A Federal Rule Bedevils Online Institutions

December 12, 2003 – Congress may change the law, but not everyone thinks that is a good idea

When Congress decided to crack down on fraudulent correspondence-course programs a decade ago, the laws it wrote seemed well tailored to the problem at hand. But one of those laws, known as the 50-percent rule, has some online institutions in a bind because it keeps them from offering federal financial aid. Now they are pressing lawmakers to drop the law or dilute it. Soon they may get their wish.

The 50-percent rule, passed in 1992, prevents institutions that enroll more than half of their students at a distance, or offer more than half of their courses via distance education, from participating in federal financial-aid programs. For institutions like Gran-tham University, an online university based here, the rule is a big problem. Although Grantham is accredited and enjoys a good reputation, it cannot offer federal financial aid to its students.

So Grantham’s chief executive officer, Thomas M. Macon, has been busy lobbying Congress, as have representatives of other online institutions whose students cannot take advantage of low-interest, deferred-payment federal loans to pay for their education.

Grantham is a 52-year-old proprietary institution that offers its degrees — in business, computer science, and engineering — via the Internet. Mr. Macon, who is also the university’s majority owner, explains to members of Congress how the rules not only hurt Grantham students but also prevent the institution from expanding.

The law has served its purpose, but in today’s market it is overly restrictive, he says. He argues that the law, as written, forbids any all-online institution, no matter how well run, from participating in federal aid programs. “There are going to be bad actors everywhere, and you have to have aggressive oversight,” he says. “But you can’t indict a whole business practice.”

He has a sympathetic audience on Capitol Hill, where lawmakers have been considering proposals for easing the 50-percent rule for several years. With Congress planning to extend the Higher Education Act in the spring, political observers expect the 50-percent rule to be killed, or at least severely weakened.

End in Sight

Not everybody is happy about that. Some Democrats are concerned that getting rid of the rule could lead to a resurgence of the fraud and abuse that it was designed to prevent. And some professors from traditional institutions don’t believe that online education has proved good enough to distinguish itself from the correspondence-school scams that prompted the rule in the first place.

Republicans seem to have gained enough momentum and support to end the 50-percent rule, but so far lawmakers haven’t agreed on what will take its place. Proposals are floating around in various pieces of legislation. Some call on accreditors to play a larger role in setting standards for distance-education programs. Others would relax the rule but, despite protests from distance-education providers, continue to put more restrictions on online programs than on traditional, classroom-based programs.

Another twist in the debate is that, in practice, the law applies only to some online universities. Many of the most prominent online institutions have won waivers that exempt them from the 50-percent rule, through the U.S. Education Department’s Distance Education Demonstration Program.

The program not only lets high-profile virtual institutions like Capella University and Western Governors University offer federal financial aid, but also ensures that many traditional institutions, such as Florida State University, do not have to worry whether their online enrollments will soar past the 50-percent mark. Only institutions that aren’t included in the demonstration program are subject to the rule’s restrictions.

The Department of Education issued a report this year saying that institutions in the demonstration program had not had any problems with fraud, lack of quality, or anything else that could be blamed on their distance-education programs. But department officials have not endorsed any permanent changes in the 50-percent rule.

The regulation’s opponents note that even if it is stricken from the books, the kinds of diploma mills it was devised to eliminate will still not be eligible for federal-aid programs, which admit only accredited institutions.

Stephen G. Shank, chancellor of Capella University, says distance learning has proved itself as a viable form of education. “It’s important that there’s some permanent legislative fix for primarily online universities like ourselves,” he says. “The rule itself has outlived its usefulness.”

Charles M. Cook is director of the New England Association of Schools and Colleges’ Commission on Institutions of Higher Education, which evaluates both traditional and online programs. He says that while he is happy to have accreditors be counted on to evaluate distance-education programs, he hopes that the government does not tell accreditors specifically how to judge the programs’ quality. “I’m not particularly enthusiastic about having federal direction about how to go about that,” he says. “It would have a tendency to create burdens for institutions and may stultify reasonable growth in this area.”

Michael P. Lambert, executive director of an accreditation group called the Distance Education and Training Council, says the legislative proposals do not go far enough. Correspondence programs, which generally use postal mail, still would not be able to offer federal financial aid under any of the bills. The council accredits some correspondence colleges, and he says they meet the standards of a good-quality institution.

But Mark Smith, director of government relations for the American Association of University Professors, says distance education has a high quality threshold to meet because students are put at a disadvantage by not being in classrooms with their professors.

“Interaction between students and the faculty is a critical factor,” he says. “I’m still skeptical of chat-room interaction being of the same level as being in a classroom and communicating with each other.”

Tuition Reimbursement

Because Grantham cannot offer federal financial aid, it seeks students who work for companies that provide tuition reimbursement or who serve in the military and can get their tuition paid by the armed services.

Tuition and other expenses at Grantham run about $7,000 per year, compared with an average of about $29,000 at private colleges, according to the College Board. But Grantham still costs a lot, especially because its students cannot participate in federal loan programs. If the online university could offer federal aid, Mr. Macon says, “I think the school would grow considerably. We’d have a whole bunch of people come.”

Grantham enrolls about 5,000 students. That’s up from about 500 in 2000, when Mr. Macon bought the university from its previous owners. The university, which opened in 1951 with a traditional campus in California, initially specialized in radio engineering. In the late 1950s, the Department of Defense asked it to offer correspondence courses to troops overseas. By the 1980s, Grantham had shed its traditional campus and was focusing on correspondence courses.

In the 1980s, when California adopted stringent regulations for distance-education institutions, Grantham relocated to Louisiana. It switched from correspondence courses to Web-based courses in the 1990s.

Grantham is accredited by the Distance Education and Training Council, and the Louisiana Board of Regents gives the university a clean bill of health. “They’re as aboveboard and legitimate as you can get,” says Kevin Hardy, communications director for the board. “They’ve had no complaint issues to our knowledge at all.”

Some aspects of Grantham’s distance-education program could ruffle traditionalists’ feathers, however. Students don’t interact with their professors regularly and work at their own pace during the 16-week courses, asking for assistance only when they choose.

Sometimes a student may deal with multiple professors for one course, depending on which professor is available at a given time. Although close ties may not form between students and professors, Mr. Macon says all of the faculty members are knowledgeable in their subjects.

A Grantham education is just as rigorous as that of an institution that’s allowed to provide federal financial aid, Mr. Macon argues. Students use university-provided lesson plans and textbooks. They can speed through the material if they grasp it easily, but they must finish the course within 16 weeks. Students take online tests as the course proceeds, as well as proctored final exams.

Ben Graber, an Ohio resident, graduated from Grantham in August with a bachelor’s degree in electrical engineering. He says Grantham’s online programs were perfect for him, and he’s completely satisfied with his education. His one complaint, he says, would be that sometimes he found it difficult to get in touch with his professors when he needed help. And the e-mail exchanges weren’t as clear as face-to-face encounters would have been. “It was harder to communicate,” he says. Otherwise, he gives his experience a thumbs-up.

Depending on Accreditors

Some would-be students can’t enroll in Grantham courses because their companies don’t have tuition-reimbursement programs, or because they can’t get private lenders to defer payments until after graduation, says Roy Winter, president of Grantham.

Darryl Mason, a human-resources manager for a U.S. Coast Guard office in Arlington, Va., wanted to take classes with Grantham to get an M.B.A. But he wouldn’t have been able to get his loan payments deferred, as he could with federal loans. So instead he enrolled online at the University of Phoenix, where federal loans are available. He considers both to be good universities, but Grantham’s tuition was cheaper.

“It had pretty much everything I was looking for,” Mr. Mason says. “If Grantham would have been a Title IV school, I would have chosen it over Phoenix.” The federal financial-aid program is outlined in Title IV of the Higher Education Act.

If the 50-percent rule isn’t dropped, Mr. Macon says, Grantham will probably have to raise its tuition. The cost of running the university will continue to climb, and it will need either higher tuition or more students to offset the cost, he says. If tuition rises, then Grantham would cost as much as many of the other private institutions. “We’ll be like any of the other high-priced guys,” he says.

Some members of Congress are considering proposals that would do away with the 50-percent rule and give accreditors more responsibility to evaluate distance-education programs.

Sen. Michael B. Enzi, a Wyoming Republican, says the rule hurts many students who want to complete their college educations. “It doesn’t make sense to me to exclude these students from participating in Title IV assistance programs just because they are using a different method of learning,” he says. “I believe more and more people are beginning to understand that distance learning is a legitimate course of study.”

But Rep. Dale E. Kildee, a Michigan Democrat, wants tough measures to protect against fraud and abuse. An institution that is completely online should have higher hurdles to clear than one that enrolls more than half of its students in traditional classroom courses, he argues. “I want scrutiny,” Mr. Kildee says. “The scrutiny will be tighter, more focused, the higher they go from 50 percent and up.”

Rep. Johnny Isakson, a Georgia Republican, has been trying to get rid of the 50-percent rule for three years. Whatever will take its place is up for negotiation, he says. He is optimistic that the rule will be eased during reauthorization of the Higher Education Act. “No matter what safeguard you put out there, somebody else is going to have a different idea,” he says. “I’m perfectly happy to work with anyone to make sure that credible and quality content can be delivered over the Web.”

Mr. Smith, of the AAUP, hopes that Congress will be cautious in dealing with the 50-percent rule. “We think there needs to be a lot more understanding of what online education entails before we relax those quality standards,” he says. “If, unfortunately, the rule were repealed, I certainly hope there would be a larger role for accreditors.”

‘Possibility of Fraud’

Don Wagner, a professor of political science at the State University of West Georgia, is director of special programs there, including the distance- and distributed-learning program. He does not think that the time has come to get rid of the 50-percent rule. He would rather see Congress expand the demonstration program, allowing the Department of Education to continue monitoring online institutions.

“This is the way to go until we know how to do it correctly,” Mr. Wagner says. “Without the 50-percent rule, you run the risk of opening this up to institutions that don’t have sufficient resources to deliver what they ought to deliver. You open it up to the possibility of fraud.”

But Bob Mendenhall, president of Western Governors University, says the law should not discriminate against online instruction. “Distance education is now an accepted fact in higher education in both traditional institutions and new institutions,” he says. “The discrimination in the law should be on the quality of the program, not how it’s delivered.”

Pamela S. Pease, president of Jones International University, an online institution that was recently added to the demonstration program, says holding distance education to a standard higher than that for traditional colleges may hurt institutions that rely on online instruction. “We need to be futuristic as we look at these things,” she says, noting that it will be years before the Higher Education Act is reauthorized again.

While many members of Congress have indicated that they are working to ease the 50-percent rule, Grantham’s Mr. Macon plans to continue lobbying on behalf of his institution. “I’m 100 percent confident it’s the right thing to do,” he says. “But I’m not confident it’s going to move through, because there’s tremendous fear of fraud and abuse out there.”

PROPOSALS TO EASE THE RULE RESTRICTING STUDENT AID IN DISTANCE EDUCATION

Congress is mulling several bills that would ease the 50-percent rule, a federal law that prevents institutions that enroll more than half of their students at a distance, or offer more than half of their courses via distance education, from participating in federal financial-aid programs. Here’s what is under consideration:

HR 3039 PROVISIONS ALSO CONTAINED IN S 1203, HR 2913
Sponsor: Rep. Tom Cole, an Oklahoma RepublicanWould waive the 50-percent rule and require accreditors to develop standards for evaluating distance-education programs. The U.S. Department of Education would determine which accreditors have adequate evaluation standards.

S 1203 PROVISIONS ALSO CONTAINED IN HR 2913
Sponsor: Sen. Michael B. Enzi, a Wyoming RepublicanWould also stipulate how accreditors evaluate distance-education institutions, requiring that accreditors measure student achievement, the preparation of faculty members, the quality of interaction between professors and students, and the availability of support services for students.

HR 2913
Sponsors: Rep. Robert E. Andrews, a New Jersey Democrat, and Rep. Dale E. Kildee, a Michigan Democrat Would also strip an online institution’s Title IV eligibility if it fell into trouble with government audits or accreditation.

S 901
Sponsor: Sen. Judd Gregg, a New Hampshire RepublicanWould waive the 50-percent rule for online institutions that offer federal financial aid and have a loan-default rate of less than 10 percent for the preceding three years.