Obama Administration Comes Out Swinging Against Career College Association Lawsuit

Harris Miller, the president of the group formerly known as the Career College Association, likes to say “Everyone is entitled to his own opinions, but not his own facts.”  But apparently that rule applies to everyone but his own organization.

As we’ve reported, the Association of Private Sector Colleges and Universities, as the group is now called, has not been shy about twisting the facts in its battle to stop the Obama administration from putting into effect regulations that would increase federal oversight over the for-profit college sector. So it shouldn’t come as much of a surprise that the lawsuit that the association filed in the U.S. District Court for the District of Columbia earlier this year to block the Department from carrying out several of these rules was rife with misleading statements and outright errors.

At Higher Ed Watch, we ran a post in January responding to some of the most outlandish misstatements in the lawsuit. We focused particularly on arguments the group made to try and convince the court to strike down a regulation that would, once and for all, eliminate the safe harbors that the Bush administration put in place in 2002 to help for-profit colleges skirt a long-standing federal law that prohibits schools from compensating recruiters based on their success in enrolling students. Now, in its response to the lawsuit, the Obama administration delivers some powerful blows of its own to the career college lobbyists’ arguments.

Today we are running excerpts from the Justice Department’s brief that answer the association’s claims about the incentive compensation rule and show why the court should throw out this misguided lawsuit. Here are the claims and the administration’s responses to them:

The lawsuit: In eliminating the 12 ‘safe harbors’ that the Bush Administration created in 2002 to the federal law banning colleges from providing incentive payments to their admissions employees, the Education Department acted “arbitrarily and capriciously” and did not provide “a reasoned explanation” for its decision. In addition, the Department “ignored the factual findings and legal conclusions” that had led the agency’s prior leaders to create the 12 safe harbors in the first place.

Administration’s response: “The Department’s decision to eliminate the safe harbors was not made without great deliberation. After engaging in negotiated rulemaking and following notice-and-comment procedures, the Department promulgated regulations that it believes will ‘more accurately reflect congressional intent and protect students from abusive recruitment practices’ that resulted from institutions’ reliance on the safe harbors.”

Contrary to the plaintiff’s claims, “the Department did not ‘completely ignore’ the reasons the agency offered for promulgating the safe harbors in 2002. Instead, it acknowledged the prior reasoning and explained how the [prior administration’s] prediction that the safe harbors would not create loopholes in the incentive compensation ban had, in the Department’s view, been proven wrong in the years since the safe harbors were promulgated.”

The lawsuit: The Department acted improperly by “purport[ing] to make illegal what it had previously determined eight years earlier to be legal and fully compliant with the HEA even though there has been no intervening statutory change, no directive from Congress to do, and no other identifiable basis for the change.”

Administration’s response: “The compensation regulations are not due less deference merely because they represent a change from the prior ‘safe harbor’ regulations. An agency is not ‘required to establish rules of conduct to last forever.’ Rather an agency, ‘to engage in informed rulemaking, must consider varying interpretations and the wisdom of its policy on a continuing basis.’” In addition, “an agency’s view of what is in the public interest may change, either with or without a change of circumstances’ and an agency ‘must be given ample latitude to adapt its rules and policies to those changes.’” In this case, the Department came to see over time that the safe harbors were “subject to abuse” and “inconsistent with congressional intent,” and therefore decided to eliminate them. [Editor’s Note: Citations to other legal cases have been removed to make more readable.]    

The lawsuit:  The creation of the safe harbors in 2002 made it easier for federal officials to enforce the incentive compensation by establishing “bright-line rules.” Their introduction “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.”

Administration’s response: To the contrary, the safe harbors have made the incentive compensation ban much more difficult to enforce. Far from establishing “bright line rules,” the safe harbors created major loopholes that made it easier for institutions to “circumvent congressional intent” and “evade agency enforcement actions.”

The most problematic has been the first safe harbor rule, which allows recruiters to receive incentive payments as long as they are not based solely on the individuals’ success in enrolling students [as opposed to the law which establishes a blanket prohibition against these practices]. The Department found that this loophole has “led institutions to establish compensation plans that, on paper, purported to evaluate recruiters based on factors other than the number of students enrolled, but in reality those other factors were ignored. This practice, which valued numbers over substance, encourage recruiters to ‘deceive or misrepresent the manner in which a particular educational program [might meet] a student’s need [s],’ exactly contrary to what Congress intended and what the Department had in mind when it promulgated the safe harbors.”

 “Although the Department expended vast resources in the years after the safe harbors went into effect to enforce the incentive compensation ban, the first safe harbor’s focus on the term ‘solely’ made it very difficult for the Department to evaluate compliance and to successfully enforce the ban when violations occurred.” 

The lawsuit: A February 2010 report by the Government Accountability Office (GAO) shows that the Department’s concerns about widespread abuses are unfounded. The report found “that substantiated violations of statutory bonus prohibition — both before and after the adoption of the [safe harbors] — have been infrequent.”

Administration’s Response: Although the Plaintiff believes that the GAO report “demonstrates that elimination of the safe harbors was not necessary because it shows there was no increase in the frequency or severity of incentive compensation violations after the safe harbors went into effect,” it actually “suggests just the opposite.”

“When compared with the widespread allegations of improper incentive compensation practices found elsewhere in the administrative record, the limited number of ‘substantiated violations’ identified in the GAO report supports the Department’s position that safe harbors made it difficult for it to substantiate violations of, and thereby enforce, the incentive compensation ban. Indeed, GAO recognized as much in a follow-up report issued in October 2010.” In that report, the GAO stated that the change in the Department’s enforcement policy in 2002 “resulted in an increased burden on [the Department] to prove a violation…As a result, it became more difficult for [the Department] to prove a school violated the incentive compensation ban.”

The lawsuit: The Department’s incentive compensation regulations prohibit colleges from offering recruiters merit-based salary adjustments. “To be merit-based, salaries must be based on employees’ on-the-job performance. Thus for a recruiter, merit-based salaries must reward recruiting performance. The Compensation regulations, however, forbid any payment that is ‘based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid.’”

Administration’s Response: The claim that the regulation would forbid merit adjustments is simply not true, as the regulations “explicitly permit the payment of a fixed salary or wage that is not based on securing enrollments or the award of financial aid.”

While the “plaintiff maintains that, because a recruiter’s job is to secure enrollments, any merit-based adjustments made to a recruiter’s salary will necessarily be based, either directly or indirectly, on success in activities securing enrollments,” the Department disagrees. “As numerous commenters – including associations representing admissions officers – explained, a recruiter’s job is not to enroll as many students as possible. Instead, these are counseling professions that should focus on the needs, interests, and abilities of prospective students and assist those students in determining whether a particular educational program is in their best interest.”

The lawsuit: The Department acted illegally by extending the incentive compensation ban to salaries. “The HEA only prohibits ‘bonus[es]’ and ‘commissions’ – neither of which are salaries – and the related category of ‘other incentive payments.’”

Administration’s Response: On the contrary, any such limited interpretation of the statutory prohibition against incentive compensation would “defeat the purpose” of the law. For example, if salaries were exempted from the ban, nothing would stop “educational institutions from making commission-and-bonus-like payments and calling them salaries or salary adjustments.” After all, “the difference between providing a recruiter a $1,000 bonus for enrolling more than 100 students and adjusting that recruiter’s salary upward by $1,000 for the same performance is in name only.”

“In enacting the HEA, Congress sought to ban compensation that incentivized success in securing enrollments and financial aid, not merely compensation that was given a particular name.”

Conclusion

In summing up, the administration points out the career college group’s real motivation for trying to kill the incentive compensation regulation: “Plaintiff’s preference for the safe harbors lies not in their clarity, but in their leniency.” At Higher Ed Watch, we couldn’t agree more. For years, the giant for-profit higher education companies used the safe harbors to get around the incentive compensation ban and make a killing. Now, as the rules are about to change, their lobbyists are willing to say just about anything to keep the gravy train rolling — even if it means making up their own “facts” to do so.