At Long Last, Department of Education Puts the Interests of Students First

At Higher Ed Watch, we have repeatedly called on federal policymakers to strengthen regulations that aim to prevent unscrupulous for-profit colleges and trade schools from taking advantage of financially needy students. Our calls, however, have gone largely unheeded as Congress, under both Republican and Democratic leadership, has continued to weaken these rules. At the same time, the Department of Education has long coddled the for-profit higher education sector by continually turning a blind eye to widespread allegations of fraud and abuse at some of the nation’s largest chains of proprietary schools.

But this week, the Obama administration let the sector know, in no uncertain terms, that those days are over.

On Monday, the Department of Education released preliminary regulatory proposals that aim to strengthen the integrity of the federal student aid programs and prevent unscrupulous for-profit colleges and trade schools from taking advantage of the low-income and working-class students they tend to enroll. A top goal for the Obama administration is to stop these institutions from deliberately recruiting and admitting unqualified students, who end up taking on huge amounts of debt for training from which they are unlikely to benefit.

The most significant of these preliminary proposals is one that Higher Ed Watch has long called for — reversing changes that the Bush administration made to the Department of Education’s regulations enforcing a federal law barring colleges from compensating recruiters based on their success in enrolling students.

As we have previously reported, Congress in 1992 added a provision to the Higher Education Act prohibiting colleges from giving “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 enrolled.

A decade later, top Education Department officials with ties to the for-profit sector set out to weaken this prohibition. In November 2002, the Department issued new regulations that created 12 “safe harbors” for colleges that wished to provide incentive payments to their admissions employees. The agency 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 officers (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” [emphasis added]; and to provide commission-based recruiting for non-Title IV programs at institutions participating in the federal student aid programs. These exemptions clearly violate both the spirit and the letter of the law barring commission-based compensation. The net effect of adding these safe harbors was to allow colleges, particularly for-profit ones, to continue to engage in the type of predatory recruiting practices that the law expressly prohibits.

In fact, in the years since the “safe harbors” were added, some of the largest publicly traded for-profit higher education companies have been charged with engaging in misleading recruiting and admission tactics to inflate their enrollment numbers. In 2004, for example, the Department reached a $9.8 million settlement agreement with the University of Phoenix after the agency concluded that the largest chain of proprietary schools had knowingly violated the incentive compensation ban. The university is now in negotiations to settle a False Claims lawsuit over allegations by former recruiters who say they were compensated solely on their success in enrolling students.

Under the Department of Education’s new preliminary regulatory proposals, all 12 safe harbors would be eliminated. In offering this recommendation, the Education Department clearly acknowledges that the regulatory changes that the agency’s former leaders made to the incentive compensation ban run counter to the underlying law they are meant to enforce. “The Department believes that the specific language of the statute is clear, and that the elimination of all of the regulatory ‘safe harbors’ would best serve to effectuate Congressional intent,” agency officials wrote in a preamble to the preliminary draft proposals.

The Department’s leaders also recognize that the rule changes — particularly the one allowing schools to provide incentive compensation to recruiters as long as the payments are not based solely on their success in enrolling students — have opened the door to fraud and abuse. “This ‘safe harbor’ has led to allegations in which an institution concedes that its compensation structure includes consideration of the number of enrolled students, but avers that it is not solely based upon such numbers,” Department officials wrote. “In some of these instances, the substantial weight of the evidence has suggested that the other factors purportedly analyzed are not truly considered, and that, in reality, the institution based salaries exclusively upon the number of students enrolled.”

The preliminary draft proposals now go to a negotiated rule-making panel that the Department has convened to help revise the regulations. The panel, which is made up of non-profit and for-profit college leaders, student advocacy groups, and consumer watchdog groups, will debate the agency’s recommendations and suggest alternatives. If the group does not reach consensus on the proposals — which seems likely in this case — the Department will be free to propose whatever it wishes.

Inevitably, some members of the negotiating panel will try to chip away at these proposals. We would hope, and fully expect, the Obama administration to stand tough –because the Department’s new leaders recognize that their job is to safeguard students from unscrupulous schools and protect the integrity of the student aid programs, rather than continuing to coddle the for-profit higher education industry.