Court Victory for For-Profits on Recruiter Bonus Ban

October 3, 2014

A federal court on Thursday ruled that the Obama administration had again failed to adequately justify its ban on colleges paying recruiters bonuses that are tied to students' graduation. The court also faulted the Department of Education for not properly addressing the effect the rule may have on minority students.

The judge, Rosemary M. Collyer of the U.S. District Court for the District of Columbia, sided with the for-profit college association challenging the rule, but she denied its request to block the regulations, which remain in effect. Collyer told the department to come up with a better explanation for the rule and address the impact it has on diversity initiatives.

An appeals court in 2012 largely upheld the administration’s package of stricter incentive compensation rules that were aimed at cracking down on abusive practices in the for-profit industry. But that court singled out the specific ban on compensation tied to the number of students graduating a program, ruling that the department had not offered a legally sufficient basis for it.

The department argued that colleges were doling out bonuses to recruiters based on graduation rates in order to make an end run around the clear federal prohibition on compensation based on enrollment numbers.

But the judge wasn’t swayed by that argument, writing in Thursday's opinion that the department used faulty logic and failed to provide sufficient evidence for its position.

The Association of Private Sector Colleges and Universities, the for-profit group that sued, said it was pleased with the judge’s ruling. Sally Stroup, the group’s executive vice president of government relations and general counsel, said in a statement that the department “should correct its errors by suspending the flawed regulations and engaging in a new rulemaking.” 

The department on Thursday did not say how it planned to proceed in light of the court's decision.  “We are studying the ruling and discussing our options for addressing it," said Dorie Nolt, the department's press secretary. 

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