Scramble Follows Education Department’s Denial of Federal Aid to 80,000 California Students

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Higher-education leaders and policy makers across the country are scrambling this week after the announcement that as many as 80,000 students in California could be cut off from federal financial aid.

The U.S. Department of Education released a notice on Monday that California students enrolled in distance or online programs at public or private nonprofit colleges based outside the state would no longer qualify for federal aid.

The reason is that California does not have a process to handle the complaints of those students, as required under the “state authorization” rules devised by the Obama administration. The Trump administration had sought to delay those regulations, set to go into effect a year ago, but a judge ruled recently that they be enforced.

The department released its guidance so late in the summer that California students at risk of losing federal aid will not have time to make alternative plans, said a letter to the education secretary, Betsy DeVos, sent on Thursday by six higher-education groups.

“In short, the likely outcome will be that thousands of students are either forced to drop out of, or never begin, postsecondary education,” the letter says.

Western Governors University, a nonprofit institution that enrolls mostly working adults, could see some 11,000 students lose their aid, said Scott D. Pulsipher, its president. And the students rely on federal aid, he said, with about 70 percent coming from low-income or minority families.

The institution could also take a financial hit. Western Governors has given out about $8 million in aid to students who would be ineligible to receive more federal dollars, according to the university’s early estimates. And because the department made its guidance retroactive to May 26, “it is currently unclear what the Department of Education expects institutions, like WGU, to do for students who, in good faith, have been awarded funds, but are now ineligible,” the university’s spokeswoman, Melissa Luke, said in an email.

While Western Governors may have more students enrolled from California than do many other colleges, the economic damage could be widespread, but only for the public and private nonprofit colleges that enroll online students in the state, said Leah K. Matthews, executive director of the Distance Education Accreditation Commission.

“The irony shouldn’t be lost that this isn’t harming any private for-profit institutions,” Matthews said. “It could actually be driving business to them.”

For-profit colleges will not be affected because California’s Bureau of Private Postsecondary Education handles complaints from proprietary institutions, including those based outside the state.

The organization set up to manage complaints about public and nonprofit colleges, the California Postsecondary Education Commission, was eliminated in 2011, to save $2 million at a time when the state’s budget was reeling from the Great Recession.

‘They Would Be the Hero’

Several institutions have pledged to temporarily bridge any loss of federal aid for their students, said the letter from the higher-education groups. But real solutions, both in the short and long term, will have to come from either California policy makers or the Education Department.

The state’s attorney general or department of consumer affairs could set up a process to handle student complaints, said David Tandberg, a vice president at the State Higher Education Executive Officers.

But so far, he said, no state agency had stepped forward to take on that responsibility. “I find it interesting that no office is jumping at the chance,” Tandberg said, “because they would be the hero.”

California officials could also move to join the 49 states that have signed reciprocal agreements to standardize the patchwork of regulations to oversee colleges within their borders. California has resisted that move so far, fearing that the standards in the reciprocity agreements are too low to protect the state’s students.

The Obama-era rule “rightfully reinforces states’ jurisdiction to protect their residents,”

Debbie Cochrane, executive vice president of the Institute for College Access and Success, a California-based organization, said in an email. State lawmakers are now considering their options, she said, but “there are better and faster solutions for California” than joining the other states’ compact.

The Education Department also has several options to resolve the crisis. New regulations, recently approved through the negotiated rule-making process, will eliminate the requirement for a complaint process, but they are unlikely to go into effect until July 2020.

The education secretary has some authority to expedite those new rules, according to the higher-education groups. The Education Department could also petition for a change in the court order that required the existing rules to be enforced.

Liz Hill, a spokeswoman for the department, said the situation is a result of a lawsuit that, under the judge’s ruling, forced the agency to put in place a set of flawed rules. In an email she said the department was in the process of asking the court to intervene. “It’s my understanding that we are petitioning the judge in this case,” Hill wrote.

Pulsipher said he was at least somewhat confident that everyone would come together to find a solution. “Neither California nor the Education Department nor institutions,” he said, “want to have students stranded.”

Eric Kelderman writes about money and accountability in higher education, including such areas as state policy, accreditation, and legal affairs. You can find him on Twitter @etkeld, or email him at eric.kelderman@chronicle.com.