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Sorry For-Profit Colleges, but the Law is the Law

Published:  June 23, 2010

The Obama administration took a huge step forward last week when it proposed strengthening the U.S. Department of Education's rules barring colleges from compensating recruiters based on their success in enrolling students. In doing so, the Education Department's political leaders stood up not only for students but for upholding the rule of law itself.

As faithful readers of Higher Ed Watch well know, Congress in 1992 prohibited colleges from providing "any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments" to admissions officers. The ban on incentive compensation for college recruiters was included as part of a broader effort by lawmakers to crack down on fly-by-night trade schools that had been set up to reap profits from the Title IV federal student aid programs. With reports rampant that trade schools were enrolling unqualified low-income individuals simply to get access to Title IV funds, policymakers believed it was important to bar postsecondary-education institutions from paying recruiters on the basis of how many students they admitted.

A decade later, Bush administration officials with close ties to the for-profit higher education sector set out to undermine the prohibition. At first, they worked closely with allies in Congress to try to push through legislation that would have substantially weakened the law. But after that effort failed, they decided to do the job themselves.

Under their leadership, the Education Department issued new regulations creating 12 "safe harbors" (otherwise known as loopholes) for colleges that wished to provide incentive payments to their admissions employees. Among other things, the revised rules allowed colleges to adjust the annual or hourly wages of recruiters up to twice a year, as long as the adjustment was "not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid." In other words, the Department's leaders allowed colleges to expressly violate the law, which bars schools from providing any commission-based compensation to their recruiters.

But in proposing to eliminate all 12 safe harbors as part of a broader set of draft rules it released last week aimed at strengthening the integrity of the federal student aid programs, the Obama administration let the for-profit sector know, in no uncertain terms, that those days are over. In so doing, the political leaders at the Department made clear just how much harm their predecessors' actions have caused.

"The Department previously explained that it was adopting the safe harbors based on a 'purposive reading'" of the Higher Education Act, these officials wrote in the preamble to the proposed rules that was published in the Federal Register on Friday. "Since that time, however, the Department's experience demonstrates that unscrupulous actors routinely rely upon these safe harbors to circumvent the intent of the" law.

The administration officials did not go so far as to accuse the Department's former leaders of acting deliberately to defy the will of Congress, but they came awfully close. Noting that "the language" in the Higher Education Act barring incentive compensation is absolutely "clear," they wrote that "rather than serving to effectuate the goals intended by Congress," the changes that the Bush administration made to the regulations "served to obstruct those objectives." For example, they stated:

The first safe harbor, which prohibits the payment of incentives based solely upon success in securing enrollments, has led institutions to establish, on paper, other factors that are purportedly used to evaluate student recruiters other than the sheer numbers of students enrolled. However, in practice, consideration of these factors has been minimal at best, or otherwise indiscernible. This has led the Department to expend vast resources evaluating the legitimacy of institutional compensation plans, and considerable time and effort has been lost by both the Department and institutions engaged in litigation.

This is not just a matter of principle. The gutting of the law, the administration officials said, put students -- particularly the low-income and working-class ones that these institutions tend to attract -- in harm's way:

The Department believes that students are frequently the victims of compensation plans that institutions have adopted within the ambit of the first safe harbor. When admissions personnel are compensated substantially, if not entirely, upon the numbers of students enrolled, the incentive to deceive or misrepresent the manner in which a particular educational program meets a student's need increases substantially. As a result, the Department believes that the existence of safe harbors is a major impediment to ensuring that students are enrolled in educational programs that are meaningful to them.

And in fact, in the years since the safe harbors were added, some of the largest publicly traded and privately-held for-profit higher education companies have come under intense scrutiny from federal and state regulators and have faced numerous lawsuits by former employees, shareholders, and students over allegations that they have engaged in misleading recruiting and admissions tactics to inflate their enrollment numbers (see here, here, and here). Some of these companies have been accused of willfully recruiting and enrolling unqualified students and sticking them with huge amounts of debt for training from which these individuals are unlikely to benefit.

In their fight to preserve the safe harbors, for-profit college lobbyists and leaders have argued that it doesn't make sense to bar schools from compensating recruiters based, at least in part, on their success in recruiting since that is the job they are being paid to perform. Wouldn't this ultimately prevent them from providing any merit-based raises to their admissions personnel?

The answer -- as the Department leaders wrote in the preamble -- is obviously "No." Schools are perfectly free to "make merit based adjustments" to their employees' compensation, using any number of "standard evaluative factors as the basis for such an increase" -- as long as they don't take their success in enrolling students into account.

Because, after all, the law is the law. And, assuming that the administration sticks to its guns when it finalizes its proposals this fall, there's not going to be any way around that anymore.

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