Illegal Recruitment of Students: The DOE Cracks Down
 
November 27, 2001
 

In 1992, Congress enacted Title IV of the Higher Education Act of 1965, 20 U.S.C. §1094(a)(20), prohibiting incentive compensation for college recruiters. The measure was intended to protect students against misleading and abusive recruiting tactics and to maintain the integrity of the federal financial aid programs. The provision states that, with the exception of the recruitment of foreign students residing in foreign countries, an educational 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 financial assistance" [emphasis added].

The Department of Education (DOE), however, failed to issue regulations for the statute's implementation. As a result, the contours of this prohibition are ill-defined, and correspondingly, the Office of Inspector General (OIG) has broad discretion to bring actions against institutions of higher learning that employ third-party vendors for services related to student recruiting.

The OIG has pursued such actions against four schools and is currently investigating an undisclosed number of other institutions. The DOE crack down began in December 2000, when it ordered the now-defunct Computer Learning Centers, Inc. (CLC) to repay $187 million in federal student aid. The DOE claimed that CLC's policy of compensating admissions officials based on the number of students they enrolled violated the incentive compensation prohibition. In May of this year, the OIG recommended that the DOE fine William Penn University (William Penn) $5 million and Olivet Nazareen University (Olivet) $3,141,250.00 for allegedly providing incentive payments to third-party admission recruiters. Recently, the OIG recommended a fine for Indiana Wesleyan University (IWU) of $31,682,782.00.

With the exception of CLC, all the schools used services provided by the same third-party vendor, the Apollo Group's Institute for Professional Development (IPD). According to the OIG's audit report, William Penn, contracted with IPD to increase the enrollment at its College for Working Adults, as well as provide administrative and student services support. In October 1989, Olivet retained IPD's services to help improve enrollment at its School of Graduate and Adult Studies. IWU hired IPD to provide a number of services, including recruiting students for its seven Adult and Professional Studies Divisions.

According to the OIG, the contract between William Penn and IPD based IPD's compensation on the number of students IPD recruited and enrolled. Under one plan, recruiters hired before September 1, 1998, could earn bonuses of $1,344 for recruiting 100 to 149 students. A subsequent plan provided a one-time bonus of $1,500 to employees hired on or after a specified date who recruited and enrolled 100 or more students. The contract between Olivet and IPD required that the two entities split the tuition revenue equally, with Olivet receiving 100% of book, material, computer and other miscellaneous fees. The compensation structure between IWU and IPD required that IPD receive 25% of the tuition for all the students who enrolled in the school's seven Adult and Professional Divisions' programs.

Although CLC did not use IPD, the OIG claims that it based its recruiters' salaries on the average number of students they enrolled each month. The OIG explained that CLC's compensation plan assigned salary ranges based on the number of net package starts, or fully documented and financed students who attended more than five day-long sessions or three evening sessions. If the recruiters failed to meet the student enrollment quotas, CLC placed them on probation. CLC even assigned point values to a number of performance standards, including a recruiter's ability to attract students and retain them until they graduated.

William Penn, Olivet and IWU dispute the OIG's findings and recommendations. The schools maintain that the IPD contract is legal because it was designed to compensate IPD equitably for a broad range of academic, administrative and student services, and not only for securing enrollments. They point out that the revenue allocation formula uses a sliding scale that decreases IPD's percentage as enrollments increase. Additionally, the schools argue that Congress never intended for the OIG and the DOE to use the prohibition to interfere with broad-scope service contracts between colleges and third-party vendors. These arguments highlight the lack of any regulations or other public guidance to support the OIG's position.

The Internet Equity and Education Act of 2001, if enacted, may provide much-needed clarity in this area. The bill would apply compensation restrictions only to recruiters who are directly involved in the recruiting process. Additionally, compensation would be counted as salary only if it is a fixed compensation that is paid regularly for services and is adjusted no more frequently than every six months. The bill excepts third-party service providers (such as Web portals) as long as they have no direct control over admissions, enrollment or the awarding of financial aid.

These proposed changes would allow institutions to provide incentive compensation to third-party vendors who are indirectly involved in the admissions/recruiting process. Payments to third-party service providers who have no control over admissions, enrollment or financial aid would be exempt, as long as none of the vendor's employees are paid a commission, bonus or other incentive payment based directly on success in securing enrollment or financial aid. Instead, compensation would be based on services such as advertising or providing institutional information to prospective students to stimulate inquiries and interests. Therefore, the bill, if enacted as written, would likely eliminate the OIG's legal challenges to programs like IPD.

Accordingly, educational institutions are well-advised to review carefully with their legal counsel any agreements for assistance in student recruitment.

For more information, contact Herlande Rosemond at 1-888-688-8500 or via e-mail Herlande Rosemond