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Unity on 'Incentive Compensation'

Unity on 'Incentive Compensation'
December 11, 2009

WASHINGTON -- Education Department officials faced forceful pushback Thursday against their plan to eliminate regulatory clarifications to Congress’s 1992 ban on “incentive compensation” for admissions and financial aid officers -- and the opposition came from nonprofit and for-profit colleges alike.

In early November, during the previous round of discussions in the process of negotiations intended to produce revisions to federal regulations aimed at preventing abuses in federal financial aid programs, various stakeholders voiced support of removing some or all of the dozen “safe harbors” that were adopted in a 2002 rule making process to make it clear what was permissible under the ban. But, with the safe harbors stripped entirely from the proposed revised regulations released last week by the department -- and agency officials saying they did not plan to issue case by case guidance in the future to institutions worried about situations that might violate the ban -- many on the negotiating panel said the department had been too extreme in its approach.

Congress’s 1992 addition to the Higher Education Act and the 2002 safe harbors were most clearly directed at for-profit institutions, and the most vocal supporter of safe harbors during November's round of negotiations was Elaine Neely, senior vice president of regulatory affairs at Kaplan Higher Education. She said Thursday that she was “flabbergasted again” to see them removed from the draft regulatory language, especially after administration officials said they had no intention of offering guidance on how to adjust recruiters’ compensation. (She was also “flabbergasted” Wednesday by the department’s proposals to define “gainful employment.”)

Though the issues being negotiated appear in large part to be targeted at for-profit institutions, the panel of negotiators includes just a handful of clear advocates for the sector among its more than two dozen members.

Throughout the rule making process, Neely has been proactive in standing up for for-profits’ interests, and has suggested repeatedly to representatives of nonprofit institutions that regulations intended by the department to restrict her sector could end up having “unintended consequences” or heading down a “slippery slope” of greater restrictions for nonprofit colleges. Rather than aggressively fighting for her sector’s interests, Neely has in the negotiations emphasized how proposals could hurt her fellow panelists’ institutions -- with the clear goal of finding strength in numbers.

In November, the primary negotiator for college presidents, Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, said he hoped to see the safe harbors pared down because the department would never find ones that could “be defined specifically and narrowly enough” to leave no room for abuse.

Hartle repeated that argument Thursday but added that he thought Congress had not intended “to ban any form of merit-based compensation for people in admissions and financial aid.” Without any safe harbors or other guidance, he said, “the language of the statute … is ambiguous enough that it is very hard for institutions to know what is legitimate to do and what is not legitimate.”

Since 1993, he added, colleges and universities have faced 27 lawsuits on incentive compensation “because they lack a very specific boundary line of what’s permissible and what’s not ... what you have to do to not get sued.” With so much “gray area” -- even more if the safe harbors were to be eliminated and no other clarifications adopted -- institutions would continue to face legal challenges on the issue, he said.

Opposition to the ideas expressed by Neely and Hartle came most vocally from Margaret Reiter, a former California deputy attorney general and consumer advocate, and David Hawkins, director of public policy for the National Association for College Admission Counseling.

Reiter said she saw the safe harbors as “not consistent with the statute” and ripe to be eliminated. If they were intended to eliminate ambiguities, “I don’t think they’ve been successful.” She said she hoped to see the rules remain as they were edited in the department’s draft.

Hawkins, too, said he was “encouraged” by the elimination of the safe harbors, a move he said would “serve to clean up quite a bit of possible misbehavior, whether intentional or unintentional.” His association, he said, has a long history of opposition to any sort of commission payments and hopes to see any inkling of them eliminated.

But they were in the clear minority. Most negotiators who spoke said they wanted to see either revised safe harbors or some other guidance coming from the department.

Neely said she didn’t “know how an institution would be able to operate without guidance from the department in an area which not only is so highly controversial but, as Terry points out, the institutions are at the end of lawsuits.”

Joan Berkes, the alternate negotiator for financial aid administrators and director of legislative and regulatory analysis for the National Association of Student Financial Aid Administrators, also said she wanted to see some sort of guidance from the department. “If you want to take out safe harbors because that approach to getting to the problem has flaws, then there needs to be another approach substituted for it so that there is enough common understanding.”

The primary negotiator for aid officers, Val Meyers, associate director of financial aid at Michigan State University, said she thought “safe harbors should probably go away” but hoped to see a “Dear Colleague” letter or other mechanism to help guide institutions on acceptable forms of merit compensations.

Just as the panel was set to move on to considering each safe harbor individually and whether any of them ought to be maintained, Hartle called for a private "caucus" closed to all observers. It included all negotiators other than those from the department, Reiter and her alternate, and the two student representatives.

After more than 45 minutes of discussion, the room reopened to observers and Hartle reported that the group had decided to create a small caucus that would meet to consider the best tack to fight incentive compensation but still leave room for merit pay. The subgroup, he said, would report back to the caucus, and, if agreement could be reached, share its suggestions with all negotiators and the department. “This could be a totally different approach or it could be a proposal to preserve some of the safe harbors -- perhaps in a different form,” he said.

The goal, he added, would be to have ideas to share within a few weeks, ahead of the third (and, as of now, final) round of rule making on issues related to the integrity of the aid programs.

 

 

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