Proposal on the Department’s Proposal on In-State State Authoriza�on Exemp�on (Sec�on 600.9(a))

Submited by: Erika Linden and Scot Dolan (Private, Nonprofit Ins�tu�ons of Higher Educa�on) 

Robert Anderson (State Officials, including State higher educa�on execu�ve officers, 

State authorizing agencies, and State regulators of ins�tu�ons of higher educa�on)

Submited February 14, 2024

The Department is proposing to eliminate, by 2030, current regula�ons that exempt ins�tu�ons from instate state authoriza�on or licensure requirements if: (1) the ins�tu�on is established by name as an 

educa�onal ins�tu�on by a state through a charter, statute, cons�tu�onal provision, or other ac�on; and 

(2) state law provides an exemp�on to ins�tu�ons based on an ins�tu�on’s accredita�on by an

accreditor recognized by the Secretary of Educa�on or based on the ins�tu�on being in opera�on for at 

least 20 years. The language proposed below (blue text) would revise the Department’s proposed 

changes (red text) from Issue Paper 2: State Authoriza�on distributed prior to session 2 with the 

objec�ve of retaining these excep�ons.

Ra�onale

Although the Department has stated that it plans to eliminate the in-state state authoriza�on 

exemp�ons, it has not clearly iden�fied any abuses that are occurring due to exercise of the excep�ons 

in sec�on 600.9(a). At the same �me, we know that elimIina�ng the in-state state authoriza�on 

excep�ons would cause enormous upheaval for both states and private, nonprofit ins�tu�ons of higher 

educa�on. (Because public ins�tu�ons are, by defini�on, established by the states and for-profits are 

typically more heavily regulated by states, the current state authoriza�on excep�ons primarily affect the 

private, nonprofit sector.) Private, nonprofit ins�tu�ons of higher educa�on located in states with these 

exemp�ons and grandfather clauses rely on these excep�ons to meet the federal state authoriza�on 

requirement and qualify for Title IV aid. 

Historically, in-state state authoriza�on, which is required by the Higher Educa�on Act, is a very basic 

requirement that an ins�tu�on be legally recognized to operate in the state as a postsecondary 

ins�tu�on. It should not be confused with the totally separate and dis�nct concept of state oversight, 

nor with state authoriza�on of distance educa�on programs via reciprocity agreements. This 

fundamental confusion between the authoriza�on and oversight roles of states led to significant

disrup�on for states and for private, nonprofit ins�tu�ons during the implementa�on of the 2010 

regula�ons which established the state authoriza�on requirement in federal regula�ons. 

The confusion during the implementa�on of the 2010 regula�ons led to a series of state ac�ons, from 

legislatures needing to pass special legisla�on to officials having to dig for ancient documents (including, 

original charters from English kings in cases where ins�tu�ons predate the existence of their states), to 

state agencies needing to undertake massive cer�fica�on efforts for long established, brand-name 

ins�tu�ons. One of the most unfortunate consequences of this years-long effort was the diversion of 

finite state resources that could have been beter spent to bolster states’ consumer oversight in 

circumstances that most needed their aten�on. 

The current excep�ons became an important path out of the chaos created for many states and should 

not be undone. The excep�ons have also ensured that states are able to focus oversight resources on 
programs, ins�tu�ons, and situa�ons that warrant the most vigorous consumer protec�on efforts. 

Altering these excep�ons would cause significant turmoil for both states and private, nonprofit 

ins�tu�ons by subjec�ng ins�tu�ons to a whole series of state laws that were never intended to apply to 

them and by forcing states to divert resources that would be beter focused on ins�tu�ons at risk. The 

addi�onal compliance costs imposed on ins�tu�ons would also either leave ins�tu�ons with fewer 

resources to provide financial aid to their neediest students or force ins�tu�ons to raise tui�on to cover 

the compliance costs. 

As some nego�ators and public commenters have noted, the Department’s proposal also raises serious 

concerns around federalism that could lead to unnecessary legal batles. At the heart of these concerns 

is whether the Department has both the cons�tu�onal and statutory authority to dictate to states which 

of their laws apply to which schools and under what circumstances. 

At a more prac�cal level, many states do not have the same type of oversight boards for private, 

nonprofit ins�tu�ons that they might have of trade schools. There is o�en no en�ty that is authorized to 

oversee independent colleges in this manner. The Department should not require states to establish 

substan�al new oversight bureaus if states, in their own judgment, do not deem it necessary. 

For example, in Kansas, there is no state coordina�ng board that oversees private, nonprofit ins�tu�ons 

based on a 50-year-old state agency determina�on. Because of that exis�ng statutory exemp�on, a�er 

2010, the state legislature was forced to pass new statutory language individually naming all 22 Kansas 

private, nonprofit ins�tu�ons as exempt from state laws governing other higher educa�on sectors. The 

private, nonprofit ins�tu�ons do have to comply with state consumer protec�on regula�ons for all 

private en��es. Elimina�ng the federal excep�on for ins�tu�ons named in state laws would render all 

private, nonprofit ins�tu�ons in Kansas ineligible for Title IV unless Kansas passed new legisla�on that 

somehow allows these colleges and universi�es to meet the amended state authoriza�on requirements.

In Illinois, independent, nonprofit colleges and universi�es established before July 18, 1945, are largely 

exempt from opera�onal and program oversight by the state’s coordina�ng board, the Illinois Board of 

Higher Educa�on (IBHE). Independent nonprofit colleges and universi�es established on or a�er July 18, 

1945, are required to seek approval for opera�ons and programs from the IBHE. Elimina�ng the federal 

excep�on for ins�tu�ons recognized in Illinois state statute would likely result in the majority of the 48 

independent, nonprofit ins�tu�ons in Illinois losing eligibility for Title IV unless Illinois passed new 

legisla�on to reauthorize ins�tu�ons that have long been recognized by the state. 

In Florida, private, nonprofit colleges and universi�es are currently exempt from state licensure by 

means of their SACSCOC accredita�on. Elimina�ng the federal state authoriza�on exemp�on based on 

accredita�on status would, contrary to the state’s intent, subject the private, nonprofit sector to the 

oversight of the Commission for Independent Educa�on, the board that licenses for-profit ins�tu�ons in 

Florida. As a result, approximately 30 private, nonprofit ins�tu�ons in Florida would be subject to a wide 

range of burdensome and expensive new requirements, such as new repor�ng and compliance 

requirements and an addi�onal annual fee of over $10,000 per school. 

The fallout from the 2010 changes to state authoriza�on rules was a painful process that did not 

necessarily enhance protec�ons for students. The proposed elimina�on of the current in-state state 

authoriza�on excep�ons would cause a similar level of mass disrup�on in a majority of states. We 

respec�ully request that the Department specifically explain: 
1. What are the problems the Department is trying to solve that were not resolved a�er the 

enactment of the 2010 version of 600.9(a)?

2. What is the data on specific abuses that have occurred from ins�tu�ons authorized by the 

exis�ng exemp�ons? 

The Department should not eliminate the current excep�ons in the absence of a compelling reason to do 

so. 

Proposed Language 600.9(a)

(1) An institution described under §§ 600.4, 600.5, and 600.6 is legally authorized by a State if the State: 

(i) Ensures the institution complies with any applicable State authorization or licensure requirements, 

except as described in subsection (3) of this section, and continues to meet a State’s general-purpose or 

education-specific laws and regulations; and 

(ii) hHas a process to review and appropriately act on complaints concerning the institution, including 

enforcing applicable State laws. and the institution meets the provisions of paragraphs (a)(1)(i), (a)(1)(ii), 

or (b) of this section

(i) 

(A) The institution is established by name as an educational institution by a State through a charter, 

statute, constitutional provision, or other action issued by an appropriate State agency or State entity 

and is authorized to operate educational programs beyond secondary education, including programs 

leading to a degree or certificate. 

(B) The institution complies with any applicable State approval or licensure requirements, except that 

the State may exempt the institution from any State approval or licensure requirements based on the 

institution's accreditation by one or more accrediting agencies recognized by the Secretary or based 

upon the institution being in operation for at least 20 years. 

(ii) If an institution is established by a State on the basis of an authorization to conduct business in the 

State or to operate as a nonprofit charitable organization, but not established by name as an 

educational institution under paragraph (a)(1)(i) of this section, the institution—

(A) By name, must be approved or licensed by the State to offer programs beyond secondary education, 

including programs leading to a degree or certificate; and 

(B) May not be exempt from the State's approval or licensure requirements based on accreditation, 

years in operation, or other comparable exemption.

...

(3) The institution may be is exempted from requirements for initial or renewed application for 

authorization or licensure if: 
(i) The institution is offering distance education in that State under a State authorization reciprocity 

agreement, as defined in § 600.2, to students in that State, but is not physically located in that State; 

(ii) Not later than July 1, 2030, a The institution is established by name as an educational institution by a 

State through a charter, statute, constitutional provision, or other action issued by an appropriate State 

agency or State entity and authorizes it is authorized to operate educational programs beyond 

secondary education, including programs leading to a degree or certificate; or

(iii) Not later than July 1, 2030, a State action exempts the institution.The institution complies with any 

applicable State approval or licensure requirements, except that the State may exempt the institution 

from any State approval or licensure requirements based on the institution's accreditation by one or 

more accrediting agencies recognized by the Secretary or based upon the institution being in operation 

for at least 20 years.

Alternate Proposed Language

Alternatively, the Department could preserve the existing exceptions by maintaining the current 

regulatory language in 600.9(a)(1).

(a) 

(1) An institution described under §§ 600.4, 600.5, and 600.6 is legally authorized by a State if the State 

has a process to review and appropriately act on complaints concerning the institution including 

enforcing applicable State laws, and the institution meets the provisions of paragraphs (a)(1)(i), (a)(1)(ii), 

or (b) of this section. 

(i) 

(A) The institution is established by name as an educational institution by a State through a charter, 

statute, constitutional provision, or other action issued by an appropriate State agency or State entity 

and is authorized to operate educational programs beyond secondary education, including programs 

leading to a degree or certificate. 

(B) The institution complies with any applicable State approval or licensure requirements, except that 

the State may exempt the institution from any State approval or licensure requirements based on the 

institution's accreditation by one or more accrediting agencies recognized by the Secretary or based 

upon the institution being in operation for at least 20 years. 

(ii) If an institution is established by a State on the basis of an authorization to conduct business in the 

State or to operate as a nonprofit charitable organization, but not established by name as an 

educational institution under paragraph (a)(1)(i) of this section, the institution—

(A) By name, must be approved or licensed by the State to offer programs beyond secondary education,

including programs leading to a degree or certificate; and 

(B) May not be exempt from the State's approval or licensure requirements based on accreditation, 

years in operation, or other comparable exemption.