North Carolina’s Process for Approving For-Profit Colleges Is Anticompetitive

“I wish my job did not exist,” wrote Nick Cooper, an administrative law attorney for Norwich University (Vermont), in an April 29 Pope Center article. Cooper was lamenting the fact that his job has nothing to do with enhancing Norwich students’ education. Instead, he spends his time—and hundreds of thousands of university dollars—ensuring that the school is complying with federal and state regulations, some of which are “at best duplicative and at worst protectionist.” 

Much of the red tape problem described by Cooper is caused by various state authorization policies. These policies, separate from those of regional accreditors, govern the approval of new schools and degree programs; many of the affected institutions are for-profit, vocational, and online schools.

A new report produced by the American Enterprise Institute (AEI), entitled Inputs, Outcomes, Quality Assurance: A Closer Look at State Oversight of Higher Education, takes a hard look at such authorization policies. Authors Andrew Kelly, Kevin James, and Rooney Columbus conclude that, in many instances, states have adopted burdensome rules that may be restricting market entry, stifling innovation, and inadequately protecting consumers.

North Carolina is one of several states called out in the report for having cumbersome, ineffective authorization policies. Its State Board of Proprietary Schools requires schools that are vocational in nature or offer specialized workforce training to submit such unnecessary information as: 

floor plan[s] showing doors, windows, halls, and seating arrangements; also offices, rest rooms, and storage space…. Lighting showing kind and intensity shall be indicated for each room; the type of heating and cooling system used.

And the University of North Carolina system’s Board of Governors (BOG) licensing policies are as bad or worse. The BOG has the following rules for schools seeking to establish a physical presence in the state: 

Space assigned for library usage should convey a pleasant and inviting atmosphere and give a feeling of spaciousness and quietness conducive to study. A central and single location is desirable. The library should have good lighting, adequate ventilation, and proper temperature and humidity control. Layout of the area should stress functionality while retaining as much flexibility as possible.

In addition, the BOG requires prospective for-profit colleges to provide extensive documentation regarding faculty, course requirements, finances, boards of trustees, health care offerings, and student counseling programs. And if a college claims that a certain degree program leads directly to employment, job placement data must be provided. Institutions pay for such paperwork and data analysis, as well as for site visits or other evaluations conducted by the Board of Governors and a review team. 

The regulation doesn’t stop there. Schools also must pay a basic fee of $5,000. And if a college plans to offer more than four degree programs, it must pay between $1,000 and $3,000 for each additional one, depending on whether it is an associate degree or graduate degree. Plus, each prospective college and university pays for a guaranty bond (minimum $10,000) that is intended to protect students or their parents in the event that academic services and instruction are, for whatever reason, not provided in full.

But the monetary costs may be less onerous than the time it takes for programs to be approved. It takes between 6 and 12 months for an application to be reviewed, and it can take up to 18 months for an institution to receive formal approval. Once approved, follow-up reviews are conducted every two years. Such reviews are conducted less frequently once a school has been licensed and accredited (again, accreditation is a separate process outside of the state’s purview) for six years.

The rules above can impose substantial costs on colleges and universities that want to build satellite campuses or offer distance education programs in the Tar Heel State. As Nick Cooper pointed out in his article, if Norwich University, which offers degree completion programs for military members, were to have staffers meet its Fort Bragg students off-base to provide academic assistance, it would lose its special exemption (religious schools and schools that cater to military students don’t have to comply with all of the authorization regulations) and have to pay almost $40,000.

Program authorization, according to the BOG, is designed to “assure prospective and enrolled students and the citizens of North Carolina that nonpublic postsecondary educational institutions [operating in the state] have demonstrated that their instructional curriculum, faculty, library resources, personnel, student services, facilities and equipment are combined to provide students an education of good quality.”

That statement begs the question: what does micromanagement of such minor matters as the regulation of library air temperature have to do with student success and quality education? AEI’s report suggests that North Carolina and other states are focusing too much on superficial inputs and box-checking. Moreover, too-strict requirements related to general education and course offerings could come into conflict with new educational approaches, such as competency-based education, thereby thwarting higher education innovation.

According to the authors, states should instead adopt a “risk-based approach” that allows state authorization boards to “focus on cases that pose the most risk to consumers, specifically new market entrants or existing [institutions] that raise red flags.” 

Under such an approach, schools that are already accredited or that have good track records in other states would be exempt from most of the current rules. As for new, unproven market entrants, the AEI authors say: 

[They could be required] to provide basic documentation of their plans, allowing regulators to weed out potentially fraudulent or unserious applicants. This documentation need not be nearly as extensive as what most state boards currently require of new entrants; the intent is not to guarantee educational quality but simply to ensure the application is serious. Authorizers in this model should see it as their role to give credible applicants latitude to allow new ideas and models a chance to succeed in the marketplace. 

Furthermore, continue the authors, states could help to eliminate “fly-by-night” operations by requiring new entrants to post guaranty bonds, thus giving such schools “skin in the game.” They also say that states should provide a system for students to make formal complaints. (North Carolina already has both requirements in place.) 

Once a new program has been authorized, the authors say, “a variety of general outcomes measures—retention and graduation rates, placement and earnings data for program graduates, loan default or repayment rates, to name a few examples, could serve as early warning signs of an institution failing to serve its students well.”

That suggestion, however, would be problematic in North Carolina, where control of state authorization by the UNC system presents a serious conflict-of-interest issue. There is already evidence, for instance, of a tendency on the part of UNC officials to be not only skeptical of for-profit schools’ quality (in some cases, for good reason), but also to be concerned about such schools’ impact on state universities’ enrollment.

Giving the UNC system’s Board of Governors (all political appointees with strong incentives to promote the interests of the state’s public higher education institutions) the authority to, for instance, determine whether a for-profit school’s graduation rates are high enough would be ill-advised. As the AEI report states, “[Authorizers] should have a degree of independence from the political process and from established players in the marketplace.” 

Incomes, Outcomes, Quality Assurance: A Closer Look at State Oversight of Higher Education offers some solid proposals that, if implemented, would reduce for-profit schools’ regulatory burden, open the door for new innovators, and provide baseline consumer protections. But policymakers should, perhaps, have even less faith in higher education bureaucracy than the AEI authors. One simple approach is Wyoming’s policy, referenced in Nick Cooper’s article, which only requires online schools such as Norwich University to prove that they are regionally accredited and to pay a $100 fee.

Even that suggestion is fraught with problems, however. Regional accrediting agencies already have a great deal of power by serving as the gatekeeper for schools’ ability to receive federal funding. In many cases, they have shown themselves to be anti-innovation, subject to favoritism toward existing institutions, and politically correct to an extreme.

When in doubt, the guide should be transparency over regulation, and innovation over protectionism. As the UNC rules about lighting in libraries shows, regulatory bodies rarely know when to limit their own power.