Why and How Are Educational Programs Regulated?

For better or worse, providing educational programs in the United States, from K-12 to Stanford, and most organized post-secondary professional education, is a highly regulated activity.  Just the way you may need a license to be a stockbroker or run a radiology clinic, you often need a license to run a school, even an online school. The basic theory is that students, as consumers, need the government to enforce minimum standards to maintain quality and prevent “diploma mills.” Much of this regulation occurs at the state level, but it also occurs at the federal level, or through accreditors. (Typically a college is regulated by the states, the feds and the accreditors, which provides a significant barrier to entry.)  Boot camps are mainly regulated at the state level.

Failing to Obtain a License May Kill Your Deal

Investors in education providers, including coding schools, will check to make sure the operation is in compliance with applicable law. Failure to obtain the necessary licenses may subject you to fines and, more importantly, may cause a state regulator to issue a “cease and desist” letter to stop the school from enrolling any more students or even wind-down existing students. In these cases, students will want their money back, and may sue the school. These are risks most investors are unwilling to take. In other words, if applicable law requires you to have a license in order to provide your programs, it is a “deal killer” not to be licensed.

Do You Need a License?

Most states, including California, define the act of providing post-secondary education very broadly but allow for a number of exemptions from the general rule.  For example, in California, a school that provides test prep for a recognized occupation, like law or accounting, may be exempt, as are schools offering non-degree programs costing less than $2,500.  California plans to re-visit its exemptions next year. The application of these exemptions varies according to what a school is actually doing. Unfortunately, every state defines these exemptions differently, so you (or your lawyer) need to study the rules carefully to avoid issues later.

This article was originally published on Cooley GO – our one-stop spot for tips, documents and insights to help entrepreneurs start and build a business.

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