do not want to do any work.
  • Shift some responsibilities from accreditors to states. As noted in the previous section, accreditors have largely failed in their obligation to ensure institutions improve outcomes for students, and to remove approval of institutions that will not. Given that accreditors would, under this proposal, dedicate more resources to the consideration of student outcomes, it is also appropriate to shift some responsibilities away from accreditors. Already, 64 of 70 state authorizing agencies have policies in place related to institutions’ facilities.¹⁷ Given that states are already where colleges are located, states should be expected to set—and institutions should be required to meet—requirements surrounding facilities and equipment. Additionally, states set licensure requirements and are closest to the local labor market needs of programs offered in their states; measures of program length should also be in the primary purview of states, rather than accreditors. Forty-seven of 70 state authorizing agencies already do so. ¹⁸
• Strengthen states’ roles in protecting consumers of higher education. States bear a large responsibility for setting and enforcing consumer protection standards of colleges but have often neglected the role. Regulatory roll-backs have made those challenges worse. States should be expected to meet these two, key provisions on behalf of their residents:
  • Collect and refer complaints as appropriate. It is widely accepted that states are responsible for accepting and reviewing the complaints their denizens submit. All 70 state authorizing agencies already do so. But within those complaints are trends, facts, and patterns that may be of critical importance to the rest of the triad. While some states already share complaints with other members of the triad on occasion, that is not always the case. States should be directed to refer all complaints about institutions of higher education that relate to academic quality, fraud or misrepresentation, federal financial aid, or other core matters to the relevant accreditor, other states, and to the U.S. Department of Education. This would minimize much of the ad hoc information-trading that happens now, and could streamline the process of resolving complaints.

    While NC-SARA does compile complaints about member schools, the process vastly limits the ability for students to have their complaints resolved by their own states, because it defers to the institution’s home state.¹⁹ Moreover, data are not automatically forwarded to other states (or to the accreditor or the Department of Education), nor are they publicly available by institution. On the other hand, consider the Federal Trade Commission’s Consumer Sentinel, a database made available to all federal, state, and local lawmaking agencies, with annual reports that detail trends and volume in the complaints received.²⁰ A central database, accessible by all members of the higher education triad, may ease logistical challenges and standardize the information available to all institutional regulators.

  • Subject online colleges to rigorous oversight. For too long, online colleges have been able to slip through the cracks of federal oversight. Since the law was changed to permit entirely online institutions in 2006, online enrollment has exploded. In 2003, fewer than 50,000 students were in entirely online programs; by fall 2017, 3.1 million were, including almost half of all students in for-profit colleges.²¹ But a lack of clarity about where and how the rules apply has let many of them evade accountability in states with rigorous requirements. While a lot is promised by online education, including lower costs and more flexibility for non-traditional students, the reality doesn’t always live up to the promise. Though online programs can and do work very well for some students in some programs at some schools, the consumer protection implications are significant for those that don’t, given how easily online programs can and do scale. Online colleges have shown higher dropout rates and lower completion rates, and can be as or more expensive than brick-and-mortar institutions.²²

    States can and should regulate online institutions that operate within their borders; and states should collect complaints on behalf of all of their residents, regardless of whether the institution is physically located within the state. Given the ability to scale, online programs should also be subject to stronger oversight of their marketing and recruitment practices, and held accountable for poor outcomes. These basic promises to their residents are the core of states’ consumer protection commitment.

• Help states to triage the challenges in their states. While the challenges of higher education oversight appear in all states, particular challenges are not all the same across the board. Wyoming is home to a single for-profit college (Cheeks Beauty Academy); New York hosts over a hundred.²³ While 5 percent of Tennessee undergraduate students are enrolled entirely online, 45 percent of Arizona undergraduates are.²⁴ Moreover, states have variable capacity; many have bare-bones staff. If the federal government supports states in understanding their institutions, states will be better able to triage their problems and automate it where possible.
  • Provide data feedback reports to states on the outcomes of their institutions. Given the challenges many states face in collecting information related to the outcomes of private postsecondary institutions enrolling their students, the Education Department can help fill a significant gap. The Department should provide data reports, comparable to the accreditor dashboards it provides to accrediting agencies and NACIQI members annually,²⁵ directly to states, complementing the other information-sharing efforts we propose. Pending bipartisan, bicameral legislation—the College Transparency Act—would already require this, directing the National Center for Education Statistics to produce and share program- and institution-level information about institutions within a state “on measures including student mobility and workforce outcomes,” with the specific metrics determined by an advisory board that includes representatives of state authorizers.²⁶ The Department should establish a state liaison to provide technical assistance in understanding and analyzing the data, share best practices across state borders, and facilitate closer coordination among members of the triad.
  • Provide coordinating grants to states to align oversight across federal programs. Currently, no federal or state entity ensures coordinated oversight of colleges that participate in programs across federal agencies (including veterans benefits, service member benefits, workforce programs, research grants, and other federal programs). The SPREs showed that too strong a directive to states has the potential to backfire. But relatively small grants could help align state oversight. Additionally, states could review institutions for patterns that need to be investigated or addressed, increasing efficiency and promoting holistic, comprehensive reviews. States could also use the grants to identify a gap or problem supported by the data, build systems that identify poor-performing institutions, set data-driven standards for colleges, and establish the necessary reviews and sanctions to ensure improvement or loss of authorization. And with additional state buy-in, these types of automatic standards for review could help to preserve the state’s authority in the face of political push-back. The oversight grants could be structured as a small set-aside for states in a state-federal partnership program like the ones proposed in various free college and free community college efforts. In any case, even relatively small amounts of money may offer sufficient resources to help states make progress in their oversight work.