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Incentive Comp Still a Problem

February 24, 2010

WASHINGTON -- Violations of the 1992 federal ban on incentive compensation for college officials involved in recruiting students have persisted even as the U.S. Department of Education has attempted to clarify the policy, a report released Tuesday by the Government Accountability Office reveals.

Between January 1998 and December 2009, the GAO found, the Education Department confirmed abuse of the statute at 32 institutions, reached settlements with 22 other institutions and identified 27 more institutions that had potentially violated the ban.

Another GAO report still to come will specifically address the department’s enforcement of the ban, which forbids institutions that are eligible for federal financial aid from offering commissions, bonuses or other payments to people who succeed in getting students to enroll or receive federal aid.

Among the 32 confirmed violations detailed by the GAO, 15 were substantiated after Nov. 1, 2002, when 12 “safe harbors” listing forms of compensation that a federal panel determined to be permissible under the statute were added to the department’s regulations.

But it’s unclear whether this means that the incidence of violations has fallen, that enforcement has gotten more lax, or that the safe harbors have been working. Because the department has not kept track of just how many institutions have undergone program reviews and audits for incentive compensation violations, the report noted, “it is unknown whether the total number of reviews and audits conducted each year has changed over the course of this time period and what percentage of these cases have resulted in substantiated violations.”

In a cycle of negotiated rule making that ended late last month, a panel representing institutions, consumers and government interests was unable to reach agreement on whether to revise or delete the safe harbors, or to take a different approach to prevent violations of the ban. Department officials leaned toward eliminating all 12 safe harbors and leaving the regulation as little more than a reiteration of the statutory language. At the time, Carney McCullough, a senior policy analyst in the department’s Office of Postsecondary Education, said she and her colleagues “think institutions know what merit-based adjustments are” and didn’t need elaborate regulatory guidance. “We don’t need to get so prescriptive, because that’s where we get into trouble,” with institutions using that language to find loopholes that essentially permit incentive compensation.

Harris N. Miller, president of the Career College Association, which represents more than 1,000 for-profit institutions, said in an e-mail message that the GAO’s findings suggested that there was “no systemic problem of incentive compensation violations."

But Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, said he saw the report as evidence that violations of the ban had persisted even with the safe harbors. “This cancer -- unless you combat it fundamentally -- will continue to grow,” he said, noting that he considered the department’s enforcement under the Bush administration to be lax. “Even after the 12 loopholes were carved out … that the GAO can still issue findings of many violations is quite a statement of just how limitless the violations are unless you very clearly outlaw all incentive compensation.”

Miller said the report suggested that the safe harbors have proven to be “a useful and effective mechanism for providing necessary guidance to institution” and “begs the question of whether incentive compensation should have even been included in the negotiated rule making.”

A longtime opponent of the safe harbors, David A. Hawkins, director of public policy and research for the National Association for College Admission Counseling, said he doesn’t think they brought clarity to the challenges that institutions faced in determining how to reward recruiters without violating the statutory ban. “The safe harbors created a lot of gray area and some colleges may have gone a step or two too far.”

The fact that the department chose to take up the issue again last year suggested to Hawkins “that the original problem identified by the Congress was in fact getting worse because of the regulations.” He represented admissions officers on the panel.

While the report leaves unresolved whether the safe harbors have clarified or obfuscated Congress’ statutory intent, it does reveal some violations that had not been previously publicized. It also makes clear, as Miller put it, that violations "involve institutions of all types," even though accusations against for-profit institutions have garnered the most headlines about incentive compensation.

In 1999, before the safe harbors were adopted, Graceland College in Lamoni, Iowa, was found to have paid a third-party contractor commissions ranging from 40 to 60 percent of students’ tuitions for securing enrollments and retaining students. In all, payments totaled close to $6 million. Also in 1999, an audit of Liceo de Arte, Disenos y Comercio, in Puerto Rico, found that enrollment officers were paid car allowances that were directly related to the number of students they got to enroll.

Between the time that the safe harbors went into place, in November 2002, and the end of GAO’s analysis, in December 2009, seven for-profits, seven nonprofit privates and one nonprofit public institution were found to have violated the ban. In 2003, the department cited several institutions and campuses owned by High-Tech Holdings for participating in the company’s telemarketing compensation scheme that paid bonuses based on securing enrollments. No total dollar amount of incentive payments is included in the report.

The only public institution listed in the report is Denmark Technical College, a historically black community college in South Carolina. It was cited in October 2009 for paying bonuses totaling $52,500 to 17 employees for recruiting close to 140 students. The college was also found to have paid $22,750 to executives, faculty and others who worked on a recruitment program that exceeded goals.

 

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