Archived Information

Third REPORT TO CONGRESS

ON THE

DISTANCE EDUCATION DEMONSTRATION PROGRAM

**U.S. Department of Education**

**Margaret Spellings**

*Secretary*

**Office of Postsecondary Education**

**Sally Stroup**

*Assistant Secretary*

**April 2005**

This report is in the public domain. Authorization to reproduce it in
whole or in part is granted. While permission to reprint this
publication is not necessary, the citation should be: U.S. Department of
Education, Office of Postsecondary Education, Office of Policy, Planning
and Innovation, *Third Report to Congress on the Distance Education
Demonstration Program, February 2005,* Washington, DC, 20006.

This report is available on the Department's Web site at:
http://www.ed.gov/programs/disted

On request, this publication is available in alternative formats, such
as Braille, large print, audiotape, or computer diskette. For more
information, please contact the Department's Alternative Format Center

\(202\) 260-9895 or (202) 205-8113.

Third Report to Congress

on the

distance education demonstration program

[EXECUTIVE SUMMARY ii](#executive-summary)

[INTRODUCTION 1](#introduction)

[INCREASING ACCESS 5](#increasing-access)

[Distance Education Program Enrollments
5](#distance-education-program-enrollments)

[Types of Programs 8](#types-of-programs)

[Student Characteristics 8](#student-characteristics)

[DATA RELATED TO TITLE IV FUNDING 12](#data-related-to-title-iv-funding)

[Cohort Default 12](#cohort-default)

[Financial Aid for Distance Education Students
14](#financial-aid-for-distance-education-students)

[RETENTION AND COMPLETION 15](#retention-and-completion)

[POLICY PERSPECTIVES 17](#policy-perspectives)

[Barriers Identified by Demonstration Program Participants
17](#barriers-identified-by-demonstration-program-participants)

[Term Structure as a Foundation for Financial Aid Rules
18](#term-structure-as-a-foundation-for-financial-aid-rules)

[Eliminating the 50 Percent Rules for Distance Education
19](#eliminating-the-50-percent-rules-for-distance-education)

[Continued Oversight Critical 20](#continued-oversight-critical)

[CONCLUSION 21](#__RefHeading___Toc98832801)

# Executive Summary

This is the third report to Congress on the results of the Distance
Education Demonstration Program, which was authorized by Congress in the
1998 amendments to the Higher Education Act of 1965 (HEA). The purposes
of the demonstration program are to: (1) test the quality and viability
of expanded distance education programs currently restricted under the
HEA; (2) provide for increased student access to higher education
through distance education; and (3) help determine the most effective
means of delivering quality education via distance education, the
specific statutory and regulatory requirements that should be altered to
provide greater access to distance education, and the appropriate level
of HEA Title IV student financial assistance for students enrolled in
distance education programs.

The Department initiated the program in July 1999 with fifteen
participants. Nine participants were added in the third year of the
program. A third cohort, consisting of five institutions, began
participation in December 2003. Since its inception, four participants
have voluntarily left the program and one was removed. The twenty-four
current participants include nine private, for-profit institutions, of
which five are owned by publicly-traded corporations; seven private,
non-profit institutions; four public universities; three consortia; and
one public system.

Data reported by the first two cohorts of participants make it clear
that distance education does provide for increased student access to
higher education programs. The eight participants that have provided
data for six years experienced enrollment growth over the period of
nearly 700 percent, with the total number of students increasing from 7,
930 in 1998-99 to 63,350 in 2003-04. Similarly, enrollment of distance
education students at the seven institutions in the second cohort that
provided data for all four years of their participation grew nearly 400
percent, with enrollments increasing from 45,997 in 2000-01 to 223,404
in 2003-04. Institutions that serve primarily adult students reported
the greatest growth. Twelve participants require waivers of the 50
percent rules to retain eligibility to participate in Title IV student
financial aid programs. Seven have no on-site students. Of the twelve
that require waivers, three are public, four-year institutions; three
are private, non-profit institutions; and six are private, for-profit
institutions. The typical student served by demonstration program
participants is older than traditional college populations, female and
studying part-time. Several institutions have experienced growth in the
percentage of minorities in their distance education programs.

Title IV student financial aid appears to be a factor in increasing
access. All seven institutions that enrolled over 5,000 students in
their distance education programs in the most recent academic year
reported an increase in the percentage of students receiving Title IV
student financial aid in the four year period from 2000-01 to 2003-04.
All but two of these institutions provide Title IV aid to at least half
of their distance students; five provide aid to over two-thirds.

An examination of the cohort default rates for institutions in the
demonstration program showed that twenty-six institutions had FY 2002
cohort default rates that were below average for their sector, while
fifteen had rates that were above average for their sector. Based on
these data, there is no evidence of any relationship between distance
education and default rates.

Several possible risk factors have become apparent through the
Department's experience with the demonstration program. The Department
learned from the experience with the one participating institution it
removed from the demonstration program in the first year that the need
for capital can be a risk factor. It is imperative to look closely at
the financial situation of institutions that are experiencing rapid
growth, as well as their administrative capacity to support large
increases in enrollments. Five years of experience working with
demonstration program participants indicates that the potential risk to
Title IV student financial aid programs has more to do with the
integrity of the institution than with the way in which the education is
offered.

Many participants have experienced difficulties in administering Title
IV student financial aid for the non-traditional academic program
structures that are most appropriate for the populations they serve.
Financial aid rules evolved in an environment where the traditional
student was the norm, degree-granting institutions offered programs in
semesters or quarters, with summers off, and other academic structures
were the province of vocational and technical programs. The assumptions
undergirding the law are no longer valid and a strong argument can be
made that the time has come for a major overhaul to better address
current and emerging instructional models, and new patterns of
attendance.

###### Recommendations

-   Expand the distance education demonstration program to increase the
    number and type of participants (including correspondence schools)
    and extend the Secretary's waiver authority to include waivers of
    program-specific rules. This will allow for fuller experimentation
    with approaches to Title IV student financial aid administration
    that better serve non-traditional educational models.

-   Eliminate the 50 percent rules for distance education (both
    telecommunications and correspondence), but retain the other limits
    on correspondence study. The estimated cost of eliminating the 50
    percent rules is \$697 million over ten years, beginning July 1,
    2006.

-   Incorporate a definition of a "telecommunications course" into the
    HEA amendments, replacing the current definition. The new definition
    would specify that there be regular and substantive interaction
    between students and the instructor.

-   Make up to two Pell Grants available for students who are attending
    year-round at eligible two- and four-year degree-granting
    institutions, giving students a more convenient option for
    accelerating their studies and completing their education.

# INTRODUCTION

The Distance Education Demonstration Program was authorized by Congress
in the 1998 reauthorization of the Higher Education Act of 1965 (HEA) in
section 486. The purpose of the demonstration program is to: (1) test
the quality and viability of expanded distance education programs
currently restricted under the HEA; (2) provide for increased student
access to higher education through distance education; and (3) help
determine the most effective means of delivering quality education via
distance education, the specific statutory and regulatory requirements
that should be altered to provide greater access to distance education,
and the appropriate level of Title IV student financial assistance for
students enrolled in distance education programs. For the purpose of
this program, distance education is defined as an educational process
that is characterized by the separation, in time or place, between
instructor and student.

The legislation creating this program authorized the Secretary of
Education to select, from among eligible applicants, up to a total of
fifteen institutions, systems of institutions, or consortia of
institutions, to begin participation in the first year of the program.
The fifteen participants for the first year of the program were selected
in May of 1999 and began participation on July 1, 1999. The legislation
also authorized the Secretary to select up to a total of thirty-five
additional participants to begin participation in the third year of the
program. Eight institutions and one consortium were selected in June
2001 and began participation on July 1, 2001.

On November 1, 2002, the Department of Education (Department) published
regulations that modified 34 CFR 668.2, 668.3, and 668.8[^1] that
limited institutions in the area of distance learning. These changes
were based, in part, on the experiences gained from the Distance
Education Demonstration Program. In 2003, the Department decided that it
would be appropriate to accept additional applications for participation
in the demonstration program to determine what other barriers continue
to exist and to increase the diversity of the types of participants in
the program, particularly to include a greater number of institutions
that exclusively provide instruction online. Five institutions were
selected from among thirteen applicants to begin participation in
December 2003. This third cohort includes three institutions that offer
only online instruction, with no on-site courses.

There has been some attrition over the past five years. Four
participants have elected to discontinue their participation and one was
removed from the program.[^2] The twenty-four current participants
include:

-   Nine private, for-profit institutions including five publicly-traded
    institutions -- American InterContinental University (parent company
    CEC Corp.), Kaplan University (parent company Washington Post,
    Inc.), National Technological University and Walden University
    (parent company Laureate, Inc.), and University of Phoenix (parent
    company Apollo, Inc.) and four others \-- Capella University, Post
    University[^3], College of Court Reporting, Jones International
    University, and Northcentral University.

-   Seven private, non-profit institutions -- Franklin University,
    Graceland University, Marlboro College, Regis University, Southern
    Christian University, United States Sports Academy, and Western
    Governors University.

-   Four public universities -- Eastern Oregon University, Texas Tech
    University, University of Maryland University College, and
    Washington State University.

-   Three consortia -- Connecticut Distance Learning Consortium, Latter
    Day Saints Church Education System, and JesuitNET Consortium.

-   One public system -- North Dakota University System

![](media/image5.wmf)

Participants have received waivers of certain statutory and regulatory
provisions governing the HEA Title IV student financial assistance
programs to enable them to provide Title IV aid to distance education
students more efficiently and, in some instances, to expand their
distance education programs beyond otherwise applicable statutory
limits. The waiver authority granted to the Secretary is limited to:

-   the requirements of section 472(5) as the section relates to
    computer costs[^4];

-   sections 481(a) and 481(b) as they relate to requirements for a
    minimum number of weeks of instruction;

-   sections 102(a)(3)(A) and 102(a)(3)(B) -- the 50 percent
    institutional eligibility requirements[^5];

-   section 484(l)(1) as it relates to the definition of a
    telecommunications student as a correspondence student;

-   one or more of the regulations prescribed under parts F[^6] and G of
    the statute that inhibit the operation of quality distance education
    programs; and

-   additional waivers for Western Governors University because of its
    unique educational model.

Detailed information about waivers provided to the first two cohorts of
participants was included in the *Second Report to Congress* dated July
2003. The five new participants were granted the following waivers:

College of Court Reporting -- none

> Graceland University \-- 50 percent rules; telecommunications student
> defined as correspondence; definition of a full-time student to allow
> correspondence students to be considered full-time.

Jones International University, National Technological University,
Northcentral

University \-- 50 percent rules; telecommunications student defined as
correspondence.

Twelve participants are currently using the waivers of the 50 percent
rules to retain eligibility to participate in the Federal student aid
programs: Capella University, Eastern Oregon University, Jones
International University, National Technological University,
Northcentral University, Southern Christian University, United States
Sports Academy, University of Maryland University College, Walden
University, Western Governors University, and two members of the
Connecticut Distance Learning Consortium -- Charter Oak State College
and Post University (previously named Teikyo Post University). Of these,
three are public 4-year institutions; three are private, non-profit
institutions; and six are private, for-profit institutions, including
two publicly-traded institutions.

Each participant signed an "Agreement to Participate in the Distance
Education Demonstration Program," which stipulates which waivers they
were granted, the reporting requirements, and the length of the
agreement. These agreements for the first two cohorts were set to expire
on June 30, 2004, the last day of the 2003-04 award year. This date was
chosen based on the expectation that the Higher Education Act would be
reauthorized in 2003.

When it became clear that the HEA would not be reauthorized during 2003,
the Department offered all participants in these two cohorts the option
of extending their participation by one year.[^7] These participants
were told that they would be required to submit a narrative report
covering the period of their participation in the program rather than
submitting another data report. These narrative reports were due
September 30, 2004.

In order to obtain the same in-depth information from the cohort that
joined the program in December 2003 that had been derived from the
previous cohorts, the Department required institutions in the third
cohort to submit the detailed data reports that the first two groups of
participants had submitted for five and three years, respectively. Since
the HEA reauthorization was not completed in 2004, the Department
recently informed all participants of the option to extend their
participation for an additional year.[^8]

# INCREASING ACCESS

A primary purpose of the Distance Education Demonstration Program is to
provide for increased student access to higher education programs
through distance education programs. The *Second Report to Congress*
contained detailed information about the various distance education
delivery modes used by program participants, and some indication of the
extent to which they address constraints posed by geography, student
resources, time, academic program structures and institutional policies.
This report focuses more specifically on data reported by participants.

## Distance Education Program Enrollments

The following chart shows the change in number of enrollments in the
distance education programs offered by participants that joined the
demonstration program as part of the initial cohort.

# Distance Education Program Enrollments -- First Cohort

+-----------------------+------+------+------+------+------+------+
| **Participant**       | **1  | **1  | **2  | **2  | **2  | **2  |
|                       | 998- | 999- | 000- | 001- | 002- | 003- |
|                       | 99** | 00** | 01** | 02** | 03** | 04** |
+-----------------------+------+------+------+------+------+------+
| #                     | *    | *1,  | *2,  | *4,  | *7,  | *10, |
| ## Capella University | 883* | 542* | 346* | 298* | 448* | 500* |
+-----------------------+------+------+------+------+------+------+
| > Community Colleges  | 54   | 159  | 271  |      |      |      |
| > of Colorado         |      |      |      |      |      |      |
+-----------------------+------+------+------+------+------+------+
| > CT Distance         | 269  | 380  | 678  | 974  | 1    | N/A  |
| > Learning Consortium |      |      |      |      | ,036 |      |
+-----------------------+------+------+------+------+------+------+
| > Florida State       | 128  | 381  | 175  |      |      |      |
| > University          |      |      |      |      |      |      |
+-----------------------+------+------+------+------+------+------+
| > *Franklin           | *46* | *    | *    | *1,  | *1,  | *2,  |
| > University*         |      | 296* | 649* | 145* | 793* | 722* |
+-----------------------+------+------+------+------+------+------+
| > *Kaplan University* | *12* | *61* | *    | *1,  | *8,  | *12, |
|                       |      |      | 193* | 896* | 069* | 127* |
+-----------------------+------+------+------+------+------+------+
| > *LDS Church         | *22* | *    | *    | *1,  | *1,  | *1,  |
| > Education System*   |      | 187* | 865* | 206* | 480* | 800* |
+-----------------------+------+------+------+------+------+------+
| > Masters Institute   | 235  | 1    |      |      |      |      |
|                       |      | ,274 |      |      |      |      |
+-----------------------+------+------+------+------+------+------+
| > New York University | 61   | 166  | 233  | 251  |      |      |
+-----------------------+------+------+------+------+------+------+
| > *North Dakota       | *2,  | *3,  | *4,  | *6,  | *10, | *11, |
| > University System*  | 310* | 215* | 921* | 643* | 380* | 215* |
+-----------------------+------+------+------+------+------+------+
| > *Southern Christian | *73* | *    | *    | *    | *    | *    |
| > University*         |      | 156* | 435* | 613* | 732* | 911* |
+-----------------------+------+------+------+------+------+------+
| > Texas Tech          |      | 184  | 138  | 186  | 411  | 475  |
| > University          |      |      |      |      |      |      |
+-----------------------+------+------+------+------+------+------+
| > *University of MD   | *4,  | *7,  | *12, | *16, | *19, | *21, |
| > University College* | 543* | 955* | 186* | 422* | 057* | 706* |
|                       |      |      |      |      |      | [^9] |
+-----------------------+------+------+------+------+------+------+
| > Washington State    | 951  | 1    | 1    | 1    | 1    | N/A  |
| > University          |      | ,042 | ,228 | ,590 | ,636 |      |
+-----------------------+------+------+------+------+------+------+
| > Wash. Community &   | 412  | 1    | 2    | 2    | 3    |      |
| > Tech Colleges       |      | ,395 | ,061 | ,867 | ,824 |      |
+-----------------------+------+------+------+------+------+------+
| > *Western Governors  | *41* | *    | *    | *    | *    | *2,  |
| > University*         |      | 208* | 236* | 594* | 950* | 369* |
+-----------------------+------+------+------+------+------+------+

With the possible exception of Florida State University,[^10] all the
participants in the original cohort experienced considerable growth in
enrollments in their distance education programs. The eight participants
that have provided data for all six years (in italics in the table
above) experienced growth in enrollment over the period of nearly 700
percent, with the number of students increasing from 7,930 in 1998-99 to
63,350 in 2003-04.

In absolute terms, University of Maryland University College (UMUC)
experienced the largest increase, followed by Capella University and
Kaplan University. Interestingly, these three institutions serve
somewhat different populations. Capella offers primarily graduate
programs, while UMUC enrolls a large majority of its students in
undergraduate programs. Kaplan, until recently, offered primarily
vocational and technical degrees. During its one year of participation
in the program, Masters Institute reported a larger increase in the
number of students in its distance education programs than did any of
the other participants Subsequent experience with Master's Institute
made it clear that rapid growth may be a significant risk factor.

In the past five years, the first cohort of participants added
substantially to their distance education program offerings. Most of
this development was in full degree programs, offered online. However,
Capella University and University of Maryland University College
increased the number of online certificate program offerings, primarily
by dividing up their degree programs into smaller components.

Like the initial cohort, the second cohort of program participants
reported significant growth in their distance education program
enrollments during the years of their involvement in the demonstration
program. Enrollment of distance education students at the seven
institutions in the second cohort that provided data for all four years
of their participation grew nearly 400 percent, with enrollments
increasing from 45,997 in 2000-01 to 223,404 in 2003-04.[^11]

Distance Education Program Enrollments -- Second Cohort

+----------------------------+---------+---------+---------+---------+
| #### Participant           | **20    | **20    | **20    | **20    |
|                            | 00-01** | 01-02** | 02-03** | 03-04** |
+----------------------------+---------+---------+---------+---------+
| > American                 | 30      | 912     | 6,844   | 15,000  |
| > InterContinental Univ.   |         |         |         |         |
+----------------------------+---------+---------+---------+---------+
| > Brevard Community        | 758     | 845     |         |         |
| > College                  |         |         |         |         |
+----------------------------+---------+---------+---------+---------+
| > Eastern Oregon           | 1,252   | 1,338   | 1,607   | N/A     |
| > University               |         |         |         |         |
+----------------------------+---------+---------+---------+---------+
| > JesuitNET Consortium     | none    | none    | 12      | 12      |
+----------------------------+---------+---------+---------+---------+
| > Marlboro College         | 14      | 17      | 17      | 43      |
+----------------------------+---------+---------+---------+---------+
| > Regis University         | 2,028   | 2,865   | 3,605   | 5,705   |
+----------------------------+---------+---------+---------+---------+
| > University of Phoenix    | 42,756  | 78,873  | 130,960 | 190,317 |
+----------------------------+---------+---------+---------+---------+
| > United States Sports     | 348     | 359     | 482     | 708     |
| > Academy                  |         |         |         |         |
+----------------------------+---------+---------+---------+---------+
| > Walden University        | 821     | 2,814   | 6,014   | 11,619  |
+----------------------------+---------+---------+---------+---------+

American InterContinental University (AIU), the University of Phoenix,
and Walden University, all publicly-traded institutions, reported
exceptional growth in the past four years. Walden University received
waivers of the 50 percent rules, which it needs to retain its
eligibility to participate in Title IV student aid programs. Walden
offers no on-site courses. Neither AIU nor University of Phoenix
currently needs these waivers. This is because the statute is written so
that the effect of the 50 percent rules differs depending upon the type
of institution. For institutions that offer more degree programs than
certificate programs, telecommunications courses and students are not
considered correspondence courses and students if the number of the
institution's residential courses exceeds the sum of its correspondence
and telecommunications courses. Both AIU and University of Phoenix offer
more degree programs than certificate programs and have at least one
more on-site course than online course, so their telecommunications
courses and students are treated the same as residential courses and
students.

All of the institutions in the cohort that joined the demonstration
program in December 2003 had modest growth in their distance education
program enrollments, as shown in the following table. Three of these
institutions -- Jones International University (JIU), National
Technological University (NTU) and Northcentral University -- have only
recently begun offering Federal student aid to their students. It is too
early to see the impact of this on these institution's enrollments.

**Distance Education Program Enrollments -- Third Cohort**

+----------------------------------------+--------------+--------------+
| **Participant**                        | **2002-03**  | **2003-04**  |
+----------------------------------------+--------------+--------------+
| > College of Court Reporting           | 73           | 104          |
+----------------------------------------+--------------+--------------+
| > Graceland University                 | 1,005        | 1,009        |
+----------------------------------------+--------------+--------------+
| > Jones International University       | 653          | 839          |
+----------------------------------------+--------------+--------------+
| > National Technological University    | 383          | 459          |
+----------------------------------------+--------------+--------------+
| > Northcentral University              | 1,262        | 1,662        |
+----------------------------------------+--------------+--------------+

An examination of the annual percentage increase in distance education
program enrollments for all participants shows significant surges in the
early years when the numbers were relatively small, with smaller, but
still robust, increases in the most recent years.

Annual Percentage Increase in DE Program Enrollments -- All Participants

+--------------------------+-------+-------+-------+-------+-------+
| ##### Participant        | **19  | **19  | **20  | **20  | **20  |
|                          | 98-99 | 99-00 | 00-01 | 01-02 | 02-03 |
|                          | to**  | to**  | to**  | to**  | to**  |
|                          |       |       |       |       |       |
|                          | *     | *     | *     | *     | *     |
|                          | *1999 | *2000 | *2001 | *2002 | *2003 |
|                          | -00** | -01** | -02** | -03** | -04** |
+--------------------------+-------+-------+-------+-------+-------+
| > American               |       |       | 2940% | 650%  | 119%  |
| > InterContinental Univ  |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Brevard Community      |       |       | 12%   |       |       |
| > College                |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Capella University     | 75%   | 52%   | 83%   | 73%   | 41%   |
+--------------------------+-------+-------+-------+-------+-------+
| > College of Court       |       |       |       |       | 42%   |
| > Reporting              |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Community Colleges of  | 194%  | 70%   |       |       |       |
| > Colorado               |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > CT Distance Learning   | 41%   | 78%   | 44%   | 6%    | N/A   |
| > Consortium             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Eastern Oregon         |       |       | 7%    | 20%   | N/A   |
| > University             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Florida State          | 198%  | -54%  |       |       |       |
| > University             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Franklin University    | 543%  | 119%  | 76%   | 57%   | 52%   |
+--------------------------+-------+-------+-------+-------+-------+
| > Graceland University   |       |       |       |       | 0%    |
+--------------------------+-------+-------+-------+-------+-------+
| > JesuitNET Consortium   |       |       |       |       | 0%    |
+--------------------------+-------+-------+-------+-------+-------+
| > Jones International    |       |       |       |       | 28%   |
| > University             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Kaplan University      | 408%  | 216%  | 882%  | 326%  | 50%   |
+--------------------------+-------+-------+-------+-------+-------+
| ##### Participant        | **19  | **19  | **20  | **20  | **20  |
|                          | 98-99 | 99-00 | 00-01 | 01-02 | 02-03 |
|                          | to**  | to**  | to**  | to**  | to**  |
|                          |       |       |       |       |       |
|                          | *     | *     | *     | *     | *     |
|                          | *1999 | *2000 | *2001 | *2002 | *2003 |
|                          | -00** | -01** | -02** | -03** | -04** |
+--------------------------+-------+-------+-------+-------+-------+
| > LDS Church Education   | 750%  | 363%  | 39%   | 23%   | 22%   |
| > System                 |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Marlboro College       |       |       | 21%   | 0%    | 153%  |
+--------------------------+-------+-------+-------+-------+-------+
| > Masters Institute      | 442%  |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > National Technological |       |       |       |       | 20%   |
| > University             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > New York University    | 172%  | 40%   | 8%    |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Northcentral           |       |       |       |       | 32%   |
| > University             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > North Dakota           | 39%   | 53%   | 35%   | 56%   | 8%    |
| > University System      |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Regis University       |       |       | 41%   | 26%   | 58%   |
+--------------------------+-------+-------+-------+-------+-------+
| > Texas Tech University  |       | -25%  | 35%   | 121%  | 16%   |
+--------------------------+-------+-------+-------+-------+-------+
| > University of Phoenix  |       |       | 85%   | 66%   |  45%  |
+--------------------------+-------+-------+-------+-------+-------+
| > United States Sports   |       |       | 3%    | 34%   | 47%   |
| > Academy                |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Walden University      |       |       | 243%  | 114%  | 93%   |
+--------------------------+-------+-------+-------+-------+-------+
| > Washington State       | 10%   | 18%   | 30%   | 3%    |  N/A  |
| > University             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Wash. Community & Tech | 239%  | 48%   | 39%   | 33%   |       |
| > Colleges               |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+
| > Western Governors      | 407%  | 14%   | 152%  | 60%   | 149%  |
| > University             |       |       |       |       |       |
+--------------------------+-------+-------+-------+-------+-------+

The surge in enrollments experienced by Western Governors University in
the most recent year is attributable, in large part, to WGU's teacher
education programs. Similarly, Walden University's masters degrees in
education account for most of the growth in that institution's
enrollments in recent years.

## 

## Types of Programs 

The range in types of distance education degree programs offered by
participants is broad, but most are in career-related disciplines. The
most popular offerings are in various aspects of business and
management, computer information systems, psychology, nursing, criminal
justice and education. In addition to these types of programs, public
institutions also offer degrees in liberal arts disciplines.

A few participants specialize by offering degrees that serve a
particular niche market. The College of Court Reporting is one example.
Its associate's degree equips students for careers as court reporters,
broadcast captioners, or CART[^12] reporters, who serve deaf and
hard-of-hearing students and clients. In addition to completing online
coursework, students are required to do 60 hours of internship and to
pass several proficiency exams. Other examples include the United States
Sports Academy and Southern Christian University.

## 

## Student Characteristics

Data for this section is based on the 2002-03 academic year, the most
recent year for which all participants were required to report on
characteristics of students enrolled in their distance education
programs.

[Age]{.underline}

Over half (56 percent) of the participants reported that a majority of
their students are in the 25-34 year age range and another 28 percent
enroll a majority of students who are aged 35-44. Those that enroll a
majority of younger students include two public systems -- North Dakota
University System and Washington Community and Technical Colleges.
Graceland University and Marlboro College have a majority of older
students in the 45 to 54 age range.

[Gender]{.underline}

Mirroring national trends, the majority of institutions (16 out of 25)
report that they enrolled more women than men during 2002-03. The
exceptions include two institutions with very small enrollments in their
distance education programs (Marlboro College, and JesuitNET Consortium)
and two that offer programs that typically attract more men than women
(National Technological University and the United States Sports
Academy).

![](media/image6.wmf)

[Enrollment Status]{.underline}

A high percentage of participants (21 of 25) report that over 60 percent
of their students are studying part-time. The exceptions include AIU and
University of Phoenix, whose models require full-time enrollment, and
Eastern Oregon University and Walden University. Walden enrolls a large
percentage of doctoral students, who pursue their studies full-time. The
reason for Eastern Oregon University's relatively low percentage of
part-time students is not clear. The high incidence of part-time
enrollment in distance education programs also mirrors national trends.

![](media/image7.wmf)

The population served by these providers of distance education degree
programs is essentially the same as that identified in the NCES Report
that examined characteristics of students enrolled in distance education
courses and programs during 1999-2000.[^13] These are older students,
who study part-time and are primarily female.

[Race/ethnicity]{.underline}

Data reported by program participants in the annual report for 2002-03
related to the race/ethnicity of students who are enrolled in their
distance education programs is compromised by the fact that there are
many students in the "race/ethnicity unknown" category. However, in
their narrative reports, submitted in September 2004, several
participants provided information about enrollment of minorities. Nearly
onethird of both Capella University's (31 percent) and Southern
Christian University's (32 percent) distance education students are
minorities. UMUC reports that 53 percent of its undergraduate distance
education students are minorities, and that 32 percent are
African-American. Walden University has seen the number of minority
students increase steadily. In fall 1999, Walden enrolled 434 minority
students compared to 1,530 in Fall 2003. The upward trend is continuing
into 2004.

# DATA RELATED TO TITLE IV FUNDING 

## Cohort Default 

Annually, the Department of Education releases official cohort default
rates for institutions that participate in Title IV student aid loan
programs (Federal Family Education Loan Program and Federal Direct Loan
Program). A cohort default rate is the percentage of an institution's
borrowers who enter repayment during a particular Federal fiscal year
and default or meet other specified conditions prior to the end of the
next fiscal year. The Department publishes default rates approximately
two years after the fiscal year that students enter repayment. The most
recent rates, for FY 2002, were released in September 2004. Average
rates are computed for each major sector of higher education. For each
sector the average cohort default rate in 2002 was lower than the 2001
average rate. For FY 2002, the sector average default rates were:

-   8.7 percent for proprietary[^14] institutions

-   8.5 percent for public two-year colleges

-   4 percent for public four-year colleges

-   3.1 percent for private, four-year colleges

On the following page is a chart showing the annual cohort default rates
for institutions in the demonstration program. Institutions that are
part of consortia are listed individually, and only those that offer
distance education programs are included. About two-thirds (26 of 41) of
the institutions had default rates for FY 2002 that are below average
for their sector. Of the fifteen institutions that had above average
default rates, one is a public two-year college, nine are public
four-year colleges, one is a proprietary institution, and five are
private institutions.

The effect of distance education on cohort default rates is not easily
discerned from this data. Of the ten institutions requiring the 50
percent waivers to retain their eligibility to participate in Title IV
programs, seven have 2002 cohort default rates that are below national
averages. Of the three that are above average, one (Western Governors
University) had only one student in repayment and one (Kaplan
University) could attribute its high default rate, for the most part, to
its residential students. Of some concern is the fact that 20 of the 41
institutions saw their cohort default rates increase from 2001 to 2002,
contrary to the national trend. Still, one-half of these had rates that
were below average for their sector.

**Cohort Default Rates of Institutions in the Demonstration
Program**[^15]

\* Indicates the percentages represent very small numbers.

+-----------------------+---------+-----------+-----------+-----------+
| **Institution**       | *       | **2000**  | **2001**  | **2002**  |
|                       | *Type** |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > American            | Prop    | 6.4%      | 5.4%      | 8.3%      |
| > InterContinental    |         |           |           |           |
| > Univ                |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Bismarck State      | Public  | 4.0%      | 2.5%      | 3.1%      |
| > College             |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Brigham Young       | Private | 0.6%      | 0.7%      | 0.3%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Capella University  | Prop    | 0.0%      | 0.5%      | 3.0%      |
+-----------------------+---------+-----------+-----------+-----------+
| > Capital Community   | Public  | 16.6%     | 8.1%      | 11.6% \*  |
| > College             |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Central CT State    | Public  | 5.3%      | 3.8%      | 4.8%      |
| > Univ                |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Charter Oak State   | Public  | N/A       | 0.0%      | 0.0%      |
| > College             |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > College of Court    | Prop    | 2.8%      | 6.9%      | 5.7%      |
| > Reporting           |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Dickinson State     | Public  | 3.9%      | 2.5%      | 3.4%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Eastern CT State    | Public  | 5.8%      | 7.1%      | 5.6%      |
| > Univ                |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Eastern Oregon      | Public  | 4.5%      | 5.6%      | 3.5%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Franklin University | Private | 3.9%      | 2.9%      | 2.8%      |
+-----------------------+---------+-----------+-----------+-----------+
| > Graceland           | Private | 5.8%      | 4.4%      | 3.7%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Kaplan College      | Prop    | 9.5%      | 17.6%     | 15.5%     |
+-----------------------+---------+-----------+-----------+-----------+
| > Lake Region State   | Public  | 4.1%      | 7.2%      | 5.8%      |
| > College             |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Marlboro College    | Private | 3.6%      | 1.5%      | 0.3% \*   |
+-----------------------+---------+-----------+-----------+-----------+
| > Mayville State      | Public  | 3.6%      | 4.2%      | 9.3%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Minot State         | Public  | 3.4%      | 3.8%      | 3.4%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Minot State         | Public  | 4.2%      | 3.7%      | 6.1%      |
| > Univ-Bottineau      |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > ND State College of | Public  | 3.2%      | 4.0%      | 5.2%      |
| > Science             |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > North Dakota State  | Public  | 2.1%      | 2.3%      | 1.8%      |
| > Univ                |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Northwestern CT     | Public  | 4.0%      | 4.0%      | 3.5%      |
| > Comm College        |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Regis University    | Private | 2.0%      | 2.4%      | 2.0%      |
+-----------------------+---------+-----------+-----------+-----------+
| > Sacred Heart        | Private | 2.9%      | 1.8%      | 2.2%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > St Joseph College   | Private | 0.7%      | 1.0%      | 1.4%      |
+-----------------------+---------+-----------+-----------+-----------+
| > Southern Christian  | Private | 3.5%      | 1.0%      | 2.8%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Southern CT State   | Public  | 5.5%      | 5.8%      | 6.7%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Teikyo Post         | Private | 7.8%      | 9.4%      | 9.0%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Texas Tech          | Public  | 3.3%      | 3.7%      | 3.4%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > US Sports Academy   | Private | 1.1%      | 0.0%      | 0.4%      |
+-----------------------+---------+-----------+-----------+-----------+
| > University of       | Private | 6.2%      | 4.1%      | 5.8%      |
| > Bridgeport          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > University of       | Public  | 2.2%      | 2.5%      | 2.9%      |
| > Connecticut         |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > University of MD    | Public  | 4.0%      | 4.5%      | 3.8%      |
| > Univ College        |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > University of New   | Private | 2.6%      | 3.6%      | 3.6%      |
| > Haven               |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > University of North | Public  | 2.1%      | 2.5%      | 2.2%      |
| > Dakota              |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > University of       | Prop    | 5.2%      | 5.8%      | 6.4%      |
| > Phoenix             |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Valley City State   | Public  | 3.2%      | 4.2%      | 4.2%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Walden University   | Prop    | 2.3%      | 2.8%      | 1.9%      |
+-----------------------+---------+-----------+-----------+-----------+
| > Washington State    | Public  | 2.8%      | 2.5%      | 2.8%      |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Western Governors   | Private | N/A       | 0.0%      | 8.3% \*   |
| > University          |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+
| > Williston State     | Public  | 6.3%      | 6.0%      | 3.5%      |
| > College             |         |           |           |           |
+-----------------------+---------+-----------+-----------+-----------+

## Financial Aid for Distance Education Students

In their annual data reports, participants were asked to indicate how
many students enrolled in their distance education programs received
some form of Title IV student financial aid during the reporting period.
This data is presented in the following table for participants that
enroll large numbers of students in their distance education programs.
The ones in italics require the 50 percent waivers to maintain
eligibility to participate in the Title IV financial aid programs.

Percentage of Students Receiving Title IV Aid in Institutions Enrolling
Over 5,000 Students in Distance Education Programs

+------------------------------+---------+--------+--------+--------+
| **Participant**              | **      |        |        |        |
|                              | Percent |        |        |        |
|                              | Of DE   |        |        |        |
|                              | S       |        |        |        |
|                              | tudents |        |        |        |
|                              | Re      |        |        |        |
|                              | ceiving |        |        |        |
|                              | Title   |        |        |        |
|                              | IV      |        |        |        |
|                              | Aid**   |        |        |        |
+------------------------------+---------+--------+--------+--------+
| ** **                        | **20    | **200  | **200  | **200  |
|                              | 00-01** | 1-02** | 2-03** | 3-04** |
+------------------------------+---------+--------+--------+--------+
| > American InterContinental  | 75%     | 75%    | 80%    | 76%    |
| > University                 |         |        |        |        |
+------------------------------+---------+--------+--------+--------+
| > *Capella University*       | *39%*   | *45%*  | *59%*  | *68%*  |
+------------------------------+---------+--------+--------+--------+
| > Kaplan University          | 66%     | 67%    | 70%    | 79%    |
+------------------------------+---------+--------+--------+--------+
| > Regis University           | 17%     | 23%    | 25%    | 24%    |
+------------------------------+---------+--------+--------+--------+
| > *University of Maryland    | *15%*   | *17%*  | *19%*  | *22%*  |
| > University College*        |         |        |        |        |
+------------------------------+---------+--------+--------+--------+
| > University of Phoenix      | 10%     | 36%    | 52%    | 68%    |
+------------------------------+---------+--------+--------+--------+
| > *Walden University*        | *50%    | *73%*  | *67%*  | *56%*  |
|                              | (est.)* |        |        |        |
+------------------------------+---------+--------+--------+--------+

All of these institutions report that a higher percentage of their
distance education students received Title IV aid in 2003-04 than in
2000-01. This could be a function of a variety of factors, including
higher costs of attendance, a decrease in the availability of employer
reimbursement, a change in the population served by the institution, new
populations of students who had not been previously served, and a
weakening economy. Whatever the cause, if this trend continues, it is
apparent that the rapid increases in enrollment at these institutions
will result in further increases in the amount of Federal aid going to
distance education students.

No trend data is available for the newest cohort of participants, which
includes three institutions that offer no on-site programs. It is too
early to tell if enrollment growth at these institutions will be as
significant as for others in the demonstration program.

# RETENTION AND COMPLETION

Participants were asked to report information on enrollment,
persistence, and completion for regular students enrolled at their
institutions as of the start of each reporting year. They were to report
on the following groups of students: (1) students enrolled in distance
education programs; (2) students enrolled in on-site programs; (3)
students enrolled in programs that are offered both on-site and through
distance education and who take courses in both formats (e.g., are
physically located near an on-site location). They were to track these
cohorts for the duration of their participation in the demonstration
program.

For a variety of reasons, a great majority of participants were unable
to provide complete and consistent information. While the Department has
worked with program participants to improve the quality of the
information provided, the data received are too inconsistent to draw any
conclusions about comparative retention and completion rates.

However, several participants established goals for course and program
retention and completion and reported annually on their progress toward
achieving these goals. Others included information about retention
and/or completion in the narrative reports submitted in 2004. In
reviewing the information it became apparent that there are many
different definitions of retention and ways of measuring it

Some institutions use the cohort-tracking method, the approach that is
typically used by researchers, but do not put a student into a cohort
until after the student has completed one to three courses. The argument
for doing so is that many students try out a course or two to determine
whether the institution's pedagogy and delivery mode are appropriate for
them and that including such students in the calculation results in an
artificially low retention rate. Another calculates the percentage of
students in a cohort who re-enroll within the following three terms. One
institution calculates an "average annual retention rate," which is not
based on cohort-tracking. Rather, it is based on the following formula:
*Retention percentage = 1 minus student drops during the year/(beginning
student population + new starts during the year + re-entries during the
year)*.

The lack of consistency in measuring retention presents a significant
challenge for policymakers and the public. It is also problematic for
the institutions themselves, since they have no way to benchmark their
performance.

Several institutions have looked at financial aid as a factor in
retention and report that distance education students who receive
financial aid are more likely to remain in a program than students who
enroll without financial assistance. Other correlates of retention
identified by one participant that enrolls large numbers of students in
its programs, which are offered both on-site and online, include:

-   Gender -- women are retained at higher rates

-   Race -- African-Americans are retained at a lower rate

-   Class registration date -- students who register for courses in the
    first week of class have lower rates than those that pre-register

-   Credit transfers -- students who have completed more than 60 credit
    hours prior to enrolling have higher rates

-   Residence -- out of state students have lower rates

This research provides a basis for the institution to identify high-risk
students and design policies, interventions, and support services to
enhance retention. While they have differing levels of success with
retaining their distance education (and on-site students), all
participants are focusing on improving retention and use a wide variety
of information sources to identify areas for improvement. They regularly
share information about promising strategies at the bi-annual
participants' meetings. Many report that they are seeing positive
effects from these efforts.

# POLICY PERSPECTIVES

## Barriers Identified by Demonstration Program Participants

In their narrative reports, the first two cohorts of participants
identified a number of barriers in Federal law and regulations that
limit access to distance education and the ability to provide an
appropriate level of Title IV student aid for students enrolled in
distance education programs. Not surprisingly, the 50 percent rules were
most often cited as adversely affecting access for working adults since
they require institutions with large distance education programs to
restrict enrollment and course offerings in order to retain
institutional eligibility to participate in Title IV student aid
programs. University of Maryland University College also noted that "the
law has unintentionally impacted institutions who primarily offer degree
programs because of the trend over the last several years of carving
sections of degree programs into certificate programs for students to
accomplish milestones on their way towards the degree."

Several participants mentioned issues arising from the unique
characteristics of adult students who typically attend school year-round
on a part-time basis and have an educational history that includes
attendance at several institutions:

-   part-time students who are enrolled less-than-half-time are not
    eligible for Federal loans;

-   the law and regulations assume nine months of full-time enrollment
    on the traditional academic calendar (allowing for a summer off);
    many adult students attend year-round in standard term-based
    schools. Under current law and regulations they must spread their
    financial aid out over a longer period of time, making it difficult
    for some students to finance their education;

-   students attending year-round may be put into repayment by their
    lender if they take off a term during the year even though they are
    continuing in their program;

-   many students reach loan limits prior to completing their degrees.

Post University identified a barrier for students who are in accelerated
degree programs in annual limits on Pell Grants and loans. A student
enrolled in an accelerated degree program can complete a four-year
education in two years, but have only 2.3 years of FFELP loan and Pell
Grant funds available to them to finance costs that are significantly
higher than those incurred by students pursuing a degree at the regular
pace. The President's 2006 budget includes a proposal that will
partially address this barrier. Up to two Pell Grants would be made
available to students attending year-round at eligible two- and
four-year degree-granting institutions, giving students a more
convenient option for accelerating their studies and completing their
educations.

University of Maryland University College noted that the regulatory
restriction on overlapping terms in a traditional semester environment,
which appears only in the Pell Grant Program regulations, limits their
ability to provide a variety of course start dates that allow students
to stagger their enrollment and manage their workload. The regulation
stipulates that when a term-based institution has overlapping terms
(even if the overlap is minimal) these are considered to be non-standard
terms.[^16] For example, a student taking one three-credit course in the
first part half of the fall term and one three-credit course that begins
mid-fall and overlaps into the spring term would not be able to combine
these credits to meet the half-time enrollment threshold for Federal
loans. This could result in the student being eligible for less loan
aid. It also creates an administrative burden for the institution since
aid would need to be calculated manually for students who enroll in
courses that overlap into the next term.

## Term Structure as a Foundation for Financial Aid Rules 

The two previous Reports to Congress contained detailed information
about many of the difficulties program participants face in
administering Title IV student financial aid for the non-traditional
academic program structures that are most appropriate for the
populations they serve. They are not alone, however. Department staff
regularly field questions from other institutions that face similar
challenges. Staff also make presentations at conferences about these
issues that are well-attended.[^17]

Much of this interest is likely generated by the changing nature of the
postsecondary student population. NCES reported that in 1999-2000, 73
percent of all undergraduates met only some of the criteria of a
"traditional" undergraduate -- one who earns a high school diploma,
enrolls full time immediately after finishing high school, depends on
parents for financial support, and either does not work during the
school your or works part time. Greater percentages of undergraduates in
1999-2000 had delayed enrollment (e.g., were older students), worked
full time, or had dependents than undergraduates in 1992-93.

Financial aid rules evolved in an environment where the traditional
student was the norm, degree-granting institutions offered programs in
standard terms, and non-standard term and nonterm programs were the
province of vocational and technical programs, and were generally of
short duration. The assumptions undergirding the law are no longer valid
and a strong argument can be made that the time has come for a major
overhaul with student behavior as the foundation, rather than term
structures.

Administering aid on a student-by-student basis has the potential
ultimately to simplify the delivery of aid to students enrolled in
non-standard term and nonterm programs and to those who combine courses
with different term structures. This model would provide Federal funds
only at the time the student actually requires the funds, and measures
student progress prior to the school drawing down funds for additional
disbursements.

The Department recommends expanding the Distance Education Demonstration
Program to increase the number and type of participants and to allow for
fuller experimentation with the student-based model and the emergence of
other approaches. Currently, the number of participants is capped at 35
and the Secretary's waiver authority has not allowed full
experimentation with promising models. The Department recommends
increasing the cap to 100 participants, including some that are
accredited, degree-granting correspondence schools, and extending the
Secretary's waiver authority to include waivers of program-specific
rules.

## Eliminating the 50 Percent Rules for Distance Education

The Department supports eliminating the 50 percent rules for distance
education (both telecommunications and correspondence), but retaining
the other limits on correspondence study, including the definition of
full-time student in CFR 668.2 that precludes a correspondence student
from being considered a full-time student. The Department also
recommends that a definition of a "telecommunications course" be
incorporated into the HEA amendments, replacing the current
definition.[^18] Our concern is that the current definition could be
interpreted to allow a correspondence school to qualify for full
participation in student financial assistance programs by introducing
even a very limited amount of e-mail contact between students and a
grader or instructional assistant with or without subject matter
expertise into what is essentially a correspondence course. Similarly, a
course outline or notes posted to the Web might also meet the current
definition. If the broad definition of "telecommunications" remains, we
would expect nearly every correspondence school in the nation to
incorporate e-mail or Web-based materials into its courses. The
Department does not have sufficient recent experience with traditional
correspondence schools (none was eligible to participate in the
demonstration program) for it to support blurring the distinction
between telecommunications and correspondence.

Quality standards for electronically-delivered education emphasize the
importance of interaction between the instructor and student. The
proposed definition of a telecommunications course acknowledges the
importance of interactivity to the viability of electronically-delivered
courses.

For the purposes of this subsection, a "telecommunications course" is
one that uses one or a combination of technologies to (1) deliver
instructional materials to students who are separated from the
instructor, and (2) support regular and substantive interaction between
these students and the instructor, either synchronously or
asynchronously. Technologies may include the Internet; one-way and
two-way transmissions via open broadcast, closed circuit, cable,
microwave, broadband lines, fiber optics, satellite or wireless
communication devices; and audio conferencing.

[Estimated Cost]{.underline}

The cost of eliminating the 50 percent rules for distance education
programs is estimated at \$697 million over ten years, beginning July 1,
2006. This includes \$94 million in mandatory funding and \$603 million
in discretionary funding. The mandatory funding represents the costs of
subsidies for approximately \$1 billion in loans and the discretionary
funding represents the cost of Pell Grants.

This estimate reflects the possible expansion of Title IV eligibility to
institutions that are accredited by the Distance Education and Training
Council (DETC). DETC is recognized by the Secretary for the
accreditation of postsecondary institutions that offer programs
primarily by distance education up through the first professional degree
level. Accreditation by DETC currently does not enable the institutions
it accredits to establish eligibility to participate in Title IV student
aid programs, primarily because of the 50 percent rules. DETC has
submitted a petition for an expansion of its scope of recognition to
enable degree-granting postsecondary institutions it accredits to
establish eligibility to participate in Title IV student aid programs,
including the Distance Education Demonstration Program. If the Secretary
approves this expansion of scope, DETC-accredited institutions would be
able to apply to participate in the Distance Education Demonstration
Program, if a new competition is held. In the event that the law is
changed, this expansion of scope would permit Title IV eligibility for
some DETC-accredited institutions.[^19]

## Continued Oversight Critical

The Department is committed to ongoing monitoring of distance education
providers whether as current participants in the demonstration program
or, more generally, once they commence unrestricted participation in the
aid programs subsequent to the proposed elimination of the 50 percent
rules.

As the data contained in this report suggest, most Distance Education
Demonstration Program participants have experienced significant, and
appropriate, enrollment increases over the last several years. The
increase in enrollment indicates that the program's participants are
reaching a population that may not previously have had ready access to
postsecondary education. Along with these increases in enrollment,
increased amounts of aid have been provided to low-income students.
Again, this trend should not be troubling since we hope that the Federal
student aid programs positively impact enrollments. It does, however,
suggest that close monitoring by the Department's oversight staff is
essential.

# CONCLUSION

As the Congress considers the reauthorization of the Higher Education
Act, careful consideration should be paid to the dramatic change
underway in American higher education. The advent of distance learning
has forever changed this critical segment of our educational system. And
yet, our Federal student financial aid programs have not kept pace with
this change. Indeed, the evidence would suggest that several of the
rules that were intended to protect Federal funds have instead protected
brick-and-mortar institutions, by limiting Title IV eligibility to
institutions that offer primarily on-site courses, and delayed
appropriate expansion of this alternative mode of delivery. These rules,
most notably the 50 percent rules, should be eliminated during the
reauthorization of the Higher Education Act.

The Department's experience working with the demonstration program
participants indicates that the potential risk to Title IV student
financial aid programs has more to do with the integrity of the
institution than with the way in which the education is offered. The
integration of technology into all aspects of education makes it very
difficult to distinguish between "on-campus" and "distance education."

Since the last HEA reauthorization, accrediting agencies have gained a
substantial amount of knowledge about distance education quality
assurance. In addition, they have broadened the means by which they
assess academic and institutional quality to encompass more outcome
measures. While the higher education community still needs to do more
work on these challenging issues, it is clear that no particular mode of
delivery is inherently superior or inferior in terms of educational
quality.

Along with the development of new delivery modes, the changing
demographics of postsecondary education students bring into focus the
problems arising from the outmoded assumptions that at one time
warranted using term structure as a foundation for financial aid rules.
Through its experience with demonstration program participants and
others providing non-traditional educational programs, the Department
has gleaned a great deal of insight into the problems and possible
solutions. With additional waiver authority, the Department would have
an opportunity to fully test some of these approaches and work with
Congress and the community to update the laws and regulations.

[^1]: Changes resulted in replacing the "12 hour rule" " for
    non-standard and nonterm program structures with the "one day rule"
    and adding a requirement that a calendar time element must be met
    before subsequent disbursement of Title IV funds could be made.

[^2]: The Community Colleges of Colorado, Florida State University, New
    York University, and Brevard Community College voluntarily left the
    program. Masters Institute was removed from the program for
    improperly administering Title IV programs. In addition, the
    Washington State consortium dissolved; the community and technical
    colleges left the program, but Washington State University remained.

[^3]: Post University has undergone a change in status from private,
    non-profit to private, for-profit.

[^4]: The 1998 Amendments to the HEA removed the restriction on
    including the cost to rent or purchase computer equipment for
    students receiving instruction by telecommunications. Effective
    October 1, 1998, the law specifies that there is no distinction made
    in the cost of attendance regarding the mode of instruction.

[^5]: An institution becomes ineligible to participate in Title IV
    programs if, for the latest complete award year, more than 50
    percent of the courses offered were correspondence or
    telecommunication courses, or 50 percent or more of its regular
    students were correspondence students. A regular student enrolled in
    one or more telecommunications courses is considered a
    correspondence student when (1) the institution exceeds the above
    limit on courses, or (2) the institution does not offer an
    associate, bachelor, or graduate degree program or offers more
    certificate programs than degree programs.

[^6]: The HEA prohibits the U.S. Department of Education from regulating
    in this area.

[^7]: Washington Community and Technical Colleges (part of the
    Washington State consortium), Florida State University, Brevard
    Community College, and two schools in the Connecticut Distance
    Learning Consortium opted not to extend their participation.

[^8]: More detailed information about the participants is available on
    the demonstration program website
    <http://www.ed.gov/programs/disted>.

[^9]: These numbers reflect only the enrollments in UMUC's
    Maryland-based campus. It does not include the two overseas
    divisions that serve a large number of active duty military and
    their dependents.

[^10]: Florida State University had difficulties extracting information
    from its databases to meet the reporting requirements of the
    demonstration program. The data provided by FSU may not be accurate.

[^11]: The most recent data from NCES show that about a quarter (22
    percent) of institutions that offered distance education in
    2000--2001 had 100 or fewer distance education enrollments, and 30
    percent had 101 to 500 enrollments. In addition, 16 percent had 501
    to 1,000 enrollments, 17 percent reported enrollments of 1,001 to
    2,500, and 15 percent reported more than 2,500 enrollments for the
    2000--2001 academic year.

[^12]: Computer-Aided Realtime Translation

[^13]: U.S Department of Education, National Center for Education
    Statistics, *A Profile of Participation in Distance Education:
    1999-2000* (November 2002), by Anna C. Sikora.

[^14]: This includes for-profit and publicly-traded institutions.

[^15]: This list excludes institutions that have left the program;
    institutions in the Connecticut Consortium that offer no distance
    education degree programs; and three participants that gained
    eligibility in 2003-04.

[^16]: Quarters, semesters and trimesters are considered to be *standard
    terms*. A semester or trimester is a term consisting of
    approximately 15 weeks during which a full-time student is expected
    to carry at least 12 semester hours. A quarter is a term consisting
    of approximately 10-12 weeks during which a full-time student is
    expected to carry at least 12 quarter credit hours. A *non-standard
    term* has fixed beginning and end dates, and is any term that does
    not meet the definition of a standard term. A *nonterm* program is
    not organized in terms and may, or may not, have pre-established
    beginning and ending dates.

[^17]: See
    <http://www.ifap.ed.gov/presentations/04NASFAANontradEDPrgmForm.html>

[^18]: The term "telecommunications" means the use of television, audio,
    or computer transmission, including open broadcast, closed circuit,
    cable microwave, or satellite, audio conferencing, computer
    conferencing, or video cassettes or discs, except that such term
    does not include a course that is delivered using video cassette or
    disc recordings at such institution and that is not delivered in
    person to other students of that institution.

[^19]: Many DETC-accredited schools offer programs via correspondence.
    If the law changes to eliminate the 50 percent rules for
    telecommunications-delivered education but not for correspondence
    study, these correspondence schools would still be ineligible to
    participate in Title IV student aid programs.