Office of Postsecondary Education - U.S. Department of Education

Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and Regulations66873WReier-Aviles on DSKGBLS3C1PROD with RULES2their face, appear to demonstratecompliance with the first safe harbor,which permits compensation schemesthat are not ‘‘solely’’ based on thenumber enrolled. However, theDepartment has been repeatedly advisedby institutional employees that theseother qualitative factors are not reallyconsidered when compensationdecisions are made, and that they areidentified only to create the appearanceof title IV compliance. It is clear fromthis information that institutions aremaking actual compensation decisionsbased exclusively on the numbers ofstudents enrolled.The Department’s need to look behindthe documents that institutions allegethey have used to make recruitercompensation decisions requires theexpenditure of enormous amounts ofresources, and has resulted in aninability to adequately determinewhether institutions are in compliancewith the incentive compensation ban inmany cases.For these reasons, we believe it isappropriate to remove the safe harborsand instead to require institutions todemonstrate that their admissionscompensation practices do not provideany commission, bonus, or otherincentive payment based in any part,directly or indirectly, upon success insecuring enrollments or the award offinancial aid to any person or entityengaged in any student recruitment oradmission activity or in makingdecisions regarding the award of title IV,HEA program funds. We believe thatinstitutions can readily determine if apayment or compensation is permissibleunder section 487(a)(20) of the HEA byanalyzing—(1) Whether it is a commission, bonus,or other incentive payment, defined asan award of a sum of money orsomething of value paid to or given toa person or entity for services rendered;and(2) Whether the commission, bonus,or other incentive payment is providedto any person based in any part, directlyor indirectly, upon success in securingenrollments or the award of financialaid, which are defined as activitiesengaged in for the purpose of theadmission or matriculation of studentsfor any period of time or the award offinancial aid.If the answer to each of thesequestions is yes, the commission, bonus,or incentive payment would not bepermitted under the statute.Therefore, going forward, actions thatwere permitted under current§ 668.14(b)(22) will neither beautomatically prohibited, norautomatically permitted. Instead,institutions will need to re-examinetheir practices to ensure that theycomply with § 668.14(b)(22). To theextent that a safe harbor created anexception to the statutory prohibitionfound in section 487(a)(20) of the HEA,its removal would establish that such anexception no longer exists.Changes: None.Current Safe HarborsComment: Several commenters statedthat removing the safe harbor fromcurrent § 668.14(b)(22)(ii)(B), whichpermits compensation to recruitersbased upon enrollment of students inineligible title IV, HEA programs, iscontrary to congressional intent. Thesecommenters stated that the HEA was notintended to regulate other educationalendeavors of the institution. In addition,one commenter asked about a specificpractice permitted by some Statecosmetology boards that allows twonon-title IV, HEA eligible programs tobe combined and in that form, tobecome eligible for title IV, HEA aid.Another commenter asked about howthe removal of this safe harbor wouldimpact advanced education classes thatare not title IV eligible.Discussion: In our experience,institutions have used the safe harborreflected in § 668.14(b)(22)(ii)(B) to steerstudents away from title IV, HEAprograms. We believe that retaining thissafe harbor would continue to allowinstitutions to manipulate the system byinitially enrolling students in non-titleIV, HEA eligible programs so that theinstitutions pay incentive compensationto recruiters based on such enrollments,only to later re-enroll the same studentsin title IV, HEA eligible programs.We do not agree that the removal ofthis safe harbor is contrary tocongressional intent. In particular, theonly exception Congress provided insection 487(a)(20) of the HEA is to therecruitment of foreign students residingin foreign countries who are not eligibleto receive Federal student assistance.For the reasons addressed in thepreceding discussions, we believe it isinappropriate to carve out a furtherexception to include non-foreignstudents who are not immediatelyreceiving Title IV funds.Moreover, as to the commentregarding cosmetology schools, there isnothing in the identified practice thatsupports allowing compensation to bepaid to recruitment personnel that isotherwise inconsistent with section487(a)(20) of the HEA.Finally, to the extent that the HEA’sban on the payment of incentivecompensation is not otherwise limitedto students enrolled in title IV, HEAVerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2eligible programs, institutions need tomake sure that they are in compliancewith the prohibition on incentivecompensation regardless of the nature ofthe particular program of instruction.Changes: None.Comment: A few commentersexpressed concerns about the safeharbor reflected in current§ 668.14(b)(22)(ii)(C), which permitscompensation to recruiters who arrangecontracts between an institution and anemployer, where the employer pays thetuition and fees for its employees (eitherdirectly to the institution or byreimbursement to the employee). Onecommenter noted that because underthis type of contract there is no directcontact between the entity or individualseeking the arrangement and thestudent, these contracts seem to bepermissible. Another commenter askedwhether the following type ofarrangement would be permissiblewithout this safe harbor: An employeesecures contracts for non-degree trainingthat is not eligible for title IV, HEAprogram funding, and such contracts arebilled at a flat rate and are paid for bythe employer. This commenterspecifically asked whether the employeein this situation may be compensatedbased on revenue from those contracts.Discussion: This safe harbor permitscompensation that is ultimately basedupon success in securing enrollments.Because this is inconsistent with section487(a)(20) of the HEA, we believe thatthe safe harbor should not be retainedin these final regulations. We agree withthe commenter that in some instancescompensation to recruiters who arrangecontracts between an institution and anemployer, where the employer pays thetuition and fees for its employees,would be permissible under the ban onincentive compensation. As previouslydiscussed, we encourage institutions toapply the two-part test provided withinthe NPRM in evaluating whether aparticular compensation practice ispermissible. Given the number ofpossible variables within any particularproposal, the Department is notprepared to say that the examplesgenerally offered by commenters willalways be permissible, but weacknowledge that there arecircumstances where such arrangementsmay prove to be compliant with theHEA.We strongly believe that institutionsdo not need to rely on safe harbors toprotect compensation that complieswith section 487(a)(20) of the HEA.Ultimately, the institution mustdetermine whether its compensation isbased in any part, directly or indirectly,on securing enrollments or the award of