New HEA Regulations Signal Major Changes In The Regulatory Landscape For Admission And Financial Aid Officers

The past year brought substantial change to the regulation of for-profit institutions of higher education. In late 2010, the Department of Education ("DOE") issued new regulations intended to ensure the "integrity" of programs administered under Title IV of the Higher Education Act of 1965, as amended ("HEA").1 These regulatory changes came after significant investigation by the Senate Health, Education, Labor and Pensions Committee and an influential, though heavily criticized, study of for-profit colleges by the United States Government Accountability Office.2 Among the most controversial subjects addressed by the new regulations are 1) incentive compensation for admission and financial aid officers, and 2) misrepresentation of information to students, prospective students, and others. In fact, these aspects of the new regulations are the subject of a pending lawsuit against the DOE brought by the Association of Private Sector Colleges and Universities ("APSCU"). What follows is a brief overview of the new regulations regarding incentive compensation and misrepresentation, which become effective in July 2011, as well as the APSCU suit.

The New "Incentive Compensation" Regulations

The new incentive compensation regulations expand the preexisting limitations on incentive compensation for admission and financial aid officers by eliminating 12 DOE "safe harbor" provisions that had clarified activities that would and would not be deemed permissible.3

The institutions subject to the HEA's compensation regulations include public institutions, private nonprofit institutions, and private for-profit institutions. Under the HEA, these institutions are generally prohibited from "provid[ing] 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...."4

One of the safe harbor provisions that was abandoned, however, permitted "fixed compensation" (e.g., "a fixed annual salary or a fixed hourly wage") "as long as that compensation [was] not adjusted up or down more than twice during any twelve month period, and any adjustment [was] not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid."5 According to the DOE guidance issued in 2002, the term "solely" was to be given a "dictionary definition."6 This guidance indicated that an institution could determine the compensation of its recruiters and admissions personnel based in part on enrollment and/or financial aid success. As long as the institution also took into account other considerations in its compensation determinations, it had a good-faith basis for claiming that it fell within this safe harbor and that it therefore could not be deemed to have violated the HEA's general prohibition against incentive compensation.

Against this backdrop, the dramatic change effected by the new incentive compensation regulations is patently clear. Far from authorizing multifactored compensation determinations that rely in part—but not "solely"—on enrollment or financial aid success, the new regulations establish an absolute prohibition against any use of such information, however partial.7 In this regard, the regulations continue to expressly permit "merit-based adjustments to employee compensation" and "profit-sharing payments," but add that merit-based adjustments cannot be "based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid" and that profit-sharing payments cannot be "provided to any person who is engaged in student recruitment or admission activity or in making decisions regarding the award of title IV, HEA program funds."8 These regulations apply to "any higher level employee with responsibility for recruitment or admission of students, or making decisions about [awarding financial...