Jeff FullerDirector, Student Recruitment

University of Houston

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student

Recruitment

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Session objectives1.) Review legislative history and statutory language of federal incentive compensation ban

2.) Review Department of Education regulations and guidance

3.) Discuss intersection(s) of federal regulations, National Association for College Admission Counseling (NACAC) Commission recommendations, and prospective future regulation

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Fraud and Abuse in the Federal Student Aid programs

Recurring waves of waste, fraud and abuse:- 1970s: U.S. Education Commission: Terence Bell- 1980s: U.S. Education Department: Bill Bennett- 1990s: U.S. Senate: Nunn Commission- 2000s: U.S. Senate: Harkin/HELP Report

Business model: Leverage information asymmetry to harvest federal aid money using highly incentivized recruitment, resulting in misrepresentation, high-pressure sales tactics

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Higher Education Act: Incentive Compensation Ban Statute

Enacted in 1992 in response to waste, fraud and abuse uncovered by Nunn Commission:

The institution will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance, except that this paragraph shall not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal student assistance. (20 U.S.C. 1094(a)(20))

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

1992 HEA Conference Report Language

Conference report makes it clear that jurisdiction, as opposed to an affirmation, undergirds the international recruitment exemption:

“The conferees have provided a limited exception permitting the use of commissioned sales representatives for the recruitment of foreign students to U.S. institutions on the basis that such students are not eligible for Title IV assistance. Recruitment of such students falls beyond the scope of federal interest in preserving the integrity of student aid programs and are therefore not relevant to the granting of institutional eligibility under the Act.” (House Report 102-630, June 29, 1992)

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Department of Education RegulationsOrder of interpretation for typical regulatory provisions:

Statute Administrative Regulations Regulatory Guidance

While regulations and sub-regulatory guidance is as legally valid as statute, they should be interpreted with statutory language and intent in mind to minimize the possibility of non-compliance.

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Department of Education Regulations• Loosened in 2002 to include 12 regulatory ‘safe harbors’ – none specifically

pertained to international recruitment

• The ensuing decade brought about substantial increase in waste, fraud and abuse (see next slides)

• In 2010, Obama administration eliminated ‘safe harbors’ to restore original Congressional intent and reduce waste, fraud and abuse; promulgated new regulations reinforcing ban on incentive compensation

• New regulations did not alter international student exemption in statute, and do not supersede statute

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Fraud and Abuse in the Federal Student Aid programs

•Between 2002-2012, documented evidence of widespread recruiting problems in US for-profit colleges

•For-profit colleges enroll 10 percent of students, but account for 25 percent of all student loan borrowing and nearly 50 percent of all student loan defaults

•Evidence of widespread fraud in recruiting suggests recurring problem with commissioned recruitment in the context of the U.S. federal student aid system

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Excerpts From For-Profit College Recruiting Manuals

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Department of Education Regulations2010 revised regulation states:

[The institution] will not provide any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to any person or entity who is engaged in any student recruitment or admission activity, or in making decisions regarding the award of title IV, HEA program funds. (34 CFR 668.14)

(Restrictions do not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal student assistance.)

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Department of Education RegulationsFeatures of 2010 Regulations:

• Language was created in the regulation to define merit-based adjustments to salary; profit sharing; commission/bonus; securing enrollments or awarding financial aid

• Extension of incentive compensation ban (per statute) to third parties involved in recruitment

• Third parties include both entities engaged in recruitment andemployees of entities engaged in recruitment

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Department of Education RegulationsIn 2011, Department issued sub-regulatory guidance letter on incentive compensation regulations:

• Underscored statutory and regulatory imperative against use of commissions in any recruitment activity

• Noted that for ‘bundled services,’ where a third party administers an entire academic program (or substantial portions of the program) on the institution’s behalf, tuition sharing may be an acceptable form of payment to the third party

• Noted that even under such arrangements, institutions are responsible for ensuring that payments are not directly or indirectly based on the number of students recruited (Note: ED Inspector General expressed its opposition to tuition sharing arrangements at ED’s issuance of the sub-regulatory guidance)

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

On the horizon…new legislationSeptember 2012: Senate committee issues draft legislation to ban the use of incentive compensation in international student recruitment as part of a bill to issue visas to highly-skilled workers/professionals (recruitment provision eventually dropped)

2012-13: Early discussions of Higher Education Act reauthorization include recommendations from Congressional staff, Administration staff, and outside organizations to eliminate foreign student recruitment exemption to incentive compensation ban

2013-14: State scrutiny of study abroad and international recruitment programs evidenced by state legislation in New York, Minnesota

2012-14: Other countries, including the United Kingdom, Canada, Australia, Brazil, and Chile experience difficulty with for-profit recruiting; new legislative and/or regulatory actions in progress

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

On the horizon…new legislationJune 2014: Senator Harkin unveils Higher Education Affordability Act (HEAA), which includes:

SENSE OF THE SENATE REGARDING INCENTIVE COMPENSATION.—It is the sense of the Senate that—(1) incentive compensation is an inappropriate mechanism in the delivery of higher education for institutions of higher education wishing to participate in programs under title IV of the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.); and

(2) the ban on incentive compensation under section 487(a)(20) of the Higher Education Act of 1965...is intended to preclude its use by institutions wishing to participate in such programs, at any point in the recruitment, enrollment, education, or employment placement of students.

(Preserves foreign student recruitment exception)

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Federal Statute and Regulations on Incentive Compensation in Student Recruitment

On the horizon…new legislationHigher Education Affordability Act (HEAA) also includes a ban on revenue-sharing arrangements with third parties:

‘‘(D) The institution will not enter into any contract with a third party acting on its behalf, including institution affiliates or service providers, that contains a revenue-sharing component premised in full or in any part on any practice described in subparagraph (A)(i)”

Activities include:

• Recruitment/enrollment, academic program, job placement, or any other facet of the student’s enrollment at an institution

• Note: Does not specify that foreign student recruitment is exempt from this provision.

HEAA is one and the same as HEA reauthorization. It’s the Senate HELP Committee’s proposed reauthorization bill.

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Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Current Investigations/Regulations Involving Student Recruitment

• Department of Education• Consumer Financial Protection Bureau• Justice Department• Department of Defense/Veterans Affairs• State Attorneys General• Congressional authorizing committees• State legislatures

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in Student Recruitment

Concluding points• HEA ban on incentive compensation does maintain an exception for foreign

student recruitment (as long as students are not eligible for federal student assistance—Pell grants, federal loans, etc.)

• Colleges are well-advised to take a cautious approach to the interpretation of the incentive compensation ban when it involves international recruitment—particularly when recruitment may include US students eligible for federal student aid

• NACAC Commission on International Student Recruitment, and subsequently NACAC SPGP, recommends against commissioned recruitment internationally. Institutions that choose to utilize commissioned agents must abide by standards of integrity, transparency, and accountability.

CREATING CONNECTIONS ACROSS CAMPUSES: MOVING 4WARD

Federal Statute and Regulations on Incentive Compensation in

Student Recruitment

Questions