Meeting of the Board of Regents | April 2008
THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234
Higher Education Committee
Regulation of Proprietary Colleges
March 27, 2008
Goals 2 and 4
Issue for Discussion
Should the Committee continue an examination of regulations, policy, and procedures affecting proprietary higher education institutions to assure the quality of their educational programs and appropriateness of their services to students? This is a continuation of a review begun in the summer of 2006 that culminated in adoption of §3.58 of the Rules of the Board of Regents in December 2006.
Reason(s) for Consideration
Review of Policy
This item will come before the Higher Education Committee for discussion at its April 2008 meeting.
In May 2006 the Board of Regents Committee on Higher Education and Professional Practice discussed a comprehensive report on proprietary colleges in New York State. Amendments to the Rules of the Board of Regents were discussed at the October 2006 meeting of the Board of Regents and in December 2006, the Board of Regents adopted §3.58 of the Rules of the Board of Regents. In January 2008, the Committee reopened its review concerning the approval and regulation of proprietary colleges and discussed possible approaches to strengthening policies and procedures.
Today, 39 of New York State’s 269 institutions of higher education are proprietary colleges. They operate on 50 main and branch campuses. In the fall of 2007, they had a total headcount enrollment of more than 47,000 students. Their registered programs range from short-term noncredit certificates to doctoral programs; however, most specialize in the fields of business and commerce. Twenty-five are two-year institutions; eight offer baccalaureate programs, four offer undergraduate and graduate programs; and two offer only graduate programs. They receive no direct State aid. The Middle States Association, the Accrediting Council for Independent Colleges and Schools, and the Board of Regents accredit about three-quarters of the proprietary colleges.
Proprietary colleges do not receive direct State support and, as for-profit entities, are not able to draw on voluntary contributions. As a result, a chief source of revenue for these colleges is their students’ access to State Tuition Assistance Program (TAP) grant funds and to federal Pell Grant funds. For example, on average, of students attending two-year proprietary colleges, 61 percent receive TAP and 81 percent receive Pell Grants. In addition, these colleges’ students have the largest loan values of any students attending two-year colleges - $3,621 per year.
In January 2006, in response to concerns about poor educational practices and possible fraudulent practices at some proprietary institutions both in and outside of New York State, the Board of Regents Committee on Higher Education and Professional Practice requested that the Department provide a comprehensive report on the process by which proprietary colleges are approved and regulated in New York State. In May 2006 the requested report was presented to the Committee. The report included recommendations to help ensure that all students enrolled in proprietary colleges can expect to receive a quality education. Amendments to the Rules of the Board of Regents were discussed at the October 2006 meeting of the board of Regents and in December 2006, the Board of Regents adopted §3.58 of the Rules of the Board of Regents which:
- ensures that all new for-profit institutions in New York State are owned and operated by organizations that have demonstrated the capacity to operate degree- granting institutions in New York State;
- for proprietary institutions recommended for initial authority to award degrees, establishes a period of provisional authorization to award degrees, parallel to a provisional charter for an independent college, to be followed by permanent authority, extension of provisional authority, or denial of authority;
- requires that a person proposing to purchase or to gain control of a proprietary college receive the Board of Regents approval to receive the institution’s degree powers before the sale is finalized;
- provides that control is achieved with the acquisition of 51 percent or more of the shares of a corporation, and
- identifies the criteria the Board of Regents uses in reviewing these institutions.
Since the public has invested so heavily in proprietary institutions and the students they serve, through publicly funded financial aid programs, it is important that there be appropriate oversight to help ensure the effective use of public funds and that all students receive a collegiate education. It has been the Department’s experience that the best method to ensure that institutions are in compliance is to make peer site visits on a regular basis. It is during these visits that the Department can review faculty credentials, examine attendance patterns, review student assessments to ensure college-level work, examine the adequacy of the library, and evaluate the appropriateness of academic support.
The Department is developing a legislative proposal to secure sufficient revenue for a small proprietary college unit within the Office of Higher Education. Those staff would monitor these institutions on a regular basis to ensure compliance with all of the educational standards in the Commissioner’s Regulations, Regents Rules, and Education Law. The legislative proposal also would authorize the Department to charge fees for services to sustain this unit over time.
In addition to the legislative proposal described above, the Department has identified some areas for the Regents consideration and discussion that may result in additional statutory or regulatory changes to strengthen the oversight of proprietary colleges in New York. The attached item describes those areas and presents focus questions for discussion by the Regents.
Timetable for Implementation
Based on the Committee’s determinations on the issues identified in this report, the Department will move to draft any regulatory changes or legislative proposals as directed by the Board of Regents.
Regulation of Proprietary Colleges
Since the adoption of the §3.58 of the Rules of the Board of Regents in December 2006, staff have identified the following areas the Regents may want to consider strengthening:
- Adequacy of faculty.
- Advertising, student recruitment, and admission standards and procedures.
- Assurance of long-term ownership when asked to approve the transfer of degree powers to a new owner.
- Limiting activity by new owners for an initial period.
- Institutional governance.
- Assurance of adequate financial resources.
Adequacy of Faculty. Peer reviews at some proprietary colleges have identified a significant deficiency in qualified, full-time faculty. In many instances, this has greatly weakened the educational programs.
- Beyond the faculty standards included in the Commissioner’s Regulations relating to qualifications, sufficiency of full-time faculty, and faculty governance, what can be done to help ensure that appropriate faculty are employed in proprietary colleges?
Advertising, Student Recruitment, and Admission Standards and Procedures. Standards for advertising exist now as a non-regulatory code of conduct. Yet in recent years the Department has seen an increase in questionable advertising and aggressive recruitment practices. Setting required standards for advertising, and assuring that advertising, student recruitment, and admission standards and procedures are linked strongly to an institution’s academic programs will require amending the Commissioner’s Regulations. Such standards would apply equally to public, independent, and proprietary institutions.
- The Regents standards for institutional accreditation include provisions concerning advertising that appear adequate. Should they be extended to all institutions in substantively the same form? In modified form?
- What are good ways to assure that advertising, student recruitment, and admission policies and practices derive from and support an institution’s academic mission and the programs it offers?
Changes of Ownership. In January 2008, the Committee discussed the issue of long-term ownership of proprietary colleges, re-defining “controlling interest,” and limiting the ability of a new owner to add off-campus locations and programs in new areas.
- What characteristics of proposed owners of higher education institutions do the Regents deem essential in order to assure compliance with quality standards and other statutory and regulatory requirements, as well as the expectations of the higher education community (e.g., commitment to long-term ownership)?
- Should the Department encourage prospective purchasers of colleges who are inexperienced in the operation of institutions of higher education to appoint to advisory boards or boards of directors persons with such experience? What characteristics should such boards have?
Institutional Governance. Assuring independence of institutional governance by requiring a governing board in some form requires legislative action. One possibility would be a required advisory board for each proprietary college, composed of persons knowledgeable about higher education and external to the institution, that would advise the institution’s owner(s) and directors(s) concerning the academic and financial interests of students, and make recommendations to the institution and to the Department.
A second approach would be legislative authority for the Regents to specify by rule aspects of the composition of the directors of a business corporation to which they grant degree powers.
If the Regents elect to advance a legislative proposal in this area, the Department would consult with representatives of the proprietary sector in the drafting of such a proposal.
- What would be the most desirable approach to seek in legislation?
Assuring Adequate Financial Resources. Strengthening assurance that proprietary colleges have adequate financial resources requires more than a heightened annual review of audited financial statements. It requires that reserves of some form be available for use to:
- Support quality of programs when an institution is experiencing financial distress.
- Strengthen institutional academic resources at a financially strong institution, if needed and appropriate.
- Cover the cost of teaching out students, or of refunds to students, when an institution closes.
We have considered approaches such as educational endowment-like funds and performance bonds. A requirement that a proprietary college secure a letter of credit in an appropriate amount represents yet another approach to this assurance.
- What are the uses of a letter of credit that would be appropriate?
- What levels of financial reserve should be required, either in a fund, a bond, or a letter of credit?