Colleges Weigh In on Rules

August 4, 2010

WASHINGTON -- The public comment period for the majority of the U.S. Department of Education’s proposed regulations aimed at protecting the integrity of the Title IV federal financial aid program ended at midnight Tuesday.

Department officials have the next three months to read and consider close to 1,800 comments posted on (including duplicates) -- ranging in length from a sentence or two to 100-page dossiers -- submitted by a mix of college presidents, financial aid officers, associations, companies, and rank-and-file students and employees. Final rules must be published by Nov. 1 to go into effect on July 1, 2011, as the department has planned.

While a comprehensive examination of all the comments would take far longer than the day since the comment period ended, Inside Higher Ed has parsed the comments submitted by many prominent stakeholders and observers to try to get a sense of the suggestions that could sway department officials to make revisions, or reaffirm the approach of their proposed regulations.

The issues that garnered the most comments were incentive compensation, definition of a credit hour, state authorization, and debt and job-placement disclosures related to the department’s gainful employment regulations. (Comments on the department’s proposal to keep tabs on for-profit programs’ debt service-to-income ratios and repayment rates aren’t due until mid-September.)

Comments on the rules related to incentive compensation -- the Congressional ban on paying recruiters based directly or indirectly on their ability to secure enrollments and federal financial aid -- were generally divided along sector lines. Nonprofit institutions generally voiced support for the department’s decision to eliminate the 12 “safe harbors” that were added to the regulations in 2002 (amid resistance from many nonprofits), but asked for regulatory clarification on certain issues of concern. For-profit colleges, meanwhile, asked the department to reinstate the safe harbors, which the department has in recent months begun referring to as “exceptions” to the law.

Department officials contend that the safe harbors helped breed aggressive recruiting practices at for-profit institutions over the course of the last decade, an issue to be examined today at a Senate Health, Education, Labor and Pensions Committee hearing on the “student recruitment experience” at for-profit (or "market-driven," as they prefer) colleges.

Nearly all comments (from for-profit and nonprofit institutions alike) on the department’s proposed language that would establish a federal definition of a credit hour opposed the proposal. The proposed regulations codifying the responsibility of states to authorize colleges that operate within their borders also attracted many critical comments from a wide-ranging group of institutions.

There are also plenty of broader comments that question or support the department’s approach, which in large part takes aim at for-profit colleges. In his comment, George Pernsteiner, chancellor of the Oregon University System, asked the department “to indicate in each section the types of institutions to which that specific section applies” so that nonprofit institutions can have a better sense of where the regulations might substantively change their operations.

More broadly, Pernsteiner’s concern indicates a conclusion that many observers outside the Education Department have reached, but that department officials are reluctant to concede: that the proposed regulations are aimed at for-profit institutions far more often than at nonprofit colleges.

One case in point: while just one or two individuals at nonprofit institutions like Bennington College and George Washington University submitted comments, dozens of people at some for-profit institutions weighed in. In all, 49 people from Triangle Tech submitted comments, as did about 80 from South Hills School of Business of Technology. (There was often a lot of overlap among the multiple submissions from specific institutions.) Ten people who identified themselves as affiliated with Anthem Education Group submitted comments.

Incentive Compensation

Throughout the rule making process that led to the publication of the proposed rules in the Federal Register on June 18, Education Department officials insisted that the elimination of the safe harbors from federal statute was not intended to indicate whether any or all of the practices identified in the safe harbors were legal or illegal under federal law.

Instead, in the preamble to its notice of proposed rule making, the department suggested that colleges conduct a “two-part test” to determine whether some form of compensation would be legal. Institutions would have to consider, first, whether a payment was given to a person or entity for services rendered, and second, whether the compensation was provided “directly or indirectly upon success in securing enrollments or the award of financial aid, which are defined as activities engaged in for the purpose of the admission or matriculation of students for any period of time or the award of financial aid.” If the answer to both questions was “yes,” then the payment would violate the incentive compensation rule.

But that test, it appears from the public comments, is insufficient to guide both nonprofit and for-profit institutions going forward.

David Hawkins, director of public policy and research at the National Association for College Admission Counseling, an opponent of aggressive recruiting tactics so vocal that he is scheduled to testify today before the Senate HELP Committee, wrote in support of the elimination of the safe harbors. The safe harbors, he said, and as he argued as a member of the negotiated rule making panel, “were neither necessary nor appropriate given the clarity of the law, as expressed by NACAC during the regulatory comment period” in 2002. Since then, NACAC has identified “widespread disregard” for the incentive compensation ban -- disregard, Hawkins said, that the safe harbors’ elimination could mitigate.

According to NACAC, its only concern with the proposal is that it may make it difficult for nonprofit institutions to determine how to evaluate senior admissions officers, who are generally evaluated in part based on whether they enroll sufficient numbers of students for their colleges to remain fiscally solvent but avoid over-enrolling to the point where the institution can no longer serve students well. Hawkins asked that the department consider adding a point of clarification to the final regulation’s preamble that makes clear those evaluations can continue.

The New England Association for College Admissions Counseling, a member of NACAC, voiced strong support for the removal of the safe harbors, which, it said, “currently enable institutions to circumvent the law.”

The American Council on Education, writing on behalf of more than 70 other higher education associations and accreditors (some of which also submitted their own comments), applauded the elimination of the safe harbors. But the elimination of the safe harbors also “injected some degree of uncertainty for institutions that previously relied on them to ensure compliance.” In particular, ACE asked for guidance in the final rule on the legality of bonuses paid to coaches if their athletes graduate, colleges' use of aggregators and third-party servicers to attract students to their online programs, and the paying of third parties based on the number of clicks a link receives and not on the final student enrollment.

The most common concern on incentive compensation coming from small nonprofit colleges was over the elimination of the 12th safe harbor, which permitted institutions to pay third-party companies “as long as the individuals performing the covered activities are not compensated in a way that is prohibited by the incentive payment compensation rule.”

Representatives from institutions including Anna Maria College, Benedictine College and Utica College all asked for clarification about whether they would be able to continue working with companies that help them attract adult and online students. The Embassy of Australia and several foreign institutions had the same question in relation to agents who help American students navigate the path to study abroad.

Deanne Loonin, a staff attorney at the National Consumer Law Center and director of the center’s Student Loan Borrower Assistance Project, asked in her letter that the department include in its preamble “clearer and stronger” language to convey the message that any payments linked “in any part” to success in securing enrollments or financial aid would be forbidden. She also recommended that “in any part” be added to the regulatory description of the kinds of payments that would be forbidden.

Unsurprisingly, for-profit colleges and groups were generally far less amenable to the proposed regulations.

In comments, Harris N. Miller, writing on behalf of the Career College Association, encouraged the department to reinstate safe harbors in the final version of the regulations. The safe harbors, said Miller, the trade group’s president, “provided protections to both institutions and students,” giving colleges a clear understanding of what kinds of compensation were legal. Removing the safe harbors from the department’s regulations “is arbitrary, capricious, and contrary to the law and the intent of Congress.”

A lack of guidance, Miller said, “is setting up schools to fail, with institutions not knowing how the department will apply a regulation until after the fact when there is already a finding.” Department officials have said they plan to issue “Dear Colleague” letters and other guidance when needed.

Miller also asked for clarification on whether “practices permitted under the safe harbors are still permitted” though the safe harbors have been eliminated from the regulations.

DeVry, Inc., submitted nearly 50 pages of criticism of the decision to eliminate the safe harbors, plus a 25-page “expert report" authored by Daniel J. Slottje, an economics professor at Southern Methodist University.

Arthur Keiser, president and chancellor of Keiser University, a privately-held for-profit institution, voiced concern that his company might lose its ability to compensate executives based on a profit-sharing model. The profit sharing, he said, is not “directly related to enrollment,” but instead to graduation and job placement rates, class size and levels of bad debt. Still, it would -- according to his company’s interpretation of the proposal -- mean that these employees could only earn pay raises based on how long they had spent on the job and not on the merit of their work. The same, Keiser said, would be true for faculty.

Kaplan Higher Education’s Janice L. Block, executive vice president, general counsel and chief compliance officer, called on the department to reverse its decision to eliminate the safe harbors. Even if the department was unwilling to restore all 12, she said, it ought to restore a few to clarify permissible pay models.

At minimum, she asked the department to include in the final regulations language on setting merit-based salaries and making routine pay adjustments based on performance; paying managers who do not directly supervise admissions or financial aid staff; compensating based on student retention and graduation rates; and permitting revenue-sharing agreements with third-party companies that help colleges attract students.

Definition of a Credit Hour

Few proposals put forward by the department were as roundly panned by commenters as its plan to establish a federal definition of a “credit hour,” and to link that definition closely to the historical “Carnegie unit.” An enormously wide range of colleges objected both to the department's approach and to the fact that its proposal abandons the “tentative agreement” reached by the negotiators in January that would have ditched the federal definition of credit hour and largely left oversight of the credit hour up to individual institutions and their accreditors.

The department had argued throughout most of last winter's negotiating sessions that a clearer, stronger federal definition of a credit hour was necessary because the absence of one “may be the basis for abuse by institutions in determining sufficient course content for a credit hour,” raising questions about the quality of credits (and ultimately degrees) awarded by some institutions. The department's inspector general's office has in recent months sought to crack down on several accrediting agencies that it suggests have been too permissive in their credit hour policies.

That approach ran into pushback on both philosophical and practical grounds, with some arguing that the federal government had no business intruding into an area that has historically been the domain of academic decision makers on campus, and others suggesting that such an approach would be wrongheaded at a time when policy makers are increasingly embracing alternative types of teaching and learning, mandating a single, seat-time-based measure of when a student has accumulated enough knowledge to justify the awarding of federal aid in return.

In its notice of proposed rule making, the department sought to strike a balance. It recommended a federal definition of a credit hour -- “one hour of classroom or direct faculty instruction and a minimum of two hours of out of class student work each week for approximately fifteen weeks for one semester or trimester hour of credit,” or equivalent amounts of actual instruction for quarters or other time periods. But it offered an exception, too, that accepts as a credit hour “[i]nstitutionally established reasonable equivalencies for the amount of work required in [the previous definition] for the credit hours awarded, including as represented in intended learning outcomes and verified by evidence of student achievement.”

If the department hoped to thread a needle with its approach to the credit hour, the comments suggest that it largely failed, uniting for-profit and nonprofit, public and private institutions that clashed over some of the other proposals in the program integrity package.

“By its proposed new definition of a credit hour, the NPRM takes the unprecedented, unnecessary, and apparently unlawful step of federalizing a fundamental academic measure that has historically been administered by recognized accrediting agencies and State authorizing agencies,” officials from Kaplan Higher Education, a for-profit institution that educates many of its students online, wrote in their comments on the proposed rules. “The proposed rules concerning credit hours would result in the exercise of direct federal supervision and control over educational programs and curricula by imposing quantitative instructional-activity standards on every credit-hour course, program, curriculum and credential.”

The department's approach could stand in the way of “the adoption of innovative methods of teaching and learning” by colleges, Rebecca S. Chopp, president of highly selective Swarthmore College, wrote. “Now is a particularly unfortunate time to create such an obstacle. Colleges and universities are in the midst of reimagining pedagogy to include strategies as various as distance learning, laboratory and field research, internships, multimedia projects and more. Regulations right now that impose a strict definition of a credit hour based on time in a classroom would be counterproductive to developing better strategies for preparing our students to be productive citizens and leaders of a fast-changing world.”

“At a time when we are looking seriously at learning outcomes and proficiency demonstration, the USDOE is making the old student credit hour -- and verifying its legitimacy -- necessary if our students are to receive federal financial aid,” wrote George Pernsteiner, of the Oregon University System. “Although colleges and universities are talking about moving away from seat time as the determinant of learning, the feds now are going to require it more rigorously than ever before.”

The comments on the credit hour echoed the sort of language to which postsecondary institutions resorted several years ago when the Education Department led by Secretary Margaret Spellings pushed regulatory changes aimed at prodding accreditors and colleges to change how they measure student learning. While most of the commenters sounded an alarm about the department's approach, one group that loudly opposed the last administration's efforts along those lines said it believed that the current department had threaded the needle successfully.

“Representing campus officials with direct responsibility for the enforcement and tracking of autonomous institutional academic policies, we strongly support the American tradition of political non-interference in academic judgments of colleges and universities,” wrote Jerome H. Sullivan, executive director of the American Association of Collegiate Registrars and Admissions Officers. “We are pleased to note that, rather than attempting to impose a one-size-fits-all federal definition [of a credit hour] in the NPRM, the Department has wisely chosen to allow the higher education community to define the term for itself. To accomplish this, the proposed rule requires that accrediting bodies and state approval agencies reasonably determine that institutional practices regarding the assignment of credit-hours conform with commonly accepted practices in higher education.”

State authorization

Concerns on state authorization -- the department’s proposal to require states to grant many colleges permission to operate through a process that looks a lot like accreditation -- are widespread, and not just among accreditors who are worried that their roles are being encroached upon.

Judith S. Eaton, president of the Council for Higher Education Accreditation, wrote that the department should remove the entire state authorization regulation. The “conflating of the respective roles of the federal government (by placing obligations on states), state government and accrediting organizations fundamentally undermines the role of accreditation and the public-private partnership that has characterized the relationship between accreditation and government,” she wrote. “Moreover, the proposed rules call for states to intrude into academic areas.”

Robert B. Donin, general counsel of Dartmouth College, wrote to voice concern about state authorization. For institutions, like his, that were created by colonial charters, there has never been a need for further state authorization, he wrote. And, while he said the college assumed that the state authorization rules would not apply, he asked for clarification in the final regulations.

Representatives from various state boards and public college and university systems also voiced concern about the state authorization requirements.

Kevin P. Reilly, president of the University of Wisconsin System, said that in his state, the proposed regulations “would be contrary to the Wisconsin Legislature’s grant of authority to the Board of Regents of the University of Wisconsin System and to the history of postsecondary educational governance in Wisconsin.” Officials in other states with oversight systems already in place asked that the regulations be revised to note that states with authorization and oversight systems already in place would not have to create new practices or agencies to be in compliance.

In their shared comment submission, Consumer Federation of California, the Legal Aid Foundation of Los Angeles and Margaret Reiter -- a former California prosecutor who served on the negotiated rule making panel and testified at the Senate HELP Committee’s June hearing on for-profit colleges -- voiced support for the proposed rules but offered up amendments aimed at tightening consumer protections. On state authorization, the consumer advocates suggested revised language that would aim to:

  • Eliminate ambiguity about the degree to which states can rely on accreditors.
  • Underscore states’ responsibility to report fraud and violations of the Higher Education Act.
  • State clearly that states have the authority to revoke authorization of institutions, since “the law clearly contemplates that state agencies will have that power.”
  • Clarify whether states are permitted to enter into agreements with other states to evaluate institutions for the purposes of state authorizations. This could be a “major loophole,” the advocates said, as multi-state or national for-profits “would likely lobby states to turn over their oversight responsibilities to another state where the laws, regulations, or oversight are more lax.”
  • Exempt public institutions “which by their very nature, are authorized to offer postsecondary education in the state, and which are not the focus of rising abuse and fraud.”

Gainful employment

Though public comments on the knottiest part of the Education Department’s proposed rules on gainful employment were not collected during this comment period, comments on the proposed new disclosures for most programs at for-profit institutions and short, non-degree programs at nonprofit institutions did flow in. In all, there were more than 460, most coming from for-profit colleges.

Under the proposed regulations, institutions would, at minimum, have to post the following for each program on their websites:

  • The occupations that it prepares students to enter, with links to the Department of Labor’s O*NET.
  • The on-time graduation rate of students in the program.
  • The cost of the program, including tuition, fees, room, board and other institutional costs.
  • The placement rate for students completing the program (by June 30, 2013).
  • The median debt load incurred by students who completed the program in the previous three years, broken down into debt from federal student loans, from private educational loans, and from institutional financing.

Concerns varied and in some cases spoke more to the department’s overall approach on the issue, but there were plenty of specific worries. Though the Career College Association and several for-profit colleges had asked the department to adopt new disclosure requirements in lieu of metrics related to student debt (which the department went on to adopt in its second round of proposed regulations last month), many representatives of the sector questioned the specific disclosure data requested by the department.

CCA, for instance, questioned the department’s statutory authority to define gainful employment. It also takes exception to most of the disclosures the department asks for. Providing all job codes related to a program would be “confusing and misleading” for students.

Instead, CCA recommended the department change that provision to “careers in which their graduates have typically found employment." Reporting on-time graduation rates along with the 150 percent graduation rate required by the department through IPEDS “will only serve to confuse” students. Institutions, CCA said, should be required to report private student loans “to the extent they are aware of them” – which would likely lead institutions to turn a blind eye to these loans.

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