For years, career college lobbyists pushed the U.S. Department of Education to look the other way while some of the largest for-profit higher education companies deliberately violated a federal law prohibiting colleges from compensating recruiters based on their success in enrolling students. Now, with the Obama administration preparing to strengthen its rules banning incentive compensation, these very same lobbying groups are pointing to that lax enforcement to suggest that there weren’t any problems in the sector to begin with.
To support their claims, these lobbyists point to a report that the U.S. Government Accountability Office (GAO) issued in February that took a detailed look at “incentive compensation violations substantiated by the Education Department” over the last decade. The GAO reported that between 1998 and 2009, the Department penalized 32 colleges for violating the ban, 19 or which were proprietary schools. However, the GAO found that the differences between the sectors have disappeared since 2002, when the Bush administration rewrote the Department's student aid regulations to significantly weaken the prohibition by adding loopholes – or “safe harbors” – to the rules. Over the last seven years, 14 colleges have been penalized, with an equal number coming from the non-profit and for-profit college sectors.
The Career College Association in recent weeks has touted these results to argue that the Obama administration’s plan to toughen the rules by eliminating the “safe harbors” that the previous administration put into place is unwarranted. “The Department is now proposing wholesale elimination of all those regulations and all the guidance previously provided without documenting problems with specific parts of the incentive compensation regulation,” Harris Miller, CCA’s president, wrote in a “briefing memorandum” he sent to Congressional staff members last week. “This is notwithstanding a report mandated by Congress done by the Government Accountability Office, issued after the negotiated rulemaking continued, showing that violations of the incentive compensation ban are a) rare, b) have not increased or decreased since the regulations were adopted in 2002, and c) are fairly evenly split among traditional colleges.”
You have to hand it to the lobbyists at the Career College Association. They certainly have a gift for spin. Unfortunately for Miller, his claims about the GAO report’s conclusions are entirely misleading.
For one thing, the GAO went out of its way to make clear that the report had an extremely narrow focus -- simply documenting “the number of violations substantiated by the Secretary of Education since 1998, the nature of these violations, and the names of the institutions involved”-- and that the report should not be read to suggest that the agency had reached any conclusions about the extent of the problem or the Department’s effectiveness in dealing with it. “While this report provides data on violations substantiated by Education, it does not examine the penalties associated with these violations or assess the overall impact of the safe harbor regulations on Education’s efforts to enforce the incentive compensation ban,” the report stated. [Emphasis added]
But even more fundamentally, the idea that policymakers can judge the scope of the abuses by looking solely at the Education Department’s enforcement actions over the last decade is completely absurd. After all, the Bush administration officials who led the Department for much of this time had little interest in enforcing the ban in the first place. These officials, some of whom had close ties to the for-profit sector, arrived at the Department outraged that the agency had effectively shut down the giant publicly traded trade school chain Computer Learning Centers for violating the incentive compensation prohibition, and vowed that it would never happen again (see pages 4 and 5 of the document). At first, they worked closely with allies in Congress to try and push through a bill 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 in November 2002 issued the new regulations creating the 12 “safe harbors” for colleges that wished to provide incentive payments to their admissions employees. The agency’s leaders took this action over the objections of a negotiated rulemaking panel made up of college officials, advocates for students, and consumer groups that had been assembled to consider the rule changes and of the two main national organizations representing college admissions officials (see here and here).
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.
Around the same time, the then-Deputy Education Secretary Bill Hansen sent a memo to the head of the Federal Student Aid office announcing that the agency would treat violations of the incentive compensation ban less seriously than it had before. In the memo, the Deputy Secretary said that in most cases "the appropriate sanction" should "be the imposition of a fine," rather than the limitation, suspension, or termination of Title IV student aid eligibility. "The direction provided by this memorandum should result in the imposition of appropriately measured sanctions for improper incentive payments by institutions [emphasis added]," he wrote.
In the years since, some of the largest for-profit higher education companies have been charged with engaging in misleading recruiting and admissions tactics to inflate their enrollment numbers. For example:
- In 2007, the California Attorney General settled a deceptive practices case against Corinthian Colleges, requiring the company to pay a $6.5 million fine and provide some restitution to students. The lawsuit charged Corinthian with misleading prospective students about its schools’ job placement rates and the starting salaries of their graduates; running 11 sub-standard programs, and falsifying record provided to the government. As part of the agreement, Corinthian, which serves nearly 70,000 students at more than 100 colleges in the United States and Canada, did not admit to any wrongdoing.
- In 2009, the trade school chain Alta Colleges agreed to pay the U.S. Department of Justice $7 million to settle allegations raised in a False Claims lawsuit that its Texas campuses had engaged in practices “designed to mislead prospective students and to misrepresent material facts to them.” Among other things, the government found that the school recruiters had lied to prospective students about their job placement rates (saying that they were more than 90 percent when they actually just over 50 percent) and about their ability to transfer credits to other schools (even though no other accredited college in Texas would take them). Alta, which is the parent company of Westwood College, did not admit to any wrongdoing. Westwood serves 15,000 students at 17 campuses around the country.
- In December, the owners of the University of Phoenix agreed to pay $78.5 million to settle a False Claims lawsuit brought by former recruiters that accused the giant for-profit higher education chain of routinely violating the incentive compensation ban. The University of Phoenix, which serves more than 400,000 students at some ninety campuses and 150 learning centers worldwide, also did not admit to any wrongdoing.
Similar accusations of recruiting abuses have also been raised in recent class action and False Claims lawsuits against Career Education Corporation, Education Management Corporation, and Kaplan University.
Sorry Harris, but there is a serious problem no matter how you spin it. At Higher Ed Watch, we hope that the Obama administration moves forward with its proposal to eliminate the safe harbors. Because as David Hawkins, the director of public policy and research for the National Association for College Admission Counseling, wrote on our blog last week, abiding by the law seems like a small price to pay for for-profit higher education companies that receive nearly 100 percent of their billions of dollars in revenue from taxpayer-supported dollars.