U.S. Department of Education Provides Key Updates on Distance Education and Return of Title IV Funds

On January 3, 2025, the U.S. Department of Education (“Department”) published final rules governing distance education and return of Title IV funds (“R2T4”).[1]  Previous negotiated rulemaking sessions among industry stakeholders on these topics did not achieve consensus, resulting in the Department’s publication of its proposed rules in July 2024, which have now been finalized.  The distance education rules in particular will impact a broad swath of higher education institutions that offer at least one fully online educational program. 

In connection with the release of the final rules, the Department also indicated that it has formally withdrawn regulations on State authorization, cash management, and accreditation, which were previously delayed and intended to be finalized in 2025. 

Distance Education Reporting

The Higher Education Act (“HEA”) requires higher education institutions to fulfill a wide range of annual data reporting requirements.  These reporting obligations involve metrics related to institutional and financial performance, student outcomes, federal financial aid data, and enrollment statistics which are submitted to the Department and available to the public.  The goal is to provide transparency and accountability, ensuring that prospective students, policymakers, and the public have access to important information about the institution’s operations, financial health, and overall effectiveness in serving students.  These reporting requirements help promote informed decision-making by students and families, while also enabling the Department, as it allocates taxpayer dollars through federal aid programs, to monitor compliance with federal regulations and funding requirements.

The final rule on distance education requires higher education institutions to report to the National Student Loan Data System information regarding students enrolled in distance education courses receiving federal financial assistance.  This new reporting requirement, which takes effect July 1, 2027, is then coupled with an expanded definition of distance education courses, which is now defined to encompass courses that include in-person, non-instructional components.  As the final regulation provides, a distance education course is, “A course in which instruction takes place exclusively as described in the definition of distance education … notwithstanding in-person non-instructional requirements, including orientation, testing, and academic support services.”[2] 

By way of example, a student enrolled exclusively in distance education courses during one semester and solely in-person courses during the second semester would be reported as participating in distance education for the first semester and in-person courses for the second.  Moreover, a student enrolled in at least one class that offers distance education, where the student has the option to attend remotely throughout the semester, would be classified as having a hybrid status.

Notably, the Department’s proposed regulation would have modified the definition of “clock hour” such that asynchronous distance education would not count toward a student’s eligibility for financial aid.  A number of Commenters had expressed concern that this proposal would curtail the availability and growth of online learning opportunities.  In response, the Department noted that this change would not be finalized at this time but emphasized its previous position that any distance education clock-hour program, whether fully or partially delivered through asynchronous methods, must include “regular and substantive” interaction with an instructor.  It remains important for higher education institutions offering distance learning to ensure quality student academic engagement.

Return of Title IV Funds

R2T4 is a process higher education institutions must follow when a student who has received federal financial aid withdraws from their courses before completing the term.  The calculation determines the amount of Title IV funds that the student earned before withdrawing and the amount that must then be returned to the Department. 

The final regulations governing R2T4 seek to improve the efficiency of R2T4 calculations, clarify specific circumstances that qualify as a withdrawal, and formalize long-established policies through regulatory provisions.  As such, the Department’s final rule exempts institutions from performing the R2T4 calculation if the following conditions are satisfied: (1) a student is treated as if they never attended the institution; (2) the institution returns all Title IV aid disbursed to the student for that payment period or enrollment term; (3) the institution refunds all institutional charges to the student for that payment period or term; and (4) the institution cancels or forgives any outstanding balance that the student owes for that period or term as a result of the return of Title IV aid to the Department. 

Additionally, the final rule establishes a standardized and streamlined approach for institutions to calculate the percentage of the payment period completed in clock-hour programs.  Unlike traditional semester-based programs, clock-hour programs award credit based on the actual hours a student attends, rather than by semester or credit hour.  This amendment ensures that all institutions apply a consistent approach when calculating the percentage of the payment period completed.  

The final regulations also modify the way “modules” are treated in the context of the R2T4 calculation.  A module is typically a part of a term or payment period in which students may attend specific courses, but not all students may enroll in every module within a term.  Previously, institutions might have included modules in the R2T4 calculation even if a student never began attendance in them.  The final rule clarifies that a module should only be considered part of the payment period (and therefore included in the denominator of the R2T4 calculation) if the student actually begins attendance in that module.  This ensures that the R2T4 calculation accurately reflects the actual period of enrollment during which the student attended, excluding any modules in which the student did not participate, and only counting those that the student attended for the purpose of calculating the return of Title IV funds.

Changes were also made to formally codify the Department’s longstanding guidance regarding institutions that are required to take attendance.[3]  Specifically, the final rule mandates higher education institutions document the date they determine a student has withdrawn, which must be no later than 14 days after the student’s last recorded date of attendance, as established from the institution’s attendance records.

With respect to a student who is confined or incarcerated and enrolled in a term-based prison education program, the final rule affords such students the option to re-enter their program at a point other than where they left off.  This flexibility helps accommodate the unique circumstances faced by incarcerated individuals in continuing their education.

The final R2T4 rules take effect on July 1, 2026.

Department Declines to Finalize Changes to Federal TRIO Programs

The Department considered expanding student eligibility under certain TRIO programs for students who have enrolled in or who seek to enroll in a high school in the U.S., territories, or freely associated states.  Some Commenters advocated clarifying that the HEA does not restrict participation in TRIO programs based on immigration status, and expressed concern that continuing to consider immigration status serves as a barrier to participation in these programs.  The Department ultimately chose not to expressly open TRIO program eligibility to undocumented students, indicating it will reassess how best to ensure that TRIO programs effectively reach all populations of disadvantaged students, regardless of immigration status.

Conclusion

The Department’s final rules reflect the Department’s drive toward greater institutional transparency and accountability, which have been themes of the Department’s regulatory agenda for the past several years.  The new distance education provisions aim to ensure clarity in reporting and participation, with specific attention to the nature of hybrid and fully remote courses.  Similarly, the updates to R2T4 calculations streamline procedures and provide greater clarity.  Additionally, the Department has taken into account feedback on the Federal TRIO programs, deciding to defer changes to student eligibility based on immigration status.  

This advisory is an announcement of the final regulations and is not intended as legal advice.  The final regulations are very detailed and should be reviewed in their totality.  If you have any questions about these amendments, please feel free to contact Dina Vespia at (516) 357-3726 or via email at Dvespia@cullenllp.com, or Michael DiSiena at (518) 788-9428 or via email at Mdisiena@cullenllp.com.

Footnotes

[1] Program Integrity and Institutional Quality: Distance Education and Return of Title IV, HEA Funds, 90 Fed. Reg. 470 (Jan. 3, 2025) (to be codified at 34 C.F.R. pts. 600, 643, 644, 645, 647, 668).

[2] Id. (to be codified at § 600.2).

[3] U.S. Dep’t of Educ., Withdrawals and the Return of Title IV Funds, Vol. 5, Ch. 2 (2005) in FSA Handbook.