In lieu of the standard certification of authority requirements for institutions and their agents in §§7.7, 7.11, and 7.12 of this chapter, an institution may obtain an alternative certificate of authority to issue degrees as provided by this section. Alternative certificates of authority shall be issued by the Commissioner and are temporary, being valid for twelve (12) months, after which a regular certificate of authority shall be required. A site visit shall be conducted by Board staff during the initial twelve month period.

1. (1) Surety Instrument Requirement

   1. (A) At the time application is made for an alternative certificate of authority, or when new programs, stand-alone courses or continuing education courses are added, the applicant shall file with the Board a surety bond or surety alternative which meets the requirements set forth in these sections. Schools located in Texas shall file one bond or surety alternative covering the school and its agents.
   2. (B) The amount of the bond or other allowable surety instrument submitted to the Board with an application for an alternative certificate of authority shall be equal to or greater than the cost of providing a refund, including administrative costs associated with processing claims, for the maximum prepaid, unearned tuition and fees of the school for a period or term during the applicable school year for which programs of instruction are offered, including, but not limited to, on a semester, quarter, monthly, or class basis; except that the period or term of greatest duration and expense shall be utilized for this computation where a school's year consists of one or more such periods or terms.
   3. (C) A school, whose surety value is found by the Board to be insufficient to fund the unearned, prepaid tuition of enrolled students, shall be noncompliant with these sections, and, if, after ten (10) working days from the issuance of a notice of noncompliance, the school has not increased its surety to an acceptable level, it shall be subject to revocation or suspension of its alternative certificate of authority.
   4. (D) Following the initial filing of the surety bond with the Board, the amount of the bond shall be recalculated annually based upon a reasonable estimate of the maximum prepaid, unearned tuition and fees received by the school for such period or term. In no case shall the amount of the bond be less than twenty-five thousand dollars ($25,000).
   5. (E) The institution shall include a proposal in the form of a letter signed by an authorized representative of the school showing in detail the calculations made pursuant to this section and explaining the method used for computing the amount of the bond or surety alternative.

   6. (F) In order to be approved by the Board, a surety bond must be:

      1. (i) Executed by the applicant and by a surety company authorized to do business in Texas;
      2. (ii) In a form acceptable to the Board;
      3. (iii) Conditioned to provide indemnification to any student or enrollee of an in-state or out-of-state school or his/her parent or guardian determined by the Board to have suffered a loss of tuition or any fees as a result of violation of any minimum standard or as a result of a holder of an Alternative Certificate of Authority ceasing operation; and
      4. (iv) An original bond.

   7. (G) In lieu of a surety bond, an applicant may file with the Board an assignment of savings account that:

      1. (i) Is in a form acceptable to the Board;
      2. (ii) Is executed by the applicant; and
      3. (iii) Is executed by a state or federal savings and loan association, state bank or national bank whose accounts are insured by a federal depositor's corporation.

   8. (H) In lieu of a surety bond, an applicant may file with the Board a certificate of deposit that:

      1. (i) Is issued by a state or federal savings and loan association, state bank or national bank whose accounts are insured by a federal depositor's corporation;

      2. (ii) Is either:

         1. (I) Payable to the Board;
         2. (II) In the case of a negotiable certificate of deposit, is properly assigned without restriction to the Board; or
         3. (III) In the case of a non-negotiable certificate of deposit, is assigned to the Board by assignment in a form satisfactory to the Board.

   9. (I) In lieu of a surety bond, an applicant may file with the Board an irrevocable letter of credit that:

      1. (i) Is in a form acceptable to the Board; and
      2. (ii) Conditioned to provide indemnification to any student or enrollee of the school or his/her parent or guardian determined by the Board to have suffered loss of tuition or any fees as a result of violation of any minimum standard or as a result of a holder of an alternative certificate of authority ceasing operation.

   10. (J) In lieu of a surety bond, an applicant may file with the Board a properly executed participation contract with a private association, partnership, corporation or other entity whose membership is comprised of postsecondary institutions, which:

       1. (i) Is in a form acceptable to the Board; and
       2. (ii) Conditioned to provide indemnification to any student or enrollee of the school or his/her parent or guardian determined by the Board to have suffered loss of prepaid tuition or any fees as a result of violation of any minimum standard or as a result of a holder of an alternative certificate of authority ceasing operation, and provides evidence satisfactory to the Board of its financial ability to provide such indemnification and lists the amount of surety liability the alternative entity will assume.

   11. (K) Whenever these sections require a document to be executed by an applicant the following shall prevail:

       1. (i) If the applicant is a corporation, the document must be executed by the president of the corporation or persons designated by the corporate board.
       2. (ii) If the applicant is a limited liability corporation the document must be executed by the members.
       3. (iii) If the applicant is a partnership, the document must be executed by all general partners.
       4. (iv) If the applicant is an individual, the document must be signed by the individual.
       5. (v) If the applicant is a state agency, the document must be signed by the Director of that Department.
       6. (vi) If the applicant is a local government, the document must be signed by the mayor or board president.
   12. (L) Any bonding alternative entity must have independent financial resources necessary to meet the contractual obligation to the students of a failed member institution and resources equal to or exceeding the maximum bonds required of all single schools.
   13. (M) A school applying for an alternative certificate of authority shall be exempt from the surety instrument requirement if it can demonstrate a United States Department of Education composite financial responsibility score of 1.5 or greater on its current financial statement; or if it can demonstrate a composite score between 1.1 and 1.4 on its current financial statement and has scored at least 1.5 on a financial statement in either of the prior two (2) years.
2. (2) Application and Statement. Institutions seeking an alternative certificate of authority are urged to obtain informal guidance from Board staff before filing a formal application. The Board will accept applications for an alternative certificate of authority only from those institutions proposing to offer a degree or credit courses alleged to be applicable to a degree.

3. (3) An institution seeking an alternative certificate of authority shall submit to the Board a completed application, which must demonstrate it meets, or has the ability to meet, depending on circumstances, the standards set out in §7.5 of this chapter (relating to Standards for Operation of Institutions); a signed and dated affirmation statement, acknowledging compliance with certification criteria set forth in this section; and a notarized attestation statement signed by the chief executive officer or equivalent and evidence of approval from the Texas Workforce Commission. The Board will not approve an application for an Alternative Certificate of Authority unless the Texas Workforce Commission has approved the institution to offer a course of instruction or has been issued an exemption. The application form shall contain:

   1. (A) The name and address of the institution and its purpose;
   2. (B) The names of the sponsors or owners of the institution;
   3. (C) The regulations, rules, constitutions, bylaws, or other regulations established for the governance and operation of the institution;
   4. (D) The names and addresses of the chief administrative officer, the principal administrators, and each member of the board of trustees or other governing board;
   5. (E) The names of faculty who have been retained, their area(s) of teaching, and their degrees held;
   6. (F) The types of degrees to be awarded and a list of courses that may be included in each degree program; and
   7. (G) The location of any facilities maintained or being constructed and a list of potentially hazardous equipment which requires a federal or state government license to operate, if any has been acquired, that is to be used by students in the teaching process.
4. (4) Institutions shall certify that they maintain a list of their agents as defined in §7.3 of this chapter (relating to Definitions) and have policies to ensure that their agents are of good character and provide accurate information to prospective students and their families, but such agents are not required to register with the Board or submit a fee.
5. (5) Applications must be submitted with an original and four copies and accompanied by the required fee. Alternative certificate of authority fees shall be five hundred dollars ($500) more than the fee for a regular certificate of authority, as established in §7.7(c) of this chapter (relating to Certificate of Authority).

6. (6) Board's review of applications.

   1. (A) Within ninety (90) days of receipt of a complete application, Board staff will review said application and recommend to the Commissioner either approval or denial of the application.
   2. (B) Within one hundred twenty (120) days of receipt of a complete application, the Commissioner shall either award a one-year certificate of authority or deny the application.
   3. (C) If a determination under this section is adverse to an institution, it shall become final and binding unless, within forty-five (45) days of its receipt of the adverse determination, the institution invokes the administrative remedies contained in Chapter 1, Subchapter B of this title (relating to Dispute Resolution).

7. (7) Terms and limitations of an alternative certificate of authority.

   1. (A) The alternative certificate of authority to grant degrees is valid for one (1) year from the date of issuance.
   2. (B) The institution shall notify the Board at least ten (10) working days prior to the start of the first class of its first year schedule. Board staff shall visit the institution and interview both staff and students at least once during the first year.
   3. (C) Certification by the State of Texas is not accreditation, but merely a protection of the public interest while the institution pursues accreditation from a recognized agency, within the time limitations expressed in §7.7(d)(6)(D) of this chapter. An institution awarded an alternative certificate of authority shall not use terms to interpret the significance of the certificate which specify, imply, or connote greater approval than simple permission to operate and grant degrees in Texas. Terms which may not be used include, but are not limited to, "accredited," "supervised," "endorsed," and "recommended" by the State of Texas or agency thereof. Specific language prescribed by the Commissioner which explains the significance of the alternative certificate of authority shall be included in all publications, advertisements, and other documents where certification and the accreditation status of the institution are usually mentioned, including the institution's catalog and the home page of the institution's Internet website.

   4. (D) The Commissioner may revoke an institution's alternative certificate of authority to grant degrees at any time if the Commissioner finds that:

      1. (i) Any statement contained in an application for the certificate is untrue;
      2. (ii) The institution has failed to maintain the standards of the Board, as described herein, on the basis of which the certificate was granted;
      3. (iii) Advertising or representations made on behalf of the institution is deceptive or misleading; or
      4. (iv) The institution has violated any provision of this subchapter.

8. (8) Continuing operations after one year.

   1. (A) At least one hundred eighty (180) days, but no more than two hundred ten (210) days, prior to the expiration of the current alternative certificate of authority, an institution, if it desires to continue operations, shall make application to the Board following the process in §7.7(h) of this chapter.
   2. (B) The application will be evaluated in the same manner as that prescribed for evaluation of an initial application.

Source Note:The provisions of this §7.8 adopted to be effective May 27, 2008, 33 TexReg 4134; amended to be effective August 25, 2008, 33 TexReg 6812; amended to be effective March 2, 2009, 34 TexReg 1421.