Examining the States’ Role in Protecting Online College Students from Predatory Practices: Part II
State Higher Education Consumer Protection Laws and Interstate Reciprocity
Federal regulations currently allow for state authorization of out-of-state distance education schools that lack an in-state physical presence through “state reciprocity authorization agreements.” For the purposes of this paper, we refer to a state where a school has its legal domicile or main campus (according to its accreditor and/or the Department) and has state authorization as the “home state,” while we refer to states where a school offers distance education but lacks a physical presence (for example, a brick-and-mortar campus) as “distant states.” The federal regulations provide that as long as a school is authorized by a home state that is a member of a state authorization reciprocity agreement, the institution need not individually obtain authorization from each signatory distant state to offer distance education to students in those states. The reciprocity agreement essentially provides that the home state’s authorization stands in for the distant state’s authorization for purposes of Title IV eligibility.
As discussed in the companion paper, the Department has defined the criteria required for state authorization reciprocity agreements on several occasions. Current federal regulations, however, allow state authorization reciprocity agreements that prohibit member states from enforcing their higher education specific consumer protection laws against out-of-state distance education schools, even though consumer protection is the primary purpose of the HEA’s state authorization requirement. This is exactly what the sole state authorization reciprocity agreement currently in existence, called the Unified State Authorization Reciprocity Agreement requires. This agreement and the SARA Policy Manual, with which member states must also comply, are collectively referred to in this paper as “SARA” unless otherwise specified. SARA only allows distant member states to enforce “general-purpose laws” against covered out-of-state schools, while the home states may only enforce SARA requirements to protect out-of-state students. This means distant states that join SARA—which currently include the District of Columbia, Puerto Rico, the U.S. Virgin Islands, and all states except California—may only enforce laws that apply to “all entities doing business of any type in the state,” such as false advertising laws and laws prohibiting unfair and deceptive acts and practices (UDAP laws), against covered out-of-state schools. It also means that distant states are prohibited from enforcing laws that are limited in application to “entities delivering postsecondary education in the state,” even if institutions are harming students within their borders.
SARA could also be read to prohibit states from enforcing laws that are limited in application to other business sectors, such as higher education financing. SARA defines a “general-purpose law” as “one that applies to all entities doing business of any type in the state, not just institutions of higher education.” Many state laws do not apply to all entities doing business of any type, but are also not limited to institutions of higher education. For example, some states have laws apply only to entities that arrange, make, and/or collect on private student loans, which can include institutions of higher education. As a result, SARA may also prohibit states from enforcing these types of laws. Throughout this paper, we refer to state laws that are only applicable to a subset of businesses, collectively, as “state higher education consumer protection laws.”
Although SARA replaces these specific state higher education laws with a set of policies to guide states and institutions, this paper will explain how these policies contain few similar consumer protection requirements. Indeed, as demonstrated below, in comparison to state higher education specific consumer protection laws, SARA’s consumer protection standards are either non-existent or far weaker than many state’s laws.
In the prior federal rulemaking negotiations regarding the state authorization reciprocity regulation between 2010 and 2019, neither the Department nor stakeholders meaningfully considered the specific provisions that make up state higher education consumer protection laws or the reasons they are needed. The Department commenced another negotiated rulemaking proceeding in January 2024 to reconsider the state authorization and reciprocity agreement regulations. To better inform this and future policy discussions about the scope of state authorization reciprocity, we provide a detailed description of the variety of state laws that are specifically limited to institutions of higher education or a subset of related businesses that often include such institutions. Given the risks posed by online education to students and taxpayers, any future rulemaking around state authorization and reciprocity should carefully consider whether reciprocity agreements may prohibit states from applying their state higher education specific consumer protection laws against covered schools and, if so, to what extent.
