Institutions should consult with counsel to understand the risks associated with continuing to disburse aid to California students based on the revised complaint process that the Department expects California to implement.

Late on Friday, August 2, 2019, the U.S. Department of Education sent a letter to the California Department of Consumer Affairs that rejected California’s proposed complaint process for Californians attending online programs offered by out-of-state public and nonprofit institutions, but provided a clear path to compliance and a promise not to disrupt federal student aid, assuming California takes the steps outlined in the letter. We previously summarized aspects of the 2016 State Authorization Rule in our July 23, 2019, and July 26, 2019, Alerts.

Here are four key takeaways from the Department’s letter.

1. Federal student aid to Californians will not be disrupted IF California takes the steps outlined in the letter to meet the 2016 State Authorization requirements.

The Department’s August 2 letter “assumes” California will do three things: (1) modify its plan to refer student complaints to a California state agency for adjudication, (2) require a California state agency to oversee the investigation of the student complaints and resolve them, according to applicable California state law, and (3) receive complaints regarding issues starting from at least May 26, 2019, the date that the 2016 regulations went into effect.

The letter states that “with those modifications made, the Department will consider California to have had an acceptable plan in place dating back to May 26, 2019. Thus, no student will experience an interruption in his or her education or federal student aid.”

Institutions should consult with counsel to understand the risks associated with continuing to disburse aid to California students based on the revised complaint process that the Department expects California to implement.

2. A complaint process that simply refers the complaint to another agency does not meet the requirements of the 2016 State Authorization Rule.

The Department’s letter clearly states:

To the extent that the process proposed by California involves simply referring a complaint to an institution’s accrediting agency or another agency in the State in which the institution is located, it does not appear to comply with the 2016 regulations. It would be difficult for an accrediting agency or an agency in another State to enforce applicable California laws, and without participating in a reciprocity agreement, California could not simply refer student complaints to the State in which the institution has a physical presence. Moreover, it appears that in some instances you would be depending upon non-California entities, such as accreditors or other States, to “investigate and resolve” a complaint.

The Department’s letter confirms that there must be a state agency where the student resides that is responsible for “oversee[ing] the investigation of a student complaint and issu[ing] a final determination to resolve that complaint.”

3. A state’s attorney general may be responsible for investigating and resolving student complaints against out-of-state institutions. This could be helpful for non-SARA participating schools, such as California-based institutions, in their efforts to comply with the rule’s documentation and public disclosure requirements.

Institutions are required under the 2016 State Authorization Rule to document and disclose publicly to prospective and current students the complaint process applicable to their institution in each state where they have students attending online programs. 34 C.F.R. § 600.2(c)(2), 668.50(b)(3).

The Department stated in its July 29, 2019, press release that “the 2016 regulation would deny federal aid to a number of students receiving distance education because their institutions cannot meet the complaint process requirement in one or more states.” [Emphasis added.]

Although the Department has not singled out any state other than California as having an insufficient process, the initial burden is on the institution to identify, document and publicly disclose such a process. The Department noted in its guidance:

Institutions will be asked to provide documentation of the State’s complaint process when an institution is seeking certification or recertification or if a question arises due to a complaint, program review or audit, not on an annual basis. The Department will subsequently determine if the State’s complaint process is compliant with the State authorization regulations. This same process is currently used for institutions under § 600.9(a) and (b). If the Department determines that the complaint process is not compliant with the State authorization regulations, it will notify the institution and subsequently work with the institution to address this issue. 81 Fed. Reg. 92,232, 92,238 (Dec. 19, 2016).

California-based institutions and other non-SARA participating institutions often offer online programs to students in other states under exemptions, or are otherwise not subject to licensure due to their lack of a physical presence. Many of the state educational agency complaint processes in those states apply only to institutions authorized or licensed by the agency. As a result, it does not appear that out-of-state institutions that are not authorized can meet the regulation’s requirement to document and publicly disclose “a State process for review and appropriate action on complaints . . . concerning the institution” [emphasis added] in the state where the student resides by documenting and disclosing that state’s educational agency’s complaint process. However, the Department’s August 2 letter confirms that a student complaint process overseen by the state’s attorney general may be an appropriate alternative.

It is important for institutions to understand that even if the Department does not take action against a school for noncompliance with the 2016 State Authorization Rule, non-compliance even for a short period could result in compliance audit findings and creates a risk of litigation.

4. The requirements of the 2019 State Authorization Rule will be designated for early implementation to the extent possible.

It is expected that the 2019 State Authorization Rule will remove the requirement for a complaint process at issue in the 2016 rule. In guidance provided with the new proposed rule, the Department stated the “change will ensure that students who are located in States without a complaint process for students enrolled in distance education or correspondence courses are not prevented from receiving title IV, HEA assistance.” 84 Fed. Reg. 27,404, 27,414 (June 12, 2019).

The Department’s August 2 letter confirms this expectation and states “institutions will be provided greater flexibility in the future to rely on the complaint process of the State in which the institution is located in the event that the State in which the student is located has no relevant complaint process in place.” The Department’s letter further states that the “Department intends to publish [the new 2019 regulations] for early implementation as soon as possible.”

Until that future time, institutions must take all reasonable steps to comply with the 2016 State Authorization Rule.