Guest Post: Career College Group's Lawsuit Shows an Industry Defiantly Unwilling to Own Up to its Abuses

By David Hawkins and Amanda Modar

“If the [Department of Education’s] Compensation regulations were a real solution to a real problem…”

That’s how the Association of Private Sector Colleges and Universities (APSCU), formerly known as the Career College Association, characterizes the Obama Administration’s new program integrity rules regarding incentive compensation set to take effect in July. As a key argument in the organization’s attempt to nullify the regulations via a lawsuit against the Department of Education, this Orwellian assertion paints a picture of an industry that is fundamentally unwilling to own up to the extent of the problems it has caused, unable to acknowledge that commissioned sales is a primary catalyst for recruiting abuses, and unrepentant about its desire to ensure that its use of incentivized compensation in admissions continues unabated.

The evolution of the federal government’s regulation of postsecondary student recruitment follows a predictable and well-worn path. Recruiting abuses associated with the federal loan programs during the 1970s resulted in the enactment of a ban on incentive compensation for professionals engaged in signing up students for federally-insured loans under the Higher Education Act. Further recruiting abuses fueled by the commissioned sales model, as revealed during the infamous Nunn Commission hearings, resulted in a substantial broadening of the Higher Education Act ban in 1992.

Soon after, as for-profit colleges became publicly-traded companies on Wall Street and moved toward an entirely online platform, federal enforcement of the statutory ban began to impede the industry’s desire for an all-out sales blitz whose centerpiece was a recruiting model previously employed by the fraudulent, fly-by night institutions of the 1980s. Chafing under the ban, the industry got busy working Washington. First they tried Congress, but their efforts were thwarted there. So they turned to the newly-appointed Bush Administration Department of Education in 2001, which ultimately gave them the loopholes they needed to pursue the commissioned sales model full tilt. The results of that change, as well as other de-regulatory maneuvers, have led to the widespread abuses that have come to light over the past several years.

In this context, APSCU’s use of terms like “severely flawed,” “unlawful,” and “irrational” to describe the Obama Administration’s proposed regulations seems, in and of itself, severely flawed. Given the track record of recruiting abuses at for-profit colleges, the Bush Administration’s creation of the “safe harbor” loopholes in 2002 was the “fatally flawed” aberration, and the current administration’s proposed regulations constitute a necessary and desirable correction. Indeed, a December 2010 GAO report on incentive compensation (which APSCU conveniently ignores) noted that the safe harbors had made enforcing the statutory ban on incentive compensation much more difficult.

Arbitrary and Capricious?

In its lawsuit, APSCU claims that the Department’s new incentive compensation regulation is “arbitrary and capricious,” as it is intended to “prohibit hypothetical unscrupulous actors.” The problem the Department is trying to solve is anything but hypothetical -- see here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, GAO reports here and here, and a summary document here. In addition, among the APSCU members that are named in GAO reports, Congressional investigations, lawsuits, and media accounts detailing improper recruiting practices are the following: Bridgepoint Education ( Ashford University); Career Education Corporation; Corinthian Colleges; Education Management Corporation; ITT Educational Services;  Kaplan Higher Education (including Kaplan University); and Keiser University.

A more pertinent question might be whether there is a portion of “the record” that does not suggest widespread problems.

Salary, Shmalary

APSCU proceeds further down the rabbit hole, arguing that a strict interpretation of the incentive compensation statute would prevent colleges from paying salaries to admission officers. Here is a summary of their argument:

• Congress didn’t intend to regulate salaries, because the statute does not use the word “salaries” when it prohibits commissions, bonuses or other incentive payments based directly or indirectly on the number of students enrolled.

• Bonuses and commissions, which are among the terms expressly addressed in statute, are different from salaries.

• Congress meant to regulate “commissioned salespeople,” not “salaried salespeople.”

• The regulations do not protect an institution’s ability to provide merit increases for admission officers.

• In any event, how can you determine merit without a consideration of the number of students an admission officer has recruited?

APSCU concludes:

The Department’s construction of the [incentive compensation statute] leads to absurd results. If a school hires recruiters, it must simply hope that they will voluntarily choose to spend their time attempting to secure enrollments because, under the Department’s view, schools are prohibited from making any payments to recruiters that might motivate them to make ‘contact in any form with… prospective student[s].

These claims are, in our minds, an absurd exaggeration, as well as a red herring intended to obfuscate the industry’s unwillingness to change the manner in which it conducts recruitment and admission. Congress clearly knew that it could not limit its restriction to only bonuses and commissions, as unscrupulous actors could otherwise easily evade the law dressing up salaries or other benefits to achieve the same results. Congress’ inclusion of the term “other incentive payment” was therefore intentional. (Note: “Incentive” is defined as “something that incites or has a tendency to incite to determination or action” [Merriam-Webster]. “Payment” means “something given as a reward or in recompense for something done.” [Oxford American College Dictionary] Among the synonyms listed for “payment” is the term “compensation.” Salaries are a form of payment and compensation.)

Interestingly, the Career College Association did not raise this concern when the first “safe harbor” loophole was crafted in 2002, which (at least on a “plain language” reading) instituted a limitation on merit increases to salary.

Admission as Car Sales

APSCU, as it speaks for its member institutions, seems unable and/or unwilling to comprehend a recruitment process that doesn’t amount to a point-of-sale transaction. As NACAC has noted in testimony to the Department of Education and Senate, the processes of recruitment and admission are multi-dimensional and necessitate a degree of consideration for the student’s interest that renders the process more complex than a simple point-of-sale transaction. College admission officers at a typical non-profit college are salaried professionals whose job requires them to speak to students and families, build long-term relationships with high schools and college outreach groups, participate in the application review process, and be knowledgeable about programs, services, and information that is relevant to students. Such professionals, as representatives of the larger institution, are not evaluated and compensated in a system that connects a student’s enrollment to the actions of a single admission officer.

Prospective students at non-profit institutions may interact with a wide range of institutional representatives -- current or former students, faculty, admission officers, financial aid officers, alumni --all of whom (or none of whom) may have played a part in influencing a student’s decision about whether to enroll. If an admission officer performs badly -- misrepresenting the institution, not being able to answer questions accurately, ignoring calls, not showing up to work -- he or she may be subject to negative evaluations or eventually released. But for those who perform well, evaluations and salary increases are determined within the context of the individual’s contribution to the operation of the whole.

This excerpt from APSCU’s brief underscores their inability or unwillingness to comprehend this point:

According to this conception of merit, two recruiters who are identical on every qualitative metric, but different because one recruiter identifies and enrolls 100 qualified prospective students and the other enrolls no one, are equally strong recruiters and must receive the same “merit-based” pay.

Then the punch line: “[s]imply complying with the overly broad [incentive compensation] regulations will alter the composition of schools' workforces because schools will have no way of safely and effectively rewarding high-quality employees.”

No way of ‘safely and effectively rewarding high-quality employees? This would be more believable if it wasn’t for the fact that the vast majority of colleges in this country have managed to develop ethical, safe and effective ways to compensate admission officers.

An Unregenerate Industry?

The APSCU brief is capped off by the preposterous claim that “the hardship to APSCU’s members outweighs any other hardship.” (emphasis added) What of the hardship imposed on students for much of the last decade by APSCU members? APSCU claims that “the Compensation regulations have inflicted financial hardship on schools, forcing them to expend significant resources trying to come into compliance with the regulations.” What are we to make of an industry that, after being exposed for its fraudulent and misleading recruiting practices and the development of new rules in response, announces its seriousness about “reforming” itself, while all along formulating plans to sue the Department of Education to try to unencumber themselves from the rules? This is a sign of an industry so addicted, so intent on practicing business as usual, that it appears unregenerate (def. “unrepentant and incapable of being reformed”).

After a decade of having its way with the government and taxpayers, APSCU’s members now find themselves  in the uncomfortable position of having to account for their actions. Called to task by the Department of Education, the industry has appealed to Congress to help keep the money flowing in a manner suitable and convenient their existing business model. However, their case for continuing to use high pressure, commissioned sales has had no success on Capitol Hill. Therefore, the industry is now using the court system as a last resort when the democratic process isn’t convenient. The attempt to sue the US government over the government’s right to regulate their behavior as they consume billions of dollars of taxpayer funding should be a warning sign to policy makers about the industry’s long-term intentions.

Moreover, the industry’s deployment of millions of taxpayer dollars to hire lobbyists, file lawsuits, and purchase advertising in opposition to new regulations should raise the eyebrows of any good-government advocate. We are dealing with an industry run amok, and whose sense of entitlement and hubris over the past decade has known few boundaries. In APSCU’s “hypothetical” world, it is long past time for a dose of reality.

David Hawkins is the director of public policy and research for the National Association for College Admission Counseling, and served as a primary non-federal negotiator on the Department of Education’s program integrity negotiated rulemaking panel. He has worked at NACAC since 2000. Amanda Modar is the Assistant Director for Government Relations at NACAC, and a former admission officer at Penn State University. Their views are their own and do not necessarily reflect those of the New America Foundation.