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Friday, May 24, 2024 | Back issues
Courthouse News Service Courthouse News Service

Chain Colleges Win a Round on Recruitment

(CN) - A federal judge Thursday overturned a U.S. Department of Education rule that limits how for-profit colleges and universities can reward their recruiters.

U.S. District Judge Rosemary Collyer ruled that the Department of Education, which hands out more than $150 billion in federal money to higher education each year, cannot deny for-profit colleges federal money just because they offer bonuses to recruiters based on how many students they enroll who graduate.

The Association of Private Sector Colleges and Universities (APSCU) sued the department and Education Secretary Arne Duncan in 2011 under the Administrative Procedure Act and the U.S. Constitution, challenging dramatic new limits on recruiter compensation.

The new regulations stated that if schools wand to receive federal funding, they could not award recruiters and managers pay raises based on the number of enrollees who end up graduating.

Part of the department's motivation in instituting the rules was to curb questionable recruiting tactics by private-sector colleges and universities that have led to the enrollment of underqualified students who later fail to secure adequate employment, putting them at heightened risk of defaulting on their student loans.

The district court initially granted the department summary judgment on all of APSCU's claims concerning the compensation regulations.

On appeal, the D.C. Circuit Court found that the prohibition on graduation-based compensation was arbitrary and capricious without further explanation from the department. The court pointed out that the elimination of this incentive could actually discourage recruiters from focusing on the most qualified students.

The Circuit remanded the case to the district court with instructions that the department must more fully explain the reasoning behind its elimination of the safe harbor for graduation-based compensation, and respond to concerns about the effect of the regulations on minority enrollment.

On remand, the department expanded the number of reasons supporting its prohibition of graduation-based compensation, arguing that enrolling students is a necessary first step to graduation, so the recruiters' compensation is indirectly based upon securing enrollments.

The department also argued that the incentives could lead recruiters to push students into enrolling in the shortest possible programs, or contribute to lowered admissions standards and lack of emphasis on academic performance.

However, Collyer found that the department failed to provide factual grounds to support its assertions. The department failed to provide any evidence in support of its graduation-based compensation ban, she said.

In addressing whether the regulations would curtail diversity initiatives, the department stated that the rules would not have an affect on a diverse student body and that the changes were intended to end recruitment abuse because minority and low-income students are often the targets.

However, Collyer found that the department's explanations did not answer the question about whether minority enrollment could decline under the new regulations.

"The D.C. Circuit remanded the Compensation Regulations, with the expectation that it would be a 'simple matter' for the Department to address the deficiencies in its initial rulemaking. On remand, the agency has failed to explain its ban on graduation-based compensation or respond to commenters' concerns about the impact of the enrollment-based compensation ban on minority recruitment," Collyer said, granting APSCU's motion for summary judgment.

The compensation regulations were remanded to the department for further proceedings consistent with Collyer's ruling.

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