Ed Dept. IG Shows Why Career College Group’s Claim in Lawsuit is Bogus

An audit report that the Inspector General of the U.S. Department of Education released last week of the for-profit college chain Ashford University puts the lie to a key argument that the main lobbying group for career colleges made in a lawsuit it filed late last month in federal court against the Education Department.  

The lawsuit seeks to block the Department from putting into effect several consumer protection regulations that the agency finalized in November. Among the rules is one that would eliminate the “safe harbors” that Bush administration officials with close ties to the for-profit higher education industry put in place in 2002 to help for-profit colleges skirt a long-standing federal law prohibiting colleges from compensating recruiters based on their success in enrolling students.

In arguing to stop the Department from being able to enforce the rule, the Association of Private Sector Colleges and Universities (which was formerly — and much more appropriately — named the Career College Association) claims that the safe harbors have made it easier for federal officials to enforce the incentive-compensation ban. “In short, the bright-line rules embodied in the [2002] Clarifying regulations were easy for regulated parties to understand and enabled the Department and courts to quickly and easily distinguish between schools that improperly used commissioned salespeople to drive up enrollment and schools that properly paid their recruiting, admissions, and financial aid employees competitive salaries, appropriately adjusted to reflect their on-the-job performance,” the lawsuit states. [Emphasis added]

But as we said last week, nothing could be further from the truth. In reality, the safe harbors are not “bright line” standards but giant loopholes that have made it extremely difficult, if not virtually impossible, for the Education Department to enforce the law — just as we at Higher Ed Watch believe their creators intended them to do. Most problematic is the first safe harbor, which allows colleges to adjust the annual or hourly wages of recruiters up to twice a year, as long as the adjustment is “not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid.” In other words, this loophole allows colleges to circumvent the law, which bars schools from providing any commission-based compensation to their recruiters. [Emphasis added here and in the previous sentence.]

This safe harbor “has led institutions to establish, on paper, other factors that are purportedly used to evaluate student recruiters other than the sheer number of students enrolled. However, in practice, consideration of these factors has been minimal at best, or otherwise indiscernible,” the Education Department’s current leaders wrote in the preamble of the proposed rules in June. “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.”

If the career college group’s lawsuit goes to court, the Department should make the Inspector General’s audit of Ashford University, “Exhibit A,” as it shows just how bogus the career college group’s argument is.

During its audit of the for-profit school chain, the IG found that the single biggest factor that Ashford University officials took into consideration when adjusting recruiters’ salaries from April 2007 through December 2008 was how successful they had been “in securing enrollments.” University officials did not dispute this. But they said that their practices were entirely legal because they took other factors into account besides enrollment as part of an intricate matrix they used to set salaries. Here’s the IG’s description of how the system was supposed to work:

According to the University’s compensation plan, enrollment advisors’ salaries were to be based on the total number of points received on the evaluation matrix, which established salary ranges for various point totals. Every 6 months, the University evaluated enrollment advisors’ performance in 18 categories. Of the 18 categories, 8 were based directly or indirectly on success in securing enrollments. Those 8 categories account for 74 of the maximum 100 evaluation points that an enrollment advisor could receive.

At first the IG found that while Ashford’s compensation policies clearly violated the letter and spirit of the law, they appeared “to satisfy the safe harbor” because enrollment was not the sole criteria considered. But just to be sure, the IG decided to test 27 salary adjustments that enrollment advisors had actually received. The results were striking: in a whopping 92 percent of the cases, these advisors’ salaries “did not match the salary that would be expected under the compensation plan explained to us during the audit,” the report states. This led the IG to suspect that it had been misled about how closely school officials had adhered to the matrix.

Eventually, these suspicions were confirmed. After receiving the IG’s draft audit report in May, Ashford officials alerted the IG that “the university did not apply the compensation plan as explained to us by two of its officials,” the report states. Instead, the school chain revealed to the IG that it gave enrollment managers the discretion to make adjustments to the salaries of their employees as they wished. While school officials said that these managers were expected to stick within the parameters of the university’s compensation plan, they didn’t provide any records to the IG proving the managers had done so.

As a result, the IG concluded that it could not make a definitive determination as to whether or not the university had complied with the law. “The University could not demonstrate that its enrollment advisors’ salary adjustments were not based solely on success in securing enrollment,” the report states. “Therefore, we could not determine whether the University’s compensation plan and practices qualified for the safe harbor.”

The Ashford University audit shows just how successful Bush administration officials were in gutting the law and preventing federal officials from being able to enforce it. The fact that there’s any argument over whether a school chain that readily admits that it paid recruiters based largely on their success in enrolling students violated a law that prohibits incentive payments is a testament to their efforts. And it goes a long way in explaining why for-profit college lobbyists are willing to say just about anything to stop the Education Department from moving forward with rules that would, once and for all, end these safe harbors.