Title of Regulation: 8VAC40-31. Regulations Governing Certification of Certain Institutions to Confer Degrees, Diplomas and Certificates (amending 8VAC40-31-260).

Statutory Authority: §§ 23.1-215 and 23.1-224 of the Code of Virginia.

Public Hearing Information: No public hearing is currently scheduled.

Public Comment Deadline: March 18, 2022.

Agency Contact: Beverly Rebar, Senior Associate for Academic and Legislative Affairs, State Council of Higher Education for Virginia, 101 North 14th Street, 9th Floor, Richmond, VA 23219, telephone (804) 371-0571, FAX (804) 225-2604, or email beverlyrebar@schev.edu.

Basis: Section 23.1-215 of the Code of Virginia authorizes the State Council of Higher Education for Virginia (SCHEV) to adopt, pursuant to the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia), such regulations as may be necessary to implement the provisions for standards for certain private and out-of-state institutions of higher education. Section 23.1-224 of the Code of Virginia grants SCHEV authority to establish nonrefundable fees for services and methods for collecting such fees.

Purpose: The Private Postsecondary Education (PPE) unit of SCHEV is funded solely by revenue collected from certification application fees, annual recertification fees, agent fees, religious exemption fees, transcript fees, and program approval fees. The unit does not receive money from general funds. SCHEV must establish fees adequate to support the direct and indirect costs of operating the PPE unit. Indirect costs are assessed to the PPE unit via a cost allocation method that ensures an equitable distribution of costs assumed by SCHEV but consumed by the PPE unit. The annual assessment allows SCHEV to collect PPE's share of operating expenses.

The budget in Fiscal Year (FY) 2020 severely limits the unit's operation in the areas of compliance audits and institutional training. The unit cannot adequately perform its duties by drastically cutting expenses. Section 23.1-215 of the Code of Virginia charges SCHEV with the significant responsibility of ensuring student protections for those attending certified institutions. New schools are only certified to operate after they have been given a thorough assessment to ensure they will be operating within the confines of Virginia law and regulation. Annual recertifications verify financial compliance as well as enrollment and graduation data. Compliance audits verify student records, refunds, quality of online education, and faculty qualifications to teach subjects assigned. PPE staff also handles student complaints, investigates institutions operating without certification, and issues transcripts for closed institutions. In order to perform all these duties effectively, the PPE unit must maintain adequate staffing, have sufficient funds to cover the expense of travel and accommodations for its compliance investigators, have adequate resources to pay for the costs of sustaining an online portal and database, and be able to provide crucial and timely training for staff and regulated institutions.

Substance: The amendments increase certain fees.

Issues: One primary advantage to the public is that consumer protections for students at the regulated schools will be enabled to continue at sufficient levels. Primary advantages to the agency and the Commonwealth are that the PPE unit will be able to fund its operations. The unit will be fully staffed and able to perform the necessary duties to regulate the schools under its purview, providing students of certified schools with adequate consumer protections against fraud or substandard service. Increased fees disadvantage the regulated community due to increased operating costs, but the schools will benefit from the assurance that the unit has adequate resources to respond to concerns and conduct business effectively.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The State Council of Higher Education for Virginia (SCHEV) proposes to increase the fees it charges to private postsecondary schools, including out-of-state schools operating in Virginia. The fee increases are intended to cover the operating costs of the Private Postsecondary Education (PPE) unit, which oversees nearly 300 private education institutions to ensure that institutions certified to operate in the Commonwealth meet minimal academic and administrative capability standards.

In addition, a legislative mandate enacted by the 2020 Acts of Assembly requires SCHEV to certify out-of-state postsecondary schools offering distance learning programs in Virginia, unless those schools are participants of a reciprocity agreement to which the Commonwealth belongs. Thus, the proposed fee changes include new fees for the certification of out-of-state online institutions of higher education that are not members of the National Council for State Authorization Reciprocity Agreements (NC-SARA).

Background. Section 23.1-215 of the Code of Virginia directs SCHEV to establish (i) minimum standards for private providers of postsecondary education, (ii) procedures by which a postsecondary school may seek approval to confer degrees in the Commonwealth, (iii) measures designed to ensure that all postsecondary schools that are subject to the provisions of this article meet the minimal standards, (iv) protections for students attending postsecondary schools subject to the provisions of this article, and (v) information to assist persons who rely on postsecondary degrees or certificates to judge the competence of individuals in receipt of such degrees or certificates.¹

The PPE unit was established within SCHEV to meet these statutory obligations, thereby protecting the citizens of the Commonwealth from fraudulent or substandard educational institutions. To accomplish this, the PPE unit currently regulates 291 private postsecondary schools, including 126 degree-granting institutions of higher education (IHE) and 165 career-technical schools (now called nondegree schools, abbreviated as NDS) at more than 300 locations throughout Virginia.^2,3 Staff responsibilities include approving new postsecondary schools, approving programs, completing compliance audits, granting exemptions, approving agents, and annually recertifying postsecondary schools. In addition, the PPE unit is also charged with investigating student complaints against all postsecondary institutions in the Commonwealth, investigating schools operating without authorization, ensuring student protections for students enrolled in certified postsecondary schools, assisting with school closures, the retention of student transcripts, and serving as the repository for student records from closed institutions.

Section 23.1-224 of the Code of Virginia authorizes SCHEV to "establish nonrefundable fees for services and methods for collecting such fees."⁴ The PPE unit of SCHEV is funded solely by revenue collected from certification application fees, annual recertification fees, agent fees, religious exemption fees, transcript fees, and program approval fees. SCHEV does not receive general funds to perform the duties delegated to the PPE unit, which has no other source of revenue from which to fund its operations.

PPE fees were last evaluated for an increase in 2009. The fee schedule derived from that analysis was adequate to meet the needs of the PPE unit at that time. However, due to a delay in the implementation of the new regulation, the fees did not become effective until February 2014.⁵ Although SCHEV reports that the fees were adequate to cover the operating expenditures for a few years immediately following the increase, the agency states that this is no longer the case. Due to increases in indirect cost assessments by SCHEV and salary increases mandated by the General Assembly, the PPE unit's operating costs have risen such that they exceeded revenue in FY 2020.

Table 1 compares the current and proposed fees for both IHE and NDS. In setting the new fees, SCHEV has sought to minimize the burden on smaller schools and attract new NDS to the Commonwealth. Accordingly, NDS would face no increase to their initial fee or nonrefundable administrative fee. In addition, the PPE unit has a handful of schools that collect very small annual tuition. For 2018, for example, one income tax school reported a total tuition income of $26,000, a barber school reported tuition income of $28,000, and a dental assisting school reported tuition income of $15,000. The agency believes that raising the annual renewal fee beyond the $250 that they currently charge would be burdensome on the smallest schools. Thus, the annual renewal fee for schools with an annual gross tuition under $50,000 would remain unchanged. For all other schools, SCHEV proposes to increase renewal fees such that schools with higher enrollment rates (and thus higher tuition revenue) would face greater percentage increases. SCHEV also proposes to create a new category that would consist of postsecondary schools receiving over $5 million in annual gross tuition.

Table 1: Comparison of current and proposed fees

In addition, a new fee of $1,000 for a request for change in degree level authorization would be added, the fee for each additional instructional location would be increased threefold from $100 to $300, and the application fee for additional programs and modifications to existing programs would now be extended to cover program deletion as well.

Lastly, the proposed changes include a new initial and renewal fee for "out-of-state online institutions of higher education that are not members of NC-SARA." Chapter 380 of the 2020 Acts of Assembly added a definition of "distance learning" and amended § 23.1-219 of the Code of Virginia to add: Any degree-granting postsecondary school providing distance learning to residents of the Commonwealth from a location outside of the Commonwealth shall be certified to operate in the Commonwealth or shall be a participant in a reciprocity agreement to which the Commonwealth belongs for the purpose of consumer protection.⁷ Since this requirement creates new duties for the PPE unit, the new fees are intended to cover the expenses that would arise from discharging those duties. SCHEV has indicated that these fees were set to be high enough to "cover reasonable and anticipated administrative costs of regulating an out-of-state institution that is not a SARA member. The most burdensome duty we will have is conducting site visits outside of Virginia, first within the first 18-24 months of certification, and then about every three years regularly. The need for a site visit can also be triggered by an influx of complaints or other information that would raise compliance concerns, so there needs to be funding available for those contingencies."

Estimated Benefits and Costs. The proposed changes to fees would directly increase costs for private postsecondary educational institutions in Virginia and for out-of-state institutions providing distance learning programs in Virginia. As long as the demand for postsecondary educational programs remains robust, these private institutions would most likely pass on the increased costs to their students rather than reduce its staff or program offerings. Depending on enrollment rates, the increased costs would be distributed across a large number of students and are unlikely to have a significant impact on the cost of attending any single program at any particular institution. Virginia students and their families would benefit from the PPE unit's continued ability to ensure the quality of postsecondary education provided by private institutions in the Commonwealth, including maintained capacity for investigating fraudulent practices and greater oversight of online programs, particularly those not part of NC-SARA.

Businesses and Other Entities Affected. The proposed amendments would impact the 126 degree-granting institutions and 165 career-technical schools that the PPE unit currently oversees as well as new private postsecondary education institutions that may be established in the future. SCHEV has indicated that 206 of the 291 postsecondary schools are operated as for-profit businesses. Although an institution's status as a for-profit has no bearing on the fees charged, for-profit institutions tend to have higher enrollment rates and gross tuition revenue and would accordingly fall in the higher fee brackets.

Small Businesses⁸ Affected. As per the ABD, about 120 of the private postsecondary education institutions overseen by the PPE unit would meet the definition of a small business; however, some of these may be not-for-profit educational institutions and thus may not be considered businesses in the traditional sense.

Localities⁹ Affected.¹⁰ The proposed amendments do not introduce new costs for local governments and are unlikely to affect any locality in particular.

Projected Impact on Employment. As mentioned previously, the proposed fee changes are unlikely to impact employment at private postsecondary education institutions since these costs can be easily spread out over the current and future student body.

Effects on the Use and Value of Private Property. The proposed fee changes are unlikely to affect the use or value of private property for private postsecondary educational institutions. Real estate development costs are not affected.

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¹See https://law.lis.virginia.gov/vacode/title23.1/chapter2/section23.1-215/.

²Section 23.1-213 of the Code of Virginia defines "institution of higher education" as private entities that have received approval from SCHEV to use the term "college" or "university" in its name, enroll students, and offer approved courses for degree credit or programs of study leading to a degree. "Non-college degree school" is defined as any entity that offers courses or programs of study that do not lead to a degree. "Postsecondary school" is defined to include both IHE and NDS. See https://law.lis.virginia.gov/vacode/title23.1/chapter2/section23.1-213/.

³Numbers taken from the Agency Background Document (ABD), page 1. See https://townhall.virginia.gov/L/GetFile.cfm?File=100\5391\9259\AgencyStatement_SCHEV_9259_v1.pdf.

⁴See https://law.lis.virginia.gov/vacode/title23.1/chapter2/section23.1-224/.

⁵See https://townhall.virginia.gov/L/ViewAction.cfm?actionid=3048.

⁶SCHEV clarified that, "We give new institutions six years to become accredited. During the pendency, they will only pay the annual fee for unaccredited institutions, not both fees." There are currently only five unaccredited institutions.

⁷See https://lis.virginia.gov/cgi-bin/legp604.exe?201+ful+CHAP0380+hil.

⁸Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

⁹"Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

¹⁰§ 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency's Response to Economic Impact Analysis: State Council of Higher Education for Virginia concurs with the Department of Planning and Budget's economic impact analysis.

Summary:

The proposed amendments increase fees to cover the essential functions of the Private Postsecondary Education unit of the Academic Affairs division of the State Council of Higher Education for Virginia.

8VAC40-31-260. Fees.

A. All fees collected by council staff will be deposited in the State Treasury.

B. All fees are nonrefundable with the exception of withdrawal of an application in which case all fees will be refunded minus a nonrefundable administrative fee noted in subsection D of this section.

C. Fees must be paid with a company check and made payable to the Treasurer of Virginia.

D. The annual fee is based on the annual gross tuition received by each administrative branch of institutions certified to operate in Virginia. For out-of-state institutions certified to operate in Virginia, annual gross tuition means income generated from students enrolled at Virginia locations. The flat fee schedule is as follows:

E. A school that submits a payment that is returned for any reason must resubmit the required payment, any applicable late fee, and the assessed returned check fee of $35 via a money order or certified bank check only.