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New federal rules target for-profit college recruiting

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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.

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  1. I had read earlier this spring that Noodles & Co was going to open in the Fishers Marketplace (which is SR 37 and 131st St, not 141st St, just FYI). Any word on that? Also, do you happen to know what is being built in Carmel at Pennsylvania and Old Meridian? May just be an office building but I'm not sure.

  2. I'm sorry, but you are flat out wrong. There are few tracks in the world with the history of IMS and probably NO OTHER as widely known and recognized. I don't care what you think about the stat of Indy Car racing, these are pretty hard things to dispute.

  3. Also wondering if there is an update on the Brockway Pub-Danny Boy restaurant/taproom that was planned for the village as well?

  4. Why does the majority get to trample on the rights of the minority? You do realize that banning gay marriage does not rid the world of gay people, right? They are still going to be around and they are still going to continue to exist. The best way to get it all out of the spotlight? LEGALIZE IT! If gay marriage is legal, they will get to stop trying to push for it and you will get to stop seeing it all over the news. Why do Christians get to decide what is moral?? Why do you get to push your religion on others? How would legalizing gay marriage expose their lifestyle to your children? By the way, their lifestyle is going to continue whether gay marriage is legalized or not. It's been legal in Canada for quite a while now and they seem to be doing just fine. What about actual rules handed down by God? What about not working on Sundays? What about obeying your parents? What about adultery? These are in the 10 Commandments, the most important of God's rules. Yet they are all perfectly legal. What about divorce? Only God is allowed to dissolve a marriage so why don't you work hard to get divorce banned? Why do you get to pick and choose the parts of the Bible you care about?

  5. Look at the bright side. With the new Lowe's call center, that means 1000 jobs at $10 bucks an hour. IMS has to be drooling over all that disposable income. If those employees can save all their extra money after bills, in five years they can go to the race LIVE. Can you say attendance boost?

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