News & Insight

Client Alert: Negotiated Rulemaking Committee Reaches Consensus on Proposed Regulations for Federal Student Aid Programs

Earlier last month, the negotiated rulemaking committee (“Committee”) established by the U.S. Department of Education (“Department”) to consider, revise, and prepare proposed regulations for the Federal Student Aid programs, reached consensus on all three buckets of regulatory issues grouped by the Department. The draft consensus language is available here. Because the committee reached consensus, the Department will publish in one or more notices of proposed rulemaking (NPRMs) the consensus-based regulatory language no later than November 1, 2019, since it intends to publish one or more final rules with an effective date of July 1, 2020.

We’ve identified some of the major provisions of the proposed consensus language to track during this rulemaking process:

Key Definitions for Distance Education

Integral to the Committee’s work are changes to several key terms affecting the realm of distance education. The Committee’s proposed regulations defer to an accrediting agency’s qualifications for instruction when recognizing an “instructor” for delivering course content in distance education. “Substantive interaction” is defined as at least two of the identified list of activities in the proposed language:

(1) Providing direct instruction,

(2) Assessing or providing feedback on a student’s coursework,

(3) Providing information or responding to questions about the content of a course,

(4) Facilitating group discussion on the course content, or

(5) Other activities approved by an accrediting agency.

Regular interaction” must include predictable and regular availability over the span of the course and prompt and proactive engagement, as-needed, based on an instructor’s monitoring of a student’s academic engagement and success. “Academic engagement” is defined by the institution pursuant to state or accrediting agency requirements and includes a nonexclusive list of examples that qualify (taking an exam, submitting an academic assignment, participating in a study group, etc.) and that do not qualify (living in campus housing, participating in a meal plan, logging into an online class without any further participation, or participating in academic counseling or advisement). 

Also impacting the realm of distance education are changes to the definitions of “clock hour” and “credit hour.” Under the proposed regulations, a “clock hour” in distance education was defined as 50 to 60 minutes of lecture, lab time, shop training, or internship in a 60-minute period of attendance. The proposed language specifies that for distance education, this time frame must include an opportunity for the student to have direct interaction with the instructor. An institution must be capable of monitoring the student’s attendance for each clock hour and the clock hour definition must meet all accrediting agency and state requirements. Similar to the deference afforded to defining an “instructor,” an institution has wide latitude to take into account a variety of factors when determining the amount associated with a credit hour, as approved by its accrediting agency or state approval agency. Related, an institution’s methodology to reasonably equate modules in a Direct Assessment Program to credit hours or clock hours must be consistent with its accrediting agency or state approval agency. The Committee proposes that all regulatory requirements in Part 668 that refer to credit or clock hours apply to Direct Assessment Programs.

State Authorization

Part 600 proved to be a big area of discussion throughout and up until the final days of the negotiated rulemaking sessions. Part 600 includes state authorization, which was first discussed in meetings of the Distance Learning and Educational Innovation Subcommittee (“Subcommittee”). Tasked with bringing recommendations to the Committee on simplifying state authorization requirements, the Subcommittee quickly rejected the Department’s initial proposal to completely remove federal regulations governing state authorization based on concerns about the enforcement and adherence of state laws. Instead the Subcommittee made several recommendations to make existing guidance more flexible to allow for innovation while enhancing customer protections; many of these proposed changes were ultimately implemented by the Committee.

The Committee significantly revised § 600.9 on state authorization. Some of the key areas of consensus include an institution’s eligibility to disburse Title IV funds subject to its compliance with state requirements (mostly in the context of distance education) either by direct approval or through a state authorization reciprocity agreement. These requirements apply if an institution offers distance education or correspondence courses to students located in a state in which the institution is not physically located or in which the institution is otherwise subject to the state’s jurisdiction, as determined by the state. These requirements also apply to additional location or branch campuses of institutions that are located in a foreign country. Notably, the Committee did not come to an agreement on proposed language redefining a “reciprocity agreement,” and therefore voted to keep the 2016 federal regulatory language promulgated under the Obama Administration.

Another major area of discussion for state authorization revolved around determining a student’s location when analyzing what state rules and regulations apply and whether an institution is compliant with federal regulations. The Committee generally recognized a difference between a student’s physical “location” and a student’s “residence,” particularly when students are taking courses online or remotely. Additionally, the Committee acknowledged the difficulty in tracking a student’s location throughout his or her education in a distance learning program. Accordingly, the Committee’s proposed language provides that the institution, in accordance with its policies and procedures, must make the determination about what state a student is located in. Under the proposed regulations, the institution must apply its location determination process consistently to all students, must provide the Secretary with written documentation of a student’s location, and must make this determination at the time of the student’s initial enrollment or when a student reports that his or her location has changed.

Written Arrangement to Provide Educational Programs with an Ineligible Institution

At the start of the negotiated rulemaking sessions, the Department proposed allowing an ineligible entity to offer 100% of a program with approval from the eligible institution’s accreditor, an increase from the current regulation’s 50%. This expansion was a non-starter for the Subcommittee and Committee negotiators, who expressed concern about the creation of “shell” institutions that would outsource all of their programs to an entity not otherwise eligible by the Department. Following extensive negotiations, the Committee reached a compromise by keeping the 50% limit of the current regulations while permitting the Secretary to recognize ineligible institutions as eligible where the institution can demonstrate experience in the delivery and assessment of the program and where the program has been effective in meeting stated learning objectives. The proposed regulations make clear that written arrangements used to modify curriculum or academic requirements in response to recommendations from industry advisory boards or similar entities are unaffected by the limitations of § 668.5.

End of an Institution’s Participation in Title IV

Another notable change in the proposed language is § 668.26, which permits the Secretary—with agreement from the institution’s accrediting agency and state—to disburse Title IV funds following the end of an institution’s participation in Title IV if the institution:

(1) has notified the Secretary of its plan to conduct an orderly closure according to its accrediting agency’s requirements;

(2) is performing a teach-out approved by its accrediting agency;

(3) agrees to follow the conditions of their Program Participation Agreement, but only as it pertains to students who can complete the program within 120 days of the end of the institution’s participation; and

(4) give written assurance to the Secretary that—(a) the health and safety of its students is not at risk, (b) the institution has adequate financial resources to ensure that instructional services remain available to students during the teach-out, and (c) the institution is not subject to probation or adverse action by its accrediting agency or state authorizing board.

Under these conditions, the Secretary is permitted to disburse Title IV funds for no more than 120 days.


The proposed regulations adjust the definition of “teach-out” to prohibit any institution from misrepresenting the nature of teach-out plans, teach-out agreements, and transfer of credit. Under proposed changes to § 602.24, which dictates additional procedures certain institutional agencies must have, an institution must submit a teach-out plan to its accreditor once the accreditor is notified by the Secretary that the institution has been placed on the reimbursement repayment method. The Committee also expanded requirements for a closing institution’s teach-out agreements to include lists of currently enrolled students, academic programs by the institution, and the names of other institutions that could potentially enter into a teach-out agreement with the institution. Likewise, the Committee approved language that prohibited unstable or unethical institutions from serving as teach-out institutions.


In Part 602, the Committee agreed to revise the definitions of “compliance report” and “monitoring report.” Compliance reports must now only be completed by those agencies that are out of compliance and must be reviewed by Department staff and the Advisory Committee, and must be approved by a senior Department official or, in the event of an appeal, by the Secretary. Monitoring reports are required to be completed by agencies in “substantial compliance,” defined as when “the agency demonstrate[s] to the Department that it has the necessary policies, practices and standards in place and generally adheres with fidelity to those policies, practices and standards; or the agency has policies, practices, and standards in place that need minor modifications to reflect its generally compliant practice.” When first proposed, this definition received significant pushback from Committee members who were concerned that it would not provide sufficient oversight of “bad actors.”

Regarding basic eligibility requirements, the Committee accepted a number of the Department’s proposed changes to address unnecessarily burdensome requirements. For example, the Committee agreed to revise § 602.10 to allow an accrediting agency that accredits a Title IV-eligible institution to use that accreditation to establish federal funding, even if that institution has designated a different accreditor as its federal link. Likewise the Committee agreed to revise § 602.11 to remove the three state requirement and added additional language to protect regional accreditors from having to accredit other main campuses, branch campuses, or additional locations within states where they provide services. In addition, the Committee agreed to remove the two-year requirement for agencies seeking recognition, so long as the agency is “affiliated with or is a division of an already recognized agency.” However, if an agency seeking to increase its scope cannot demonstrate its experience in making accreditation or preaccreditation decisions, the proposed regulations would allow the Department to limit the number of institutions or programs the agency can accredit and would require the agency to submit monitoring reports regarding accreditation decisions.

In revising the section on required standards and their application, the Committee’s proposed language largely seeks to provide accreditation agencies with additional guidelines. Section 602.16 was expanded to allow “agencies from having separate standards regarding an institution’s process for approving curriculum in order to enable programs to more effectively meet the recommendations” of various stakeholders. This section also allows agencies to have separate standards for faculty and instructors. Section 602.18 underwent massive changes; the section previously listed five ways for an agency to show that it applies and enforces its standards and under the proposed language, increased to six ways with twenty-one subsections. At the beginning of the negotiated rulemaking sessions, the Department proposed rewriting the list. Certain Committee negotiators questioned whether this change was necessary and instead proposed adding clarifying language and language regarding retroactive application of accreditation. The section now permits an agency to allow an institution or program to remain accredited despite its noncompliance for up to three (3) years (or longer if the agency determines there is “good cause” for an extension) if the reason for non-compliance is outside the entity’s control (e.g. due to a natural disaster). Moreover, the proposed language of § 602.20 seeks to provide agencies with new processes and timelines for ensuring their non-compliant institutions achieve compliance and avoid revocation of their accreditation. 

The Committee made significant revisions to required operating policies and procedures—the definition of “substantial change” is expanded to cover “high-impact, high-risk changes” and the number of examples of high-impact, high-risk changes have increased. The Committee also increased the types of substantial changes which could be reviewed by an agency’s senior staff, which would include adding a program, changing how an institution measures student progress, increasing the number of clock or credit hours awarded for a particular program, and adding a permanent location at the site where an institution is conducting a teach-out for students of another institution. Under the proposed regulations, any institution on probation (or a similar status) must seek pre-approval before implementing substantial changes. Institutions that complete accreditation without issue can establish additional locations without agency approval.

As to required procedures for preaccreditation, where preaccreditation is offered, an accreditor must limit the practice to institutions likely to become accredited and must require a teach-out plan. If an agency later denies accreditation to a preaccredited institution, it may allow the institution to maintain its status through the teach-out period. However, an agency may not demote an accredited institution or program to preaccredited status unless it seeks reapplication. Notably, the Committee proposes that in addition to requiring institutions to provide written notice to the Secretary and other interested stakeholders of an adverse accrediting decision, the institution must also disclose this information to current and prospective students within seven business days.

And as to special accreditation rules, the Committee proposes to allow an institution to change its accrediting agency if the agency failed to provide the institution with its due process rights, as defined in 602.25. It should be noted that no significant changes were made to the language of 602.25. In addition, the Department will recognize the accreditation or preaccreditation of an otherwise eligible institution by multiple accreditors if the Secretary determines the action to be reasonable and the institution’s primary reason is “based on that agency’s geographic area, program-area focus, or mission.” Special accreditation rules related to establishing eligibility changed little—the Department is now committed to providing “prompt action” on any required, materially complete application. Rules related to maintaining eligibility underwent little change to its regulatory language with significant effects—namely, an additional location can now forgo the two-year requirement if the “applicant institution and the original institution are not related parties and there is no commonality of ownership, control, or management between the institutions.”

It is important to remember that these are proposed rules. While the Department must publish the Committee’s consensus-based proposed regulations—publishing alternative language requires reopening the negotiated rulemaking process or written explanation from the Secretary as to why she’s departing from consensus—the Department can amend the language for the final rule in response to comments received from interested stakeholders during the comment period.

HMBR is available to provide specific advice on how this regulatory development may affect your campus policies and procedures or to provide other assistance, including drafting public comments or reviewing current policies, procedures and practices. Should you like assistance, please contact HMBR’s Higher Education Group at 312-946-1800.

  May 8, 2019  |  By    |   On Education