Dive Brief:

• Western Governors University (WGU) will not have to pay back nearly $713 million in Title IV funds and is eligible to offer federal student aid following the review of a 2017 audit that found it wasn't in compliance with federal standards for online education. The nonprofit online college targets adult learners with its competency-based education (CBE) model. It enrolled 98,627 students in the fall of 2017.
• In a letter to WGU issued Friday, the U.S. Education Department's Federal Student Aid (FSA) office said due to "the ambiguity of the law and regulations and the lack of clear guidance available at the time of the audit period" — July 1, 2013 to June 30, 2014 — WGU "made a reasonable and good faith effort to comply with the definition of distance education and provide regular and substantive interaction between the students and its instructional team."
• The initial audit by the department's Office of Inspector General (OIG) and subsequent review by FSA concerned WGU's use of CBE and the amount of interaction required between students and instructors. OIG signed off on FSA's findings.

Dive Insight:

WGU isn't on the list of colleges and universities participating in the negotiated rulemaking session on accreditation that kicks off this week, but several institutions with deep stakes in online and alternative educational models are.

They are likely to support efforts to reduce or clarify requirements around "regular and substantive" interaction and the credit hour, two areas in which the Education Department has proposed loosening oversight. Critics of such a move worry rolling back existing rules — which are aimed at reducing credit inflation and ensuring students are paying for degrees they can use — will lower the quality of online instruction, make it harder for students to transfer credits and remove critical state oversight of licensure programs.

A multiyear study of CBE found its implementation will continue to be incremental, though alternative education has bipartisan support. Colleges that use the model say it is most popular among adult learners, a student segment more colleges are looking to get a piece of. To evaluate the growing market for CBE, the American Institutes of Research launched a national survey in June.

The OIG's stringent review of WGU was seen by many in higher ed as a litmus test for how favorable the Ed Department would be to CBE and other alternative education models. FSA's final determination, which got OIG's support, shows the tide could be shifting, giving CBE validation ahead of the rulemaking session and more colleges the confidence to use it.

In a press release announcing the WGU decision, the Ed Department said it "is hopeful that further clarification [around distance learning] will be part of future regulations that will help spur the growth of high-quality innovative programs."

Key takeaways from the report:

OIG initially found 69 of 102 required courses across WGU's three largest programs didn't offer "regular and substantive interaction" between students and instructors — that is, enough interaction to qualify it for federal aid.

FSA rejected that finding. It cited a Dear Colleague Letter issued after the audit period that clarified rules for colleges such as WGU that use CBE and disaggregated faculty. The letter itself served to acknowledge the department was aware of the need for clarity around new educational models. WGU uses a disaggregated faculty model that includes program mentors, course instructors and assessment evaluators.

The guidance stated models in which "no single faculty member is responsible for all aspects of a given course or competency" and instead several instructors work with students in different capacities "may be used to ensure regular and substantive interaction." FSA directed WGU to ensure its programs comply with the definition of distance education outlined in the letter.

FSA also rejected OIG's initial findings on how WGU quantified credit hours.

WGU used term-based eligibility requirements to issue Title IV funds. However, OIG found its self-paced CBE programs didn't include at least one day of regularly scheduled instruction and instead only provided learning resources. To comply, OIG said, WGU would have to "ensure that the school-defined academic year will include at least 30 weeks of instructional time and each of the weeks will include at least 1 day of regularly scheduled instruction or examination."

In its response, FSA said the definitions of distance education (which includes asynchronous coursework) and instructional time were at odds. It noted WGU's credit hour policies were reviewed and approved by its accreditor and that the Ed Department relies on those groups to ensure the programs they oversee "include sufficient content" for the credit hours they award.

FSA also rejected OIG's initial finding that WGU must pay back $10,509 in Title IV funds, saying it owed just $2,607 for mistakes associated with a single student and that WGU's plans to automate the process for returning Title IV funds when a student withdraws is "likely to reduce the occurrence of isolated errors similar to [these]."