1. State Authorization Framework for Postsecondary Education
Every state maintains authority over postsecondary institutions that operate within its borders. That authority derives from state police power and is exercised through licensing, authorization, and registration requirements administered by state agencies. For institutions delivering education exclusively within a single state, the compliance path is straightforward: obtain the applicable authorization from the state where the institution is domiciled and where students physically attend.
The growth of online education created a structural problem. An institution based in Michigan that enrolls a student physically located in Florida is arguably operating in Florida, and Florida therefore has a regulatory interest in that institution. Multiplied across 50 states, this creates a potential compliance burden that could require an online institution to obtain and maintain separate authorizations in every state where any student resides.
The federal government reinforced state authority in this area through the Program Integrity Rule of 2010, which amended the definition of state authorization under Title IV of the Higher Education Act to require that institutions be authorized by the state in which they operate. The Department of Education subsequently clarified that an institution enrolling online students in states where it lacks authorization could jeopardize its Title IV eligibility for students in those states.
Physical-presence triggers vary meaningfully by state. At minimum, most states require authorization when an institution enrolls students physically located within the state. Some states extend this requirement to institutions that maintain any office or facility in the state, employ personnel who work from within the state, enter into agreements with in-state entities to offer instruction or clinical placements, or hold recruiting or informational events in the state. Understanding the physical-presence definition for each relevant state is the starting point for any state authorization compliance audit.
In an M&A context, the buyer inherits the target institution's existing state authorization posture. If the target has gaps in its authorization coverage, those gaps do not disappear at closing. They become the buyer's liability. A thorough regulatory due diligence review maps every state in which the target enrolls students, confirms that authorization is current and in good standing in each of those states, and identifies any states where enrollment is occurring without proper authorization. That mapping exercise is the foundation on which the rest of the state authorization analysis builds.
The emergence of NC-SARA has substantially simplified the authorization landscape for most online institutions, but it has not eliminated the underlying requirement. SARA is a voluntary reciprocity framework, not a federal preemption of state authority. States retain the right to set their own authorization requirements, and SARA participation satisfies those requirements only to the extent that each participating state has agreed to accept SARA membership as a substitute for separate authorization. Understanding what SARA covers, and where it stops, is essential to structuring a clean transaction.
2. NC-SARA Structure and Governance
NC-SARA, the National Council for State Authorization Reciprocity Agreements, is a nonprofit organization that administers a voluntary reciprocity framework for distance education. It was established by four regional higher education compacts: MHEC (Midwestern Higher Education Compact), NEBHE (New England Board of Higher Education), SREB (Southern Regional Education Board), and WICHE (Western Interstate Commission for Higher Education). These compacts have historically provided coordination and policy development services across their respective regions, and NC-SARA built on that infrastructure to create a national framework.
Under the NC-SARA structure, each participating state designates a portal agency responsible for administering the SARA agreement within the state. Portal agencies are typically state higher education agencies, but the specific designation varies: in some states it is the state's higher education coordinating board, in others it is the department of education or a separate licensing agency. The portal agency serves as the primary point of contact for institutions seeking SARA participation and for students filing complaints against SARA member institutions.
An institution that wishes to participate in NC-SARA applies to its home state portal agency, not to NC-SARA directly. The home state portal agency reviews the application, confirms that the institution meets the eligibility criteria, and approves the institution for SARA participation. NC-SARA then lists the institution as an approved SARA participant. Once listed, the institution may enroll students residing in any other SARA member state without obtaining separate authorization from that state.
NC-SARA's governance structure includes a board of directors drawn from the regional compacts and member states, and an advisory council that includes institutional representatives. NC-SARA publishes policies that govern institutional eligibility, annual reporting requirements, complaint procedures, and the obligations of portal agencies. These policies are not static: NC-SARA revises them periodically, and institutions are responsible for monitoring policy updates and maintaining compliance with current requirements.
The regional compact structure means that SARA governance is not purely national. Each compact maintains relationships with its member states and can influence how SARA policies are interpreted and implemented at the state level. In practice, this can create variation in how portal agencies apply NC-SARA policies, particularly in areas where the national policy leaves discretion to individual states. Counsel advising on a transaction should understand not only the national NC-SARA policies but also the specific practices of the home state portal agency, which is the institution's primary regulatory counterpart within the SARA framework.
NC-SARA also maintains a data repository that includes annual enrollment reports submitted by member institutions. These reports are publicly available and provide state-level enrollment headcounts for out-of-state students. In a transaction, the NC-SARA data repository can be a useful cross-reference for validating the enrollment data provided in the target's representations.
3. Institutional Eligibility for NC-SARA Participation
Not every institution is eligible to participate in NC-SARA. The eligibility criteria reflect the framework's design as a mechanism for extending authorization based on trust in home-state oversight and accreditation. An institution that does not meet these criteria cannot rely on SARA for multi-state authorization and must pursue individual state authorizations instead.
The baseline eligibility requirements require that an institution be located in and authorized to operate in a SARA member state, hold accreditation from a recognized accreditor, and be in good standing with its home state portal agency and accreditor. Accreditation from an agency recognized by the U.S. Department of Education is a threshold condition: institutions without recognized accreditation are not eligible for SARA participation. This means that acquiring an accredited institution and then losing accreditation would also terminate SARA eligibility.
The financial responsibility requirements are also material. NC-SARA requires that participating institutions meet minimum financial responsibility standards, including the financial responsibility standards applicable to Title IV participation. An institution on Heightened Cash Monitoring or subject to a letter of credit requirement from the Department of Education may still be eligible for SARA in some circumstances, but these financial conditions are flags that the home state portal agency will scrutinize. In a distressed acquisition, the interplay between the target's financial condition, its Title IV standing, and its SARA eligibility requires careful analysis.
For-profit institutions are eligible for SARA participation and represent a meaningful share of the SARA participant roster. However, for-profit institutions are subject to the same eligibility requirements as nonprofit and public institutions, including accreditation and financial responsibility standards. A change in corporate structure, such as a conversion from for-profit to nonprofit, would itself be a material change requiring notification to the home state portal agency and potentially triggering additional review.
SARA eligibility is assessed at the institutional level, not at the program level. A SARA-eligible institution may offer SARA-covered distance education across all of its programs, subject to the professional licensure disclosure requirements that apply on a program-by-program basis. However, if a particular program involves in-person components in other states, those components may create physical-presence triggers that SARA does not address, requiring separate state-level analysis.
In a transaction, counsel should obtain the target's SARA approval documentation, review the conditions under which that approval was granted, confirm that the institution continues to meet all eligibility criteria, and assess whether the proposed transaction structure would affect eligibility going forward. A buyer that acquires an institution and changes its ownership structure without addressing SARA eligibility may find that the institution's SARA participation lapses, exposing it to multi-state authorization liability.
4. State Portal Agency Approval and Renewal Process
The state portal agency is the institution's primary regulatory relationship within the SARA framework. Initial approval, annual renewal, change-in-ownership notification, and student complaint resolution all flow through the home state portal agency. Understanding the portal agency's processes, timelines, and expectations is therefore essential to managing SARA compliance across a transaction.
The initial approval process requires the institution to submit an application to its home state portal agency that demonstrates it meets NC-SARA's eligibility criteria. The application typically includes documentation of accreditation, state authorization in the home state, financial responsibility standing, and a certification that the institution will comply with NC-SARA policies. Portal agencies may have their own supplemental requirements beyond NC-SARA's minimum criteria, and processing timelines vary: some portal agencies review applications within weeks, while others have longer queues.
Annual renewal is a recurring obligation. Participating institutions must submit enrollment data, pay the applicable annual fee, and certify continued compliance with NC-SARA policies. The annual fee is calculated based on the prior year's out-of-state enrollment headcount, with fees increasing in tiers as enrollment grows. For large online institutions, the annual SARA fee can be a meaningful line item. In a financial due diligence review, SARA fees should be identified as an ongoing cost of operating a multi-state online program.
The renewal process also requires the institution to disclose any changes in its accreditation status, financial responsibility standing, or ownership during the prior year. This is one of the mechanisms through which the portal agency becomes aware of changes in ownership, and it underscores why proactive notification prior to closing is preferable to disclosure at renewal: by the time the annual renewal is submitted, the portal agency may have already learned of the transaction through accreditor notifications or other channels, and an institution that failed to provide timely notification will have a harder compliance story to tell.
Portal agencies have authority to suspend or revoke an institution's SARA participation for noncompliance. Grounds for adverse action include failure to renew on time, failure to disclose material changes, accreditation loss, and loss of state authorization in the home state. Suspension of SARA participation does not automatically close the institution, but it does require the institution to either obtain individual state authorizations in every state where it is enrolled or cease enrolling new students in states where it lacks authorization.
When structuring a transaction timeline, counsel should build in sufficient time to notify the portal agency of the change in ownership, receive any required approval or acknowledgment, and coordinate any re-application or updated documentation that the portal agency requires. Treating portal agency notification as an afterthought creates closing risk and post-closing liability.
State Authorization Due Diligence
A regulatory gap in state authorization coverage can interrupt enrollment and jeopardize Title IV eligibility. We map authorization posture across all 50 states before your transaction closes.
Request Engagement Assessment5. Non-SARA State Authorization Requirements
While NC-SARA covers nearly all U.S. states and territories, the institutions that operate outside its coverage, or the states that have not joined or have historically imposed additional requirements, represent material compliance obligations that buyers must address independently. California is the most consequential non-SARA state, and its historical authorization patterns illustrate the complexity that can arise when a major enrollment market operates outside the reciprocity framework.
California's Bureau for Private Postsecondary Education administers the authorization process for private out-of-state institutions enrolling California students. The BPPE application requires documentation of accreditation, financial stability, and compliance with California's specific disclosure and refund requirements. California also imposes student tuition recovery fund contributions and performance bond requirements on certain categories of institutions, which can represent meaningful upfront costs for institutions seeking California authorization for the first time.
California's authorization process has historically been slower than many other states, and BPPE has at various times faced processing backlogs. An institution that is not currently authorized in California but has California students may be in violation of state law, which creates liability both for the institution and, after a transaction, for its new owners. Buyers acquiring institutions with California enrollment must assess whether current BPPE authorization is in place and, if not, whether a corrective authorization process can be completed before or promptly after closing.
Massachusetts, while a SARA member state, historically maintained a more active state oversight posture than some other SARA members and has at times imposed requirements on institutions operating in the state beyond what SARA requires. Massachusetts' Department of Higher Education reviews institutions and can impose conditions on operations in the state. Buyers should not assume that SARA membership uniformly eliminates all state-specific obligations in every member state: the SARA agreement establishes a minimum floor, and individual states retain authority to impose additional consumer protection requirements.
Other states with historically active oversight include New York, which requires institutional registration through the State Education Department, and Florida, which has its own institutional licensure framework administered by the Commission for Independent Education. While New York and Florida participate in SARA, they have also maintained independent oversight mechanisms for certain institutional activities. An institution that has a physical presence in these states, even a limited one, may face requirements beyond what SARA covers.
In any acquisition, counsel should review the target's enrollment by state and cross-reference that enrollment against confirmed authorization in each relevant state. States where the target has meaningful enrollment but lacks current, confirmed authorization should be flagged as material issues that require resolution before or promptly after closing. Representations and warranties, along with indemnification provisions, should address state authorization gaps explicitly when they are identified in due diligence.
6. Clinical Placement, Internship, and Field-Experience Triggers
One of the most frequently underestimated state authorization issues in online education transactions is the physical-presence question raised by clinical placements, internships, and field-experience requirements. An institution may structure its curriculum as distance education and rely on NC-SARA for multi-state authorization, while simultaneously placing students in clinical or field sites in states where those placements create regulatory obligations that SARA does not address.
Clinical placements are most common in health professions programs: nursing, allied health, social work, counseling, and related fields. When a student enrolled in an online nursing program is placed at a hospital in a state other than the institution's home state, that placement may create a physical presence for the institution in that state. Many states define physical presence to include required in-person activities, even when those activities are conducted at third-party sites rather than at institution-owned facilities.
The state authorization obligation that flows from clinical placements is distinct from, and in addition to, the professional licensure disclosure obligation discussed in Section 7. A state that requires authorization for clinical placements may impose requirements on the institution independently of whether it requires separate authorization for online enrollment. In states that have both types of requirements, the institution may need to satisfy them separately.
Internship requirements in business, education, and other professional programs can create similar issues. A student completing a required internship at an employer in a state where the institution is not authorized may trigger authorization requirements in that state. The analysis depends on whether the internship is required for degree completion, how much oversight the institution exercises over the internship site, and how the state in question defines the type of activity that triggers authorization.
In due diligence, buyers should map the geographic distribution of clinical and internship placements and assess whether those placements create physical-presence triggers in states where the institution lacks authorization. This is particularly important for programs in health professions and education, where clinical and field-experience requirements are embedded in the curriculum and cannot be easily restructured.
Some institutions have addressed the clinical-placement issue by establishing affiliation agreements with clinical sites that explicitly allocate regulatory responsibility between the institution and the site. While such agreements can be useful for structuring the relationship, they do not by themselves resolve the institution's state authorization obligations: the state's determination of whether a physical presence exists is a legal question that depends on the substance of the activity, not on how the parties have allocated responsibility contractually.
7. Professional Licensure Disclosure Requirements Under 34 CFR 668.43
The professional licensure disclosure requirements under 34 CFR 668.43 are among the most operationally demanding compliance obligations in online education, and they are also among the most frequently cited in program review findings and enforcement actions. Understanding these requirements, and the exposure they create in an acquisition, is essential to a complete regulatory due diligence review.
The regulation requires institutions to disclose to prospective and current students, for each program that could lead to professional licensure, whether the program meets, does not meet, or whether the institution has not determined whether the program meets the educational requirements for licensure in each state where the student is located. The disclosure must be made individually to students in states where the program does not meet licensure requirements or where the determination has not been made, and it must be made before the student enrolls.
The practical challenge is that professional licensure requirements vary by state and change over time. A program that meets licensure requirements in 45 states may not meet them in five others, and that determination must be updated whenever either the program or the state's licensure requirements change. Maintaining a current, accurate, state-by-state disclosure matrix for each licensure-leading program requires ongoing monitoring and administrative resources.
The Department of Education has treated failures in professional licensure disclosure as serious compliance issues, including in the context of program review findings that have resulted in repayment liabilities. An institution that failed to make required pre-enrollment disclosures and enrolled students in programs that do not lead to licensure in those students' states may face liability for the Title IV funds those students received.
In an acquisition, the buyer should obtain the target's disclosure matrix for every program that leads to professional licensure, assess whether the disclosures are current and accurate, determine whether any students were enrolled without receiving required disclosures, and evaluate the potential liability exposure from any disclosure failures. Representations and warranties in the purchase agreement should specifically address professional licensure disclosure compliance, and indemnification provisions should allocate pre-closing disclosure liability to the seller.
The disclosure obligation also extends to students who are already enrolled when their physical location changes, for example, a student who moves from one state to another during enrollment. Institutions are required to provide updated disclosures to such students. This operational requirement is easy to overlook, but it is one that program reviews specifically examine. Counsel should assess whether the target institution has systems in place to track student locations and trigger updated disclosures when locations change.
8. Change-in-Ownership Notification to NC-SARA and State Portal Agencies
Change-in-ownership notification is one of the most time-sensitive compliance obligations in an education transaction, and failure to manage it correctly can create cascading regulatory problems. NC-SARA policies require that institutions notify their home state portal agency of any change in ownership or control, and most portal agencies have their own procedures and timelines for processing such notifications.
The general principle in SARA and in broader state authorization law is that authorization follows the institution, not the owner. When ownership changes, the existing authorization may or may not automatically transfer to the new owner, depending on the state's rules and the structure of the transaction. In an asset purchase, the buyer is typically acquiring assets, not the corporate entity, which means that the existing state authorization belongs to the seller's corporate entity and does not transfer by operation of law. The buyer must obtain new authorization in the home state and then pursue new SARA participation.
In a stock purchase or merger, the institutional entity continues to exist, which means that existing state authorizations and SARA participation may survive the transaction. However, the change in ownership must still be reported, and the portal agency may conduct a review to confirm that the institution continues to meet eligibility criteria under new ownership. Portal agencies vary in how rigorously they scrutinize change-in-ownership filings: some accept notifications with minimal review, while others treat a significant ownership change as an occasion for a more thorough institutional review.
Timing matters. Most portal agencies require notification within a specific window, which may be measured before closing, at closing, or within a defined number of days after closing. Missing the notification window is a compliance failure that must be disclosed in the institution's next annual renewal and can result in adverse action. Counsel should identify the home state portal agency's specific notification requirements early in the transaction planning process and build the notification into the closing checklist.
Beyond SARA, buyers should consider whether the change in ownership triggers notification or approval requirements with state authorization agencies in other states where the institution has physical presence or where it has obtained individual state authorizations for non-SARA states. California, in particular, has its own change-of-ownership requirements for BPPE-authorized institutions.
The change-in-ownership notification to the portal agency also interacts with accreditation notifications. Most accreditors require notification of changes in ownership and conduct their own change-in-ownership review. Some accreditors require pre-approval before the transaction closes. The SARA notification and the accreditation notification are separate but parallel obligations, and they should be coordinated to ensure that the institution is sending consistent information to all of its regulators.
Change-in-Ownership Regulatory Sequencing
Managing SARA notification, accreditor approval, and state portal agency filings in parallel requires precise sequencing. We build that into your closing timeline from day one.
Submit Transaction Details9. Student Complaint Resolution Procedures Through SARA
The SARA complaint resolution framework is designed to give students a meaningful avenue for redress against out-of-state institutions without requiring each student to navigate the regulatory apparatus of the institution's home state. Understanding how this framework operates is relevant both to compliance planning and to assessing the target's complaint history as part of due diligence.
Under SARA policies, a student with a complaint against a SARA member institution is first required to exhaust the institution's internal complaint process. SARA is explicit that the institutional process must be the first resort: students who have not attempted to resolve their complaint through the institution's internal procedures are not eligible to file with the state portal agency. This requirement places a compliance obligation on the institution to maintain and publicize an accessible internal complaint process.
If the institutional process does not resolve the complaint, the student may file with the portal agency in the student's home state. The home state portal agency reviews the complaint and determines whether it falls within SARA's scope. If it does, the portal agency may investigate and work with the institution to resolve the complaint. If the complaint involves the institution's home state, the home state portal agency handles it directly. If the complaint involves an institution based in a different state, the student's home state portal agency coordinates with the institution's home state portal agency.
SARA complaint procedures do not cover all types of student grievances. Complaints that relate to a state's consumer protection laws, that involve fraud or criminal conduct, or that are within the jurisdiction of a state court fall outside SARA's complaint scope. Students in these situations are directed to the appropriate state or federal agency or court. The SARA complaint process is specifically oriented toward educational quality complaints and compliance with SARA policies.
In due diligence, counsel should request the target's complaint log from its home state portal agency and review any complaint records available through the NC-SARA system. A pattern of unresolved or repeated complaints in particular areas, such as transcript access, refund processing, or program quality, can indicate systemic institutional problems that may not be fully captured in the target's self-reported compliance documentation. Complaint history is also relevant to assessing reputational risk and potential regulatory scrutiny following the transaction.
Post-closing, the buyer should ensure that the target institution's internal complaint procedures remain accessible and effective. A complaint process that existed on paper but was not functioning in practice prior to the transaction is a liability that can generate regulatory attention from the portal agency after closing. Buyers who are operationally integrating an acquired institution should specifically review and, if necessary, rebuild the complaint intake and resolution process as part of post-closing integration.
10. Data Reporting Requirements to NC-SARA
NC-SARA member institutions are required to submit annual enrollment reports that provide state-level data on the number of students enrolled in distance education who reside in each SARA member state. These reports are a condition of ongoing SARA participation, and they serve multiple purposes: they establish the fee tier applicable to the institution's annual renewal, they provide NC-SARA with system-wide data on distance education enrollment, and they create a public record of the institution's multi-state enrollment footprint.
The enrollment data reported to NC-SARA must reflect students who are physically located in states other than the institution's home state. The data collection methodology matters: institutions must have systems in place to capture student location at the time of enrollment and to update that information when students' locations change. Institutions that rely solely on the address students provide at admission, without verification or subsequent updates, may be reporting inaccurate data.
Inaccurate enrollment reporting can result in fees that are either under- or over-stated relative to the institution's actual enrollment. Underreporting creates a compliance risk if discovered during a review, while overreporting results in overpaying fees. More importantly, significant discrepancies between reported SARA enrollment and the enrollment data visible through other sources, such as IPEDS or the institution's internal enrollment management system, can be a flag for broader data integrity issues.
In a transaction, the buyer should compare the target's NC-SARA enrollment reports against IPEDS data and the target's internal enrollment records. Discrepancies that cannot be explained by definitional differences, such as differences in how "distance education" enrollment is counted, warrant further investigation. They may indicate data quality problems in the target's enrollment management systems, which can affect not only SARA compliance but also Title IV reporting and state authorization compliance more broadly.
NC-SARA also collects program completion data from member institutions, including completion rates for distance education programs. This data is part of the broader effort to track outcomes for online students and may be used in future policy development around SARA eligibility and performance expectations. Institutions with significantly below-average completion rates in their distance education programs may face closer scrutiny from portal agencies in future renewal cycles.
Beyond the NC-SARA reporting obligations, institutions offering distance education are subject to IPEDS reporting requirements on distance education enrollment, as well as the gainful employment data reporting requirements applicable to programs that must meet gainful employment standards. The interaction between these various reporting obligations requires a coordinated data governance approach that buyers should assess as part of operational due diligence.
11. Federal Student Aid Interactions with State Authorization
State authorization compliance and Title IV program participation are interconnected in ways that create significant financial risk if state authorization gaps are not addressed. The Department of Education's interpretation of the Higher Education Act has established that an institution must be legally authorized to operate in the state where it offers programs in order to be eligible for Title IV funding for students in that state. A state authorization gap can therefore jeopardize the institution's ability to use federal student aid funds for students located in the state where authorization is missing.
The Program Integrity regulations, particularly 34 CFR 600.9, define state authorization requirements as a condition of institutional eligibility. An institution that is not authorized in a state where it enrolls students may be ineligible for Title IV funds for those students, which would require the institution to repay those funds if the gap is discovered in a program review or audit. The repayment exposure can be substantial for institutions with large out-of-state enrollment.
The Department of Education's approach to enforcing the state authorization requirement through Title IV has evolved over time, including through litigation over the 2016 distance education regulations. The current regulatory framework establishes that SARA participation satisfies the state authorization requirement for purposes of Title IV eligibility in SARA member states. An institution with current SARA participation, therefore, has a federal regulatory basis for treating its Title IV funding as unaffected by the multi-state nature of its enrollment, as long as it maintains SARA participation in good standing.
However, if an institution's SARA participation lapses, for any reason, including failure to renew on time, loss of accreditation, or failure to notify the portal agency of a change in ownership, the Title IV consequences can be immediate. The institution may need to obtain individual state authorizations before Title IV funds can again be used for students in those states, and any period of unauthorized operation creates retroactive repayment risk.
In a transaction involving a SARA-participating institution, SARA continuity is therefore also a Title IV continuity issue. Buyers should structure the transaction and the closing process to ensure that SARA participation remains in continuous good standing throughout and after the transaction. Any gap in SARA participation should be treated as a material regulatory risk that requires immediate remediation, not as an administrative technicality.
For non-SARA states, the Title IV analysis requires confirming that the institution has valid, current state authorization in each non-SARA state where it enrolls Title IV-eligible students. California is again the most significant case: an institution without current BPPE authorization that is enrolling California students using Title IV funds may face repayment demands for those funds. Buyers acquiring institutions with California enrollment must confirm the status of BPPE authorization as a condition to closing.
12. Sequencing SARA Renewal Around a Closing
The practical management of SARA renewal in the context of an acquisition requires attention to timing, sequencing, and communication across multiple regulatory relationships simultaneously. A closing that happens in the middle of a SARA renewal cycle creates specific challenges that differ from a closing that happens at the beginning or end of a cycle, and counsel should assess the timing implications early in the transaction planning process.
If the target's SARA renewal is due before the transaction is expected to close, the existing management team should complete the renewal on schedule. A renewal lapse during a pending transaction creates unnecessary regulatory risk and may complicate the portal agency's review of the subsequent change-in-ownership notification. The buyer's counsel should confirm that renewal has been submitted and, if possible, confirmed by the portal agency before closing.
If the renewal is due shortly after closing, the buyer must be prepared to complete it under new ownership. This requires the buyer to have access to the institution's enrollment data systems, to understand the fee calculation methodology, and to be familiar with the portal agency's renewal process before closing. A buyer that acquires an institution and then struggles to complete the first post-closing renewal because it lacks access to the relevant data and processes has a foreseeable problem that should have been addressed in integration planning.
The change-in-ownership notification to the portal agency should ideally occur before the closing, or as close to closing as the portal agency's procedures allow. Some portal agencies require pre-notification and will provide a determination on whether the change in ownership affects SARA eligibility before the transaction closes. Others accept notification at or immediately after closing. In either case, the notification should be submitted with sufficient lead time to receive a response before any period of regulatory uncertainty can affect the institution's enrollment operations.
Counsel should also consider the interaction between the SARA renewal cycle and the accreditor's change-in-ownership review timeline. Accreditors often require notification well in advance of closing, and some conduct substantive reviews that can take months. If the accreditor's review period extends beyond the SARA renewal date, the institution may be renewing SARA while an accreditation review is pending. The portal agency may have questions about accreditation status at renewal, and the buyer should be prepared to explain the status of the accreditation review accurately and completely.
The closing checklist for an online education acquisition should specifically include: confirmation of current SARA participation status, review of the next renewal date, assignment of responsibility for renewal if it falls within 90 days of closing, submission of the change-in-ownership notification to the portal agency, and confirmation that accreditation notification has been provided to the accreditor in accordance with its change-in-ownership policy. Each of these items has a different timeline and a different regulatory counterpart, and managing them in parallel requires disciplined project management across the legal, regulatory, and operational functions involved in the transaction.
Frequently Asked Questions
What is NC-SARA and which states participate?
NC-SARA, the National Council for State Authorization Reciprocity Agreements, is a voluntary framework that allows member institutions to offer distance education to students in other SARA member states without obtaining separate state-level authorization in each state. As of the most recent reporting cycles, 49 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands participate. California remains the most significant non-SARA state, requiring institutions to obtain separate authorization through the California Bureau for Private Postsecondary Education. Wyoming previously withdrew and later rejoined, so current participation status should always be verified at the time of a transaction through the NC-SARA website.
Do we need state authorization in every state where students reside?
Yes, in principle, institutions are required to be authorized in every state where they enroll students. NC-SARA participation satisfies this requirement for member states, allowing an institution with a single home-state approval to enroll students residing in any other SARA member state without additional filings. However, authorization does not eliminate all state-level obligations: professional licensure disclosure requirements apply independently, and certain clinical or in-person components can create additional physical-presence triggers that require separate state review. For non-SARA states, particularly California, institutions must maintain independent authorization regardless of their SARA membership status.
How does a change-in-ownership affect SARA approval?
A change in ownership is a material event that must be reported to the institution's home state portal agency, which in turn coordinates with NC-SARA. The timing and process vary by state, but most portal agencies require notification within a defined window before or immediately after closing. Failure to notify can place the institution's SARA participation in jeopardy, which would effectively require the institution to obtain individual state authorization in every state where it has enrolled students. In an acquisition, counsel should identify the home state portal agency, review its change-in-ownership policy, and build the required notification and any re-approval period into the closing timeline.
What are the professional licensure disclosure requirements?
Under 34 CFR 668.43, institutions must disclose to prospective and current students whether the educational program meets, does not meet, or if the institution has not determined whether the program meets the educational requirements for professional licensure in each state where students are located. This requirement applies to programs that lead to professional licensure and is independent of SARA membership. Institutions must maintain current, state-specific disclosures and update them whenever program content or state licensing requirements change. In an acquisition, a buyer should audit the target's disclosure matrix, assess whether any gaps exist, and determine whether any remediation is required before or after closing.
Does California require separate authorization for out-of-state online programs?
Yes. California is not a SARA member state, which means that any institution enrolling students physically located in California must obtain independent authorization from the California Bureau for Private Postsecondary Education, regardless of the institution's SARA participation in its home state. The California approval process involves a separate application, approval criteria, and ongoing compliance obligations including performance bonds and student tuition recovery fund contributions in some cases. Buyers acquiring institutions with California enrollment should treat the California authorization as a distinct regulatory asset that must be reviewed, confirmed as current, and, if the transaction structure requires it, re-obtained following the change in ownership.
How is NC-SARA participation renewed?
NC-SARA participation is renewed annually through the institution's home state portal agency. The renewal process typically requires the institution to submit updated enrollment data, confirm ongoing compliance with NC-SARA policies, pay the applicable annual fee, and certify that there have been no changes to its accreditation or financial responsibility standing that would affect eligibility. Fees are tiered based on out-of-state enrollment headcount. A lapse in renewal removes the institution from the SARA roster, which can expose it to regulatory violations in states where it continues to enroll students without independent authorization. In an acquisition, counsel should confirm when the next renewal is due and ensure continuity across the closing.
What triggers a physical presence in a state for authorization purposes?
Physical presence definitions vary by state but commonly include maintaining an office or facility, employing faculty or staff who work in the state, requiring students to attend in-person sessions at a location in the state, or placing students in clinical or internship sites within the state. Some states have broader definitions that capture activities such as marketing events, recruiting visits, or third-party agreements with in-state entities. NC-SARA reduces but does not eliminate physical-presence concerns: SARA addresses enrollment-based authorization, but a physical presence in a non-home SARA state may still require the institution to register as a foreign entity, file for additional licensure, or comply with local employment laws.
How are student complaints handled under SARA?
Under SARA, students who have complaints against a SARA member institution that are not resolved by the institution are directed to the portal agency in the student's home state. The home state portal agency reviews the complaint and coordinates with the institution's home state portal agency if they differ. This framework is designed to give students a state-level avenue for redress without requiring each state to independently regulate out-of-state institutions. However, SARA complaint procedures apply only to students physically located in SARA member states. Students in non-SARA states retain whatever complaint rights exist under those states' laws. Buyers should review the target's complaint history through its home state portal agency as part of regulatory due diligence.