IBJNews

New federal rules target for-profit college recruiting

Back to TopCommentsE-mailPrintBookmark and Share

The Obama administration has proposed banning for-profit colleges from tying recruiters’ pay to the number of people they enroll, saying high-pressure sales tactics induced students to take out government loans they can’t afford.

The rules would prohibit paying sales incentives at Carmel-based ITT Educational Services Inc., Apollo Group Inc., Career Education Corp. and other for-profit colleges, according to a copy of the proposal by the U.S. Department of Education to be made public Wednesday. At for-profit colleges, recruiters contact potential students, often after they express interest over the Internet.

U.S. Secretary of Education Arne Duncan is seeking to protect taxpayers from loan defaults and to stop students from taking on debt for programs that don’t lead to higher incomes. For-profit colleges can receive up to 90 percent of their revenue from federal grants and loans. Federal aid to for-profit colleges jumped to $26.5 billion last year from $4.6 billion in 2000, according to the Education Department.

“This is about accountability and protecting students,” Duncan said in a statement.

The Obama administration delayed the release of a proposed rule that would disqualify for-profit colleges from receiving federal aid if their graduates spend more than 8 percent of their starting salaries repaying student loans.

The Education Department is still analyzing the proposal and expects to release the rule, known as gainful employment, between now and August, the agency said in a statement.

For-profit colleges lobbied against the gainful-employment rule, which could disqualify programs enrolling 300,000 students, according to an April study commissioned by the Washington-based Career College Association, which represents more than 1,400 for-profit colleges.

Education stocks last week rallied on analysts’ reports citing the potential delay of the gainful employment rule. Apollo, based in Phoenix, rose 70 cents, or 1.5 percent, to close at $48.30 Tuesday. Career Education, based in Hoffman Estates, Ill., rose 71 cents, or 2.7 percent, to $26.91. ITT rose $1.39, or 1.5 percent, to $97.18.

Colleges would no longer be allowed to tie recruiters’ pay to enrollment under any circumstances, according to the new rules. The current regulations prohibit the practice while allowing exceptions, or “safe harbors.”

“Unscrupulous actors routinely rely on these safe harbors” to get around the law, the Education Department said. While the proposed rules apply to all colleges, they are designed to target abuses among for-profits, the department said.

The Education Department’s description of recruiting violations among for-profits amounts to “a lot of hyperbole,” Harris Miller, the Career College Association’s president, said in an interview. Colleges should be allowed to continue taking enrollment into account among other factors in compensating recruiters, Miller said.

The new rule on recruiter pay could have a broad impact on the industry, Matt Snowling, an analyst with FBR Capital Markets in Arlington, Va., said in a phone interview.

“The incentive compensation rule is probably a bigger threat to the industry than gainful employment,” Snowling said. “By limiting the schools ability to market themselves, it takes away some of their ability to grow.”

Apollo’s University of Phoenix last December agreed to pay $67.5 million to the U.S. and $11 million in legal fees to plaintiffs to settle a whistleblower suit arising from allegations from former employees that that company improperly paid recruiters based on enrollment numbers. Apollo admitted no wrongdoing. The company, without admitting fault, paid $9.8 million in 2004 to the Department of Education to settle similar claims.

Apollo started reviewing recruiter compensation 18 months ago, with a focus on “enhancing student satisfaction and student experience,” spokeswoman Sara Jones said in an e-mail.

“We anticipate that our new compensation will be in compliance with the forthcoming regulations by the U.S. Department of Education but cannot confirm until the rules are finalized,” Jones said.

The proposed rules also would require colleges to disclose information about employment prospects to students and strengthen the Education Department’s authority to take action against institutions engaging in “deceptive, marketing and sales practices,” the department said in a statement. The proposed rules, being issued for public comment, could be made final Nov. 1 and take effect in July 2011.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Angela IS the best RD

  2. We are a nation of speed. All of our younger lives are filled with deadlines, quotas and bottom lines. We start to ease out of the pressured rat-race when we finally see "retirement." The most enjoyable travel on the planet is passenger rail service. Indy to Chicago does not beat Megabus or Southwest Airlines in speed. Passenger rail however has the best seating, mammoth legroon, seat backs that recline to more than 45 degrees and employers that really want you to return as a customer. Indiana municipalities need to maintain subsidies to support this transportation mode. Losing it is loss for all of us.

  3. Good day! I just want to testify how i got my loan from Mr. Eric Lefkofsky after i applied several times from various loan lenders who claimed to also testify right in this forum,i thought the testimonies where real and i applied but they never gave me loan. I was in need of an urgent loan to start a business and i applied from various loan lenders who promised to help but they never gave me the loan. Until a friend of mine introduce me to this popular Mr. Eric Lefkofsky who promised to help me and indeed he did as he promised without any form of delay. I never thought there are still reliable loan lenders until i met Mr. Eric lefkofsky who indeed helped me with the loan and changed my belief. I promised to share this testimony after I got my loan. I don't know if you are in any way in need of a genuine and urgent loan,free feel to contact Mr. Eric Lefkofsky via their email{grouponfunding@hotmail.com}

  4. Its a THUG issue. Bleecker Street and NYX are thug bars. They attract thugs of all races. Places that attract thugs need to be kicked out of Broad Ripple. Ain't nobody got time for that!

  5. Hello everyone, My name is Marian Gareth, I am from the Texas, United State, am here to testify of how i got my loan from Mr Andre Frank {frankloancompany@yahoo.com} after i applied Two times from various loan lenders who claimed to be lenders right in this forum,i thought their lending where real and i applied but they never gave me loan. I was in need of an urgent loan to start a business and i applied from various loan lenders who promised to help but they never gave me the loan.Until a friend of mine introduce me to Mr Andre Frank the C.E.O of Andre Frank Loan Company who promised to help me with a loan of my desire and he really did as he promised without any form of delay, I never thought there are still reliable loan lenders until i met Mr Andre Frank, who really help me with my loan and changed my lief for better. I don't know if you are in need of an urgent loan, free feel to contact Mr Andre Frank on his email{ Frankloancompany@yahoo.com} for help

ADVERTISEMENT