California Taking a Break in Online Education Dance of Elephants

Back in July I wrote a mini-rant Twitter thread ¹Read the terms, I believe you are are required to rant on Twitter, or at least to join a virtual mob. triggered by tens of thousands of California residents losing access to federal financial aid for their online education studies at out-of-state schools. My basic argument was that we were witnessing the consequences of a dance of elephants – triggered by activists who were targeting for-profit institutions, nonprofit conversion institutions, and Online Program Management (OPM) companies – with students caught in the middle.

The issues arose from three legislative actions:

• California is the only state that has not joined the State Authorization Reciprocity Agreement (SARA) that seeks a common framework for student complaint handling and registration for institutions offering online education to students across the country.
• Due to a lawsuit from consumer advocacy groups, the US Department of Education was forced to implement 2016-era rules requiring consumer complaint handling in order for students to receive financial aid, despite new rules that resolve the issue as of July 1, 2020.
• A package of seven bills was introduced in the past year in California increasing regulation and oversight of for-profit institutions as well as online education programs.

The first and second actions led to the July loss of financial aid for students, although under intense pressure, California regulators quickly implemented needed changes to solve the initial problem. Ironically, after California rejected joining SARA due to “this lack of consumer protection for distance education students in California”, yet the entire issue this summer was based on California not having basic consumer protections handling student complaint handling. Tens of thousands of mice not enjoying the dance.

The big news of the past week is on the third legislative action, as the three bills with the most far-reaching implications for online education were put on hold, at least for the remainder of the year. As CooleyED described five days ago:

After returning from recess on August 12, the California Senate Appropriations Committee took up the package of six remaining higher education bills intended to address concerns about private postsecondary education providers in the state, sending three forward for floor action and holding three bills under submission in committee, meaning they will not be considered for further action in 2019. [snip]

Three bills were held under submission, meaning they will not proceed to a floor session or further voting in 2019. Further, unless these bills are placed into “two year” status by the Senate Appropriations Committee, the bills will not be considered in their current form for the remainder of the legislative session, which runs through 2020, requiring them to be introduced anew after the end of this year.

The three bills held under submission:

• AB 1341, which would have enabled the California Attorney General “discretion to determine that an institution is not a nonprofit entity for California education regulatory purposes, even if it is recognized by the Internal Revenue Service as such”.
• AB 1342, which would have required California AG review of certain transactions (e.g. sale of college, change of material responsibilities or governance) between nonprofit colleges and for-profit or mutual benefit corporations. This was mostly targeted at recent nonprofit conversions such as Purdue Global, Grand Canyon University, or (if approved) Ashford University.
• AB 1345, which would have prevented schools from using incentive compensation agreements with for-profit corporations. This one would have had a big impact on OPM companies or any others with tuition revenue-sharing agreements.

In all cases, the scope is based on the Bureau of Private Postsecondary Education (BPPE), which governs both nonprofit and for-profit institutions operating in California, although there are many (changing) exemptions for nonprofit schools to take them out of scope.

The remaining bills going to a house vote deal with gainful employment, expansion of registration requirements for out-of-state institutions, and broadening the scope of student financial relief beyond tuition payments (think Corinthian Colleges and what those students can recoup).

What I’d like to believe happened is that state legislators realized the mistake in outsourcing the bills to activists primarily targeting for-profits and OPMs, rather than focusing primarily on students. In other words, hopefully the financial aid snafu this summer is leading legislators to better understand the stakes involved. The legislative process at work.

The question is not whether to regulate for-profits, nonprofit conversions, or OPM agreements. The question is how to do so – at the state or national level – and whether such regulation can avoid conflicting rules that further complicate the options for institutions with online education programs. And more importantly, whether the regulation helps rather than hurts students. What changed last week is that the state of California backed off from their approach to set de facto national policy, at least for the current legislative session.

By far, the best coverage on these issues comes from the CooleyED blog. I recommend reading their recent post in full for those wanting more details.