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«FINAL AUDIT REPORT ED-OIG/A07L0001 February 2014 Our mission is to promote the U.S. Department of Education efficiency, effectiveness, and Office of ...»

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Since 2005, the Inspector General has testified before Congress five times on the susceptibility to fraud and abuse of Title IV programs delivered to students enrolled in programs of study offered through distance education. Key issues highlighted during those testimonies included the verification of a student’s identity, determination of a student’s attendance at an academically related activity (referred to throughout this report as “academic attendance”), and the calculation of cost of attendance for students enrolled in distance education programs. Past Office of Inspector General (OIG) audits, investigations, and special projects have shown that instances of problems in these areas are increasing as schools deliver more programs through distance education.

Final Audit Report ED-OIG/A07L0001 Page 5 of 83


The purpose of the programs authorized by Title IV of the Higher Education Act of 1965, as amended (HEA), is to provide loans, grants, and work-study financial assistance to students to meet the costs of attending eligible postsecondary schools. To participate in the Title IV programs, a school must qualify in whole or in part as an eligible school. Sections 102(a)

through 102(c) of the HEA established three types of eligible schools:

• An institution of higher education, which is a public or private nonprofit educational institution. This type of school provides an educational program that awards an associate, baccalaureate, graduate, or professional degree.

• A proprietary institution of higher education, which is an educational institution that is not a public or private nonprofit educational institution. This type of school (1) provides an eligible program of training to prepare students for gainful employment in a recognized occupation or (2) has provided a program leading to a baccalaureate degree in liberal arts continually since January 1, 2009. To establish eligibility based on providing a baccalaureate degree in liberal arts, the school must also be accredited by a recognized regional accrediting agency or association and have continuously held such accreditation since October 1, 2007, or earlier.

• A postsecondary vocational institution, which is a public or private nonprofit educational institution. This type of school provides an eligible program of training to prepare students for gainful employment in a recognized occupation.

Schools deliver instruction to students through a variety of methods. The two most common delivery methods are campus-based instruction and distance education. Campus-based instruction is delivered in an on-campus setting where students and the instructor are face to face.

In contrast, distance education uses certain technologies to deliver instruction to students who are separated from the instructor but supported by regular and substantive interaction between the student and the instructor. Permissible technologies may include the Internet; one-way and two-way transmissions through open broadcast, closed circuit, cable, microwave, broadband lines, fiber optics, satellite, or wireless communications devices; or audio conferencing. In addition, video cassettes, DVDs, and CD-ROMS are permissible if they are used in combination with any of the permissible types of technologies (34 Code of Federal Regulations (C.F.R.) § 600.2). 3 Congress authorized, as part of the 1998 amendments to the HEA, the Distance Education Demonstration Program (Public Law 105–244 on October 7, 1998). The purpose of the Distance Education Demonstration Program was to help the Department determine the regulatory changes needed to provide greater access to distance education and the appropriate level of Title IV assistance for students enrolled in distance education programs. In July 1999, the Department approved participation for 15 schools offering distance education programs. As of All regulatory citations are to the July 1, 2010, version unless otherwise noted.

Final Audit Report ED-OIG/A07L0001 Page 6 of 83 February 2005, 24 schools were participating—9 proprietary schools, 7 private nonprofit schools, 4 public schools, 3 consortia, and 1 public system. 4 Upon completion of the Distance Education Demonstration Program, the Department concluded that providing students with greater access to distance education programs did not result in problems.

Before July 1, 2006, section 102(a)(3) of the HEA provided that a school was not eligible to participate in the Title IV programs if it (1) offered more than 50 percent of its courses by correspondence or (2) enrolled 50 percent or more of its students in correspondence courses.

This was referred to as the “50-percent rule.” By regulation, “telecommunications courses” were considered “correspondence courses” for purposes of this provision in certain circumstances.

The Higher Education Reconciliation Act of 2005 (Public Law 109–171), enacted on February 8, 2006, among other things, amended section 102(a)(3) of the HEA to exclude “courses offered by telecommunications” from “correspondence courses” that are subject to the 50-percent rule. As a result, for an otherwise eligible school, the 50-percent limitations on correspondence courses and on the percentage of students enrolled in correspondence courses no longer applied to telecommunications courses. Since this change, enrollment in distance education programs has grown significantly.

According to a National Center for Education Statistics (NCES) report dated October 2011, from 2000 to 2008, the percentage of undergraduate students enrolled in at least one distance education class rose from 8 percent to 20 percent. According to a January 2013 report on a survey conducted by Babson Survey Research Group, online enrollment in degree-granting postsecondary schools has continued to grow at rates far in excess of the growth for total enrollment in higher education. 5 The survey results showed that more than 6.7 million students (32 percent) were taking at least one online course during the fall 2011 term, an increase of more than 570,000 students (9.3 percent) over the number reported the previous year. At the same time, the overall higher education student population grew 2.6 percent over the previous year. In academic year 2009–2010, nearly half of all schools offered distance education opportunities to their students. Public 2- and 4-year schools were most likely to offer distance education, followed closely by private, for-profit 4-year schools.

Who Is Responsible for Overseeing Schools and Ensuring School Compliance With the Title IV Requirements?

Oversight of schools participating in the Title IV programs is handled by three primary entities:

(1) the Department, (2) accrediting agencies, and (3) States. The Department is responsible for promulgating Title IV regulations, authorizing schools to participate in the Title IV programs, and monitoring a school’s compliance with the Title IV requirements. Accrediting agencies are primarily responsible for monitoring a school’s academic quality. States are responsible for authorizing and licensing schools to operate.

From 1999 through 2005, four schools voluntarily left the project, and one was removed.

I. Elaine Allen, and Jeff Seaman, Co-Directors, Babson Survey Research Group, “Changing Course: Ten Years of Tracking Online Education in the United States,” January 2013. Questions for this study were included in the College Board’s annual survey of colleges, sent to 4,527 active, degree-granting schools in the United States. The results of the survey were based on the responses from the chief academic officers at 2,820 schools, representing about 83 percent of higher education enrollments. The survey was conducted with support from the Alfred P. Sloan Foundation, the Sloan Consortium, and Pearson, and data collection was provided by the College Board.

Final Audit Report ED-OIG/A07L0001 Page 7 of 83 Department Within the Department, the Office of Postsecondary Education (OPE) and Federal Student Aid (FSA) are responsible for administering and overseeing the Title IV programs. OPE develops Federal postsecondary education policies and legislative proposals, administers and oversees the Department’s accrediting agency recognition process, and provides guidance to schools to help them comply with the Title IV requirements.

FSA authorizes schools to participate in the Title IV programs and works with eligible schools, financial institutions, and other participants in the Title IV programs to deliver programs and services that help students and families finance education beyond high school. FSA also enforces compliance with the Title IV requirements by using a variety of tools, including reviews of annual financial and compliance audit reports prepared by independent public accountants and reviews of schools’ administration of the Title IV programs conducted by FSA employees.

Some of FSA’s reviews are full compliance assessments, and some are assessments focused on specific topics.

Accrediting Agencies The purpose of accreditation is to ensure that the education provided by schools participating in the Title IV programs meets acceptable levels of quality. Sections 101(a)(5) and 102(b)(1)(D) of the HEA require schools participating in the Title IV programs to be accredited by an agency that is recognized by the Secretary. Accrediting agencies are private educational associations that develop evaluation criteria and conduct evaluations to assess whether schools meet agencydeveloped criteria. Schools and their programs that meet an agency’s criteria are then accredited by that agency.

The two basic types of accreditation are institutional, which can be either national or regional in scope, and specialized or programmatic. Institutional accreditation generally applies to an entire school and is required for Title IV participation. Specialized or programmatic applies only to programs, departments, or schools that are a part of a larger school. A national accrediting agency operates throughout the United States. The accreditation granted by a national accrediting agency is institutional. A regional accrediting agency operates primarily in a specific geographical area and accredits a wide range of schools that offer associate, baccalaureate, masters, and doctoral degrees. As of February 5, 2014, the Department had recognized 37 accrediting agencies for Title IV purposes.

According to section 101(c) of the HEA, the Secretary recognizes accrediting agencies to ensure that these agencies are reliable authorities regarding the quality of education or training offered by the schools or programs that they accredit. Under section 496(n)(3) of the HEA, if the Secretary recognizes an accrediting agency, and the accrediting agency reviews schools offering distance education, then the accrediting agency’s scope of recognition will include accreditation of schools offering distance education provided it satisfies the requirements under section 496(n)of the HEA. The Secretary periodically publishes a list of recognized accrediting agencies together with each accrediting agency’s scope of recognition. According to Dear Colleague Letter GEN-06-17, “Institutional Accreditation for Distance Learning Programs,” September 28, 2006, if a school offers a program that has more than 50 percent of its courses offered through distance education, it must be accredited by an agency that the Department has recognized to accredit schools offering distance education. As of February 5, 2014, the Final Audit Report ED-OIG/A07L0001 Page 8 of 83 Department had recognized 31 accrediting agencies for Title IV purposes and whose scope of recognition included distance education.

The Higher Education Opportunity Act of 2008 (Public Law 110–315, enacted on August 14, 2008) created new provisions applicable to accrediting agencies whose scope includes distance education programs. The provisions at section 496(a)(4)(B) of the HEA provide that each such accrediting agency must demonstrate to the Secretary that its standards effectively address the quality of a school’s distance education. The accrediting agency is not required to have separate standards for evaluating distance education schools or programs. However, the accrediting agency’s standards must require a school that offers distance education to have processes through which the school establishes that the person who registers in a distance education course or program is the same person who participates in and completes the program and receives the academic credit.

The Department amended regulations to implement these and other new statutory provisions.

Effective July 1, 2010, an accrediting agency recognized by the Department to ensure the quality

of distance education programs must, among other things, do the following:

• apply and enforce standards that effectively address the quality of a school’s distance education (34 C.F.R. § 602.16(c)),

• require a school that offers distance education to have processes in place for verifying that the person who registers in a distance education course or program is the same person who participates in and completes the program and receives academic credit (34 C.F.R. § 602.17(g)),

• employ individuals who are trained in distance education to review a school or program (34 C.F.R. § 602.15(a)(2)), and

• report enrollment to the Department if certain accredited schools have experienced an increase in enrollment of 50 percent or more within 1 fiscal year (34 C.F.R.

§ 602.19(e)).

In addition, any accrediting agency that has notified the Secretary of a change in its scope in accordance with 34 C.F.R. § 602.27(a)(5) must monitor the headcount enrollment of each school it has accredited that offers distance education or correspondence education (34 C.F.R.

§ 602.19(e)).

States Sections 101(a)(2), 102(a)(1), 102(b)(1)(B), and 102(c)(1)(B) of the HEA require a school to obtain State authorization to participate in the Title IV programs. Effective July 1, 2011, in general, the Department considers a school to be legally authorized by a State if (1) the authorization is given to a school by name through a charter, license, approval, or other State document or action specifically to offer programs beyond secondary education;

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