U.S. Department of Education Focuses on Misrepresentation by Higher Education, Partners
Highlights
- As the Biden Administration closed out its tenure, the U.S. Department of Education (ED) announced several policy initiatives and enforcement actions on ED's regulations surrounding misrepresentation by institutions of higher education that participate in the Title IV programs, as well as companies that partner with such institutions.
- Consistent enforcement of the misrepresentation rules by ED has been limited over the years, leaving institutions to focus on compliance primarily with state deceptive trade practice laws. Numerous lawsuits filed by students against institutions that closed their campuses during the COVID-19 pandemic brought many of these laws into focus.
- This Holland & Knight alert reviews the misrepresentation rules and what institutions can look for from ED in light of the new Trump Administration.
In the final days of the Biden Administration, the U.S. Department of Education (ED) announced a number of policy initiatives and enforcement actions related to ED's misrepresentation regulations for institutions of higher education that participate in the Title IV programs, as well as the companies that partner with such institutions. The regulatory and enforcement priorities of the Trump Administration will materially differ from those of its predecessor, but the last-minute guidance could influence state priorities regardless of its federal fate.
Consistent enforcement by ED around the misrepresentation rule has been limited over the years, leaving institutions to focus on compliance primarily with state deceptive trade practice laws. Several lawsuits filed by students against institutions that closed their campuses during the COVID-19 pandemic brought many of these laws into focus. Holland & Knight handled and reported on many of these cases. (See Holland & Knight's previous alert, "New Law Immunizes Massachusetts Colleges, Universities from Spring 2020 Tuition Refund Claims," Aug. 15, 2023, and a contribution by Partner Paul Lannon to "Parent can sue college over COVID-19 shutdown," as published in Massachusetts Lawyers Weekly, Feb. 25, 2021.)
The Biden Administration's departing actions remind institutions that ED and Federal Trade Commission (FTC) rules are also an important consideration when reviewing disclosures, representations or statements made in writing to prospective and current students – particularly on the institutional website – as well as confirming there are mechanisms in place to train any representative of the institution on verbal statements made to prospective or current students.
Overview of ED Misrepresentation Rules
ED regulations at 34 C.F.R. Section 668 Subpart F define the parameters for what constitutes a misrepresentation by an institution of higher education. If an institution engages in a "substantial misrepresentation," also defined in Subpart F, ED may take serious administrative action against the school, including a fine, limitation, suspension or termination proceeding, or potentially revoking or denying an institution's program participation agreement.
A "misrepresentation" is defined – consistent with most state law but in a more specific manner – as any false, erroneous or misleading statement by an institution of higher education or one of its representatives to a student, prospective student, member of the public, accrediting agency, state agency or ED.
"Misleading" is defined as a statement that has the likelihood or tendency to mislead under the circumstances, including any statement that omits information in a way that makes the statement misleading. This includes statements made verbally or in writing (including on the institution's website or in marketing materials).
Notably, these rules extend to any non-eligible institution or third party – such as an online program manager (OPM) company – with which an institution partners to provide educational programs or marketing, advertising, recruiting or admissions services. Thus, institutions are generally responsible under ED rules for statements made by their partners.
If an institution makes a misrepresentation specifically about 1) the nature of the school's programs, 2) its financial charges or 3) the employability of its graduates – each of which is highly likely to impact a student's decision to enroll in a particular program – this may give rise to a "substantial misrepresentation," if the person to whom it was made reasonably relied on it, or could reasonably be expected to rely on it, to their detriment. Though all misrepresentations are generally prohibited, substantial misrepresentations may prompt more serious administrative action by ED.
Recent Guidance
Although the existing federal rules give many examples of statements that may run afoul of the misrepresentation standards, the rules are generally broad, and the potential for misrepresentation is not limited to the listed examples. In addition, information that requires significant data collection and verification, or statements that are prepared by a third party on an institution's behalf, may be more susceptible to misstatement, however inadvertently.
Because of the complexity and breadth of the rules, ED has recently attempted to provide guidance. In September 2024, ED issued general guidance reminding institutions of their obligations with a non-exhaustive list of examples of misrepresentation such as 1) publishing salary information based on broadly applicable data (such as from the Bureau of Labor Statistics) but presenting that data as reflecting salaries earned by school graduates, 2) comparing job placement data to peer institutions without sufficient substantiation or 3) making unsubstantiated claims about "ranking" compared to other schools (e.g., stating without basis that a school is the "No. 1 liberal arts college in the country").
Recent Enforcement
In the last week of the Biden Administration, ED announced enforcement actions against two schools for misrepresenting certain job placement rates and salary information. One of the examples included a large fine and an obligation to have ED review all marketing materials for the next three years. The other included significant student loan discharges under ED's borrower to defense to repayment rules, as well as a debarment action against a former executive of the school due to the school's purported misconduct. The Trump Administration could revisit these outcomes, but institutions are prudent to pay attention in any event to ED's findings.
Recent Dear Colleague Letter
Following those two announcements, ED also issued a Dear Colleague Letter (DCL) on Jan. 16, 2025, that is specifically focused on misrepresentations by third parties that partner with institutions. The DCL emphasizes that the misrepresentations apply "with equal force" to statements made by third parties engaged by an eligible institution, whether that be an OPM or any employee, contractor or representative (defined by ED as an "external service provider").
The DCL highlights three scenarios – of which ED notes that it has seen many recent examples – that are "likely" to qualify as a misrepresentation or, potentially, a substantial misrepresentation and notes that the principles are consistent with the consumer protection requirements of other agencies, including the FTC and/or state consumer protection agencies:
- Inaccurately Identifying an Individual Employed by an External Servicer Provider as an Employee of the Eligible Institution. According to the DCL, this may occur when an employee of an external service provider communicates with prospective and enrolled students and presents themselves as an institutional employee, such as by 1) using school-associated email addresses or email signatures or 2) failing to inform students during phone conversations that they are not directly employed by the institution. By way of example, ED notes that many service provider employees use misleading job titles (such as "admissions counselor") combined with a school email address, which may be deceptive because they result in misunderstanding of such employees' role and deprive students of the ability to make informed decisions.
- Inaccurately Presenting a Sales Representative or Recruiter Employed by an Eligible Institution or External Service Provider as an Academic Advisor, Such as by Referring to the Person as a "Counselor." Such an individual may present themselves as impartially counseling students when, in reality, the representative is focused on securing enrollment or a financial transaction.
- Describing a Program, or Any of Its Components or Resources, Provided in Substantial Part by the External Service Provider as "the Same as" a Corollary Residential or Campus-Based Version of the Program Provided by the Eligible Institution. Examples of differences in programs that may influence a student's decision to enroll include differences in the degree awarded, criteria for admissions, qualifications of the faculty or meaningful differences in outcomes (such as completion, earnings or licensure).
Outlook
It is unclear whether the new administration will leave this last-minute guidance in effect. The guidance and DCL amount to sub-regulatory guidance that the prior Trump Administration believed was inconsistent with the requirements of the Administrative Procedure Act. The new president also issued an Executive Order on Jan. 20, 2025, imposing a regulatory freeze that prohibits any new regulations or guidance until a new appointee or designee can review the rule. The order also encourages, but does not require, agencies to consider postponing the effective date of any rules that were finalized but not yet in effect to allow additional review and comment.
Regardless, the principles outlined in the guidance and DCL could have staying power, especially among certain states, and could find their way into court opinions. Therefore, it is wise for institutions to assess their compliance with the misrepresentation rules, especially with respect to relationships with third-party providers and online program managers.
If you have any questions about how your institution should adapt its practices and ensure compliance with ED regulations and guidance, please contact the authors or a member of Holland & Knight's Education Team.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.