New federal regulations impact online learning institutions


Beginning July 1, new federal regulations imposed by the U.S. Department of Education will require states to step up their oversight of colleges. Some schools fear that the new regulations could make it more difficult for online learning institutions to operate across state lines. One of the new rules will mandate that colleges certify that they are authorized in every state in which they operate.

Every online college must be able to meet the approval standards of every state in which it has students or faculty members to qualify to award financial aid. If an institution isn't authorized to operate in a particular state, then it will not receive federal aid and could be fined.

"If an online program has students in all 50 states, they must have the state approval to service students online in that state," explains Dr. Deb Gearhart, director of Alabama-based Troy University's eCampus. "There are different levels of approvals from having a physical presence to needing no requirements."

The U.S. Department of Education stated that the intent behind the new regulations is to protect students and taxpayers from fraud and abuse. In a release, it stated that students at for-profit institutions represent 43 percent of all loan defaulters.

"These changes are being implemented because around 80 percent of all funding for online institutions comes from some sort of federal aid, be it loans or grants," says David Simons, director of Zen College Life. "The main ruling that will affect these schools is the gainful employment rule, which requires students who graduate to be able to obtain a job or career that will allow them to pay off their student debt."

Impact on online institutions

The new federal regulation will impact online universities and distance learning programs in several key aspects. Since the new regulations focus on the uses of bonuses in recruitment, restriction on funding, approval from states, archiving of online chat groups, students projects, student led presentations, and gainful employment, some experts fear that online schools will be negatively affected.

On the issue of bonuses on recruitment, New York City-based attorney Donna Dwyer-Guillaume says this will affect online schools because it will impact enrollment of students and profit.

"Many online schools offer what is known as open enrollment making eligible for enrollment basically anyone that is breathing," she says. "This may include those who are mentally disabled, students with emotional issues, homeless students, and students with education deficits who are not college-ready."

As a result, Dwyer-Guillaume says that many of these students enroll, but many never finish. However, students still have loans to pay back due to the high cost of online education and for-profit schools.

"Many of them default on their student loans thereby contributing to the 11% default rate at for-profit schools," she says. "When the incentive is bonuses, based on recruitment of students, the result can never be good because many recruiters will not care about quality--only quantity."

She adds that if states have to approve online schools in their jurisdiction then it will derail some schools from being able to set up shop in certain states, thus decreasing their profit.

Dwyer-Guillaume does like the policy that professors from online schools must archive student work products.

"It's good because it will hopefully increase professor-student interaction and the quality of work similar to brick-and-mortar schools," she says. "The issues of gainful employment is critical because if students cannot find jobs within their area of study because they are not given a meaningful education it will create a bubble similar to the real estate industry that will not only affect students loan defaulting, but will close the doors of many for-profit schools that will not be eligible for federal grants and aid. Thus regulation by the federal government will affect the profit margins of online schools."

How online institutions are preparing

Simons says that since graduation rates and loan repayment rates will affect the abilities of for-profit universities to get federal financial aid, these institutions now need to evaluate prospective students in terms of their likelihood to succeed. As a result of this ruling, institutions are restructuring in a number of ways.

"They're toning down their marketing materials and being more upfront with students about success," says Simons. "They're also being affected adversely, with many of them reporting lower enrollments than in previous years."

Since some of these institutions may see a drop in enrollment, Simons believes that some may need to cut back on their marketing budget and they may need to rearrange how they teach.

Another way some online learning institutions will react is to develop lower-cost programs, so that they can still attract students without resorting to federal aid, says Arvin Vohra, founder of Arvin Vohra Education and author of The Equation For Excellence.

"But more likely, for-profit colleges will have to become more selective," says Vohra. "They will seek to fill their rosters with students most likely to graduate and succeed. Nonprofit colleges are all about selection. They seek to find the best students."

On the other hand, Vohra says that for-profit colleges are about training--they seek to educate all students.

"They don't look for the smartest students," he says, "they try to make students smarter--in theory, at least. The new regulations will force for-profit colleges to act like nonprofit colleges. Instead of trying to educate everyone, they will be forced to work on selecting those who are already most likely to succeed."

Impact on students

Despite these changes, Gearhart believes it will not stop online learning.

"The states wanted to have control over how many institutions operate in their state," she says. "I believe this is an effort to control for-profit institutions, but will hurt non-profit public institutions that offer good programs at a reasonable cost."

But she does fear that the new federal mandate could impact students in their choices.

"The biggest issue will be the expenses that are associated with some state approvals," she says. "Many schools will not be able to offer their programs in states that have high approval costs. Costs may also be passed on to students."

In the short term, Vohra says that the new regulations may prevent a few students who haven't bothered to do their research from making mistakes.

"But in the long run, this is going to make it harder for new, innovative startup colleges to compete," he says. "They will face more complex regulations. For example, it will be easy for an old, established college to show five years of data on graduation rates, which is one of the proposed new requirements. But how will a new college show that kind of data?"

The number of new, innovative colleges will be lower, he adds. "That means less educational innovation in higher education, and less quality and choice for students."

For Vohra, e-learning is about innovation.

"As more and more people grow tired of the astronomical tuitions at nonprofit colleges, they will be more and more willing to consider alternative models," he says.

He says that as for-profit, e-learning institutions improve their curricula and methods, they will provide an equal, and eventually superior, alternative to many traditional colleges.

"Traditional universities have made few significant innovations in educational methods in the last decade," he says. "Innovative, alternative models, including e-learning, are the future of higher education. The proposed laws that seek to protect the status quo in higher education are a minor nuisance to this juggernaut of innovation."

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