Title IV Federal Student Aid Program Integrity Final Regulations

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1 January 2011 Final Program Integrity Regulations Title IV Federal Student Aid Program Integrity Final Regulations On October 29, 2010, the U.S. Department of Education published final regulations for improving the integrity of federal student aid programs authorized by the Higher Education Act of The final rules are the result of a year-long process led by the Department, which included public meetings and negotiated rulemaking including representatives of students, consumers, public and private institutions, accrediting agencies, and admission officers. NACAC s Director of Public Policy David Hawkins represented college admission professionals on the negotiating committee last winter advocating for critical protections for students. NACAC commented in support of the proposed rules issued by the Department in June 2010 and commended the Department s efforts to protect students and taxpayers against unlawful recruitment practices. In response to general comments discussed in the final rules, the Department notes: We are confident that the regulations strengthening program integrity are in the best interest of students, consumers, and taxpayers, and will improve the quality of the programs offered at institutions by ensuring that all programs meet a threshold of quality. We believe that students, particularly disadvantaged, high-need students who are the most vulnerable, are not well served by enrollment in programs that leave them with limited or low-paying job prospects and with crushing debt that they are unable to repay. Students who complete their educational programs should not expect results that leave them in a worse situation than when they began their educational programs. We believe the regulations will hold institutions accountable and ensure that students can have confidence in the quality of the educational programs in which they invest their time, energy, and money. The proposed regulations address fourteen issues related to program integrity: Definition of High School Diploma * Ability to Benefit* Misrepresentation of Information to Students and Prospective Students * Incentive Compensation * State Authorization as a Component of Institutional Eligibility Gainful Employment in a Recognized Occupation * Definition of a Credit Hour Agreements Between Institutions of Higher Education Verification of Information Included on Student Aid Applications Satisfactory Academic Progress Retaking Coursework Return of Title IV Funds: Term-based Programs with Modules or Compressed Courses Return of Title IV Funds: Taking Attendance Disbursements of Title IV Funds To obtain federal student aid funding through student enrollment, institutions of postsecondary education must comply with regulations prescribed for each integrity issue. Issues marked with an asterisk (*) above are of greater interest to college admission professionals and are discussed in this fact sheet.

2 Issues of Ethical Practice NACAC s Statement of Principles of Good Practice (SPGP) states that members will: Not offer or accept any reward or remuneration from a college, university, agency, or organization for placement or recruitment of students. Members will be compensated in the form of a fixed salary, rather than commissions or bonuses based on the number of students recruited (section I.A.3.). Accurately represent and promote their schools, institutions or services by providing precise information about their academic majors and degree programs. Such information shall include a factual and accurate description of majors, minors, concentrations, and/or interdisciplinary offerings that apply toward the completion of the undergraduate degree (section I.A.1.). These mandatory practices for NACAC members align with statutory language in the Higher Education Act and federal regulations on incentive compensation and misrepresentation. Incentive Compensation NACAC s primary interest in the rulemaking process was strengthening regulations governing incentive compensation for admission and financial aid officers. Our historic concern with the treatment of admission officers as professionals, rather than salespersons, is rooted in the interest of students in transition to postsecondary education. The Higher Education Act (HEA) statutory ban on incentive compensation states: [An] institution will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance, except that this paragraph shall not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive federal student assistance. (20 USC 1094(a)(20)) Regulations known as safe harbors enacted in 2002 effectively gutted the statutory language and have allowed widespread use of commissioned sales in admission. The safe harbors were neither necessary nor appropriate given the clarity of the law, as expressed by NACAC during the regulatory comment period at that time. In the eight years since the enactment of the regulatory safe harbors, there is evidence of widespread disregard for the incentive compensation statute, which is documented on NACAC s Program Integrity page. The Department points out that aggressive recruiting practices have resulted in students being encouraged to take out loans they could not afford, or enroll in programs where they were either unqualified or could not succeed. Though current laws prohibit schools from compensating admission recruiters based on success in securing student enrollment, safe harbors allowed this practice to go on under certain circumstances, which the Department believes violates Congressional intent and spirit of the law. The new regulations remove all the safe harbors provisions and align more closely with statutory language. These regulations:

3 State that institutions will not provide any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to any person or entity who is engaged in any student recruitment or admission activity, or in making decisions regarding the award or title IV, HEA program funds. Define the following terms: Commission, bonus, or other incentive payment: Sum of money or something of value, other than a fixed salary or wages, paid or given to a person or entity for services rendered. Securing enrollments or the awards of financial aid: Activities that a person or entity engages in, at any point in time through completion of an educational program, for the purpose of the admission or matriculation of students for any period of time or the award of financial aid to students. Entity or person engaged in any student recruitment or admission activity or in making decisions about the award of financial aid: With respect to an entity engaged in any student recruitment or admission activity or in making decisions about the award of financial aid, any institution or organization that undertakes the recruiting or the admitting of students or that makes decisions about and awards title IV, HEA program funds; and With respect to a person engaged in any student recruitment or admission activity or in making decisions about the award of financial aid, any employee who undertakes recruiting or admitting of students or who makes decisions about and awards title IV, HEA program funds, and any higher level employee with responsibility for recruitment or admission of students, or making decisions about awarding title IV, HEA program funds. Enrollment: the admission or matriculation of a student into an eligible institution. In NACAC s analysis of the regulations, institutions must compensate staff and third parties involved in the admission process based on factors that do not include the number of students enrolled. An institution could use a variety of standard evaluative factors as the basis for compensation increases. The Department believes that institutions can determine if compensation is permissible by analyzing: 1) Whether it is a commission, bonus, or other incentive payment, defined as an award or a sum of money or something of value paid to or given to a person or entity for services rendered; and 2) Whether the commission, bonus, or other incentive payment is provided to any person based in any part, 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 each of these questions is yes, the commission, bonus, or incentive payment would not be permitted.

4 The Department notes in its discussion of comments that the regulations on incentive compensation apply to all employees at an institution who are engaged in any student recruitment or admission activity. The Department also expresses value for partnerships between institutions and third parties and states that such arrangements are permitted under the new regulations as long as no entity or person engaged in any recruitment or admission activity is compensated in any part, directly or indirectly, based upon success in securing enrollments or financial aid. Multiple salary adjustments in a calendar year are in violation of the ban if those adjustments create compensation based in any part on success in securing enrollment or financial aid. NACAC members will readily acknowledge that the number of students enrolled in a given academic year is a matter of great importance to all institutions of higher education. However, as some institutions have made numbers the name of the game, the Department states that under the regulations regarding incentive compensation, institutions would need to re-examine their practices to ensure they comply with new rules. Misrepresentation of Information to Students and Prospective Students Lack of access to information about higher education is a well-documented challenge among under-served populations. The lack of information about college makes low-income students particularly susceptible to misrepresentation of information about a college or course of study. Many students trust that colleges and universities they attend will steer them in the right direction to obtain a certificate or degree. In particular, non-traditional or under-served populations who may be years removed from the structure of high school and/or whose high schools may not be equipped for college counseling are often at the mercy of recruiters or admission offices for guidance. During public hearings and negotiated rulemaking sessions, the Department heard numerous complaints from students enrolled in programs where they felt misled on what was and was not being offered, the way programs could be paid for and their job prospects upon completion. Whereas consumers may be prepared for a high-pressure sales pitch at a car dealership, home improvement store or other commercial setting, few are aware that a college recruiter might employ the same tactics. Taking advantage of this trust enables recruiters to exploit a potential student s lack of awareness of the terms of the interaction. To protect consumers, the proposed regulations strengthen the Department s authority to take action against institutions engaging in deceptive advertising, marketing and sales practices. The proposed regulations state that substantial misrepresentations are prohibited in all forms, including those made in any advertising, promotional materials, or in the marketing or sale of courses or programs of instruction offered by the institution. In the final regulations, misrepresentation is defined as: Any false, erroneous, or misleading statement an eligible institution, one of its representatives, or any ineligible institution, organization, or personal with whom the eligible institution has an agreement to provide educational programs, or to provide marketing, advertising, recruiting or admissions services makes directly or indirectly to a student, prospective students or any member of the public. Basically, anyone making any statement in any form of communication (print, verbal or other means) that has the capacity, likelihood or tendency to deceive or confuse will be in violation of this regulation. The broad definition requires clear and factual information be presented to students and covers the following types of information:

5 Nature of educational programs, such as accreditation, program content, program termination, transferability of credits, and certification for practice in a field; Nature of financial charges, such as costs and refund policies, availability and type of financial assistance, and rights in applying or rejecting any particular type of financial assistance; and Employability of graduates, such as future conditions, compensation, or employment opportunities; and requirements that are generally needed in the field. Together, regulations on incentive compensation and misrepresentation will reduce the motivation for institutions to use aggressive and misleading recruitment tactics to increase enrollment. These protections will prevent institutions from enrolling students who are unable or unlikely to benefit from an educational program and from misusing taxpayer funds. Other Admission Issues Definition of a High School Diploma A recent Government Accountability Office (GAO) report indicated that student aid programs are susceptible to fraudulent credentials as unscrupulous institutions attempt to enroll students without adhering to federal rules. Under new regulations on the definition of a high school diploma, institutions are required to develop and follow procedures for evaluation of the validity of a student s high school completion if the institution or the Department of Education has reason to believe that the high school diploma is not valid or was not obtained from an entity approved to provide secondary education. Procedures could include obtaining a copy of the student s diploma or transcript. While the Department does not specify which office, financial aid or admission, will need to handle diploma validity evaluation, it is likely that at most institutions these offices will work together to develop a procedure for evaluating high school diplomas. NACAC believes this regulation is appropriate, as many institutions already have policies and procedures for verifying the authenticity of a high school diploma as part of their admission process. To help institutions identify diplomas that are suspect, the Department will establish and maintain a list of secondary schools and add two questions to the FAFSA (print and online): In the online version, students will not be able to skip this question. Students who indicate they will have a high school diploma will be instructed to provide the name of the high school and the city and state where that school is located. In the online version, there will be a drop-down list of public and private high schools, populated by the Department s National Center for Education Statistics. Students who cannot find their high school will be able to write in the information requested.

6 If replies to these questions do not correspond with the Department s list, the Department may select the student s FAFSA for further review by the institution to determine if the student has a valid high school diploma before the student can receive any Title IV federal student aid. In addition, if an institution has reason to suspect the validity of a high school diploma, regardless of FAFSA completion, the institution is responsible for determining validity. The Department will provide institutions with guidance on developing and implementing procedures for this regulation, as necessary, in Dear Colleague Letters, electronic announcements, and the Federal Student Aid Handbook. NACAC is collecting policies and procedures from members to share in the NACAC Knowledge Center. NACAC will publish a policy brief with additional information about this regulation and its implementation in the coming weeks. Ability to Benefit Test Students who do not have a high school diploma or general equivalency diploma (GED) wishing to enroll in postsecondary education are required to pass an ability to benefit (ATB) test of basic math and English skills for eligibility for loans, grants, and campus-based aid under Title IV of HEA. The October 2009 Government Accountability Office report revealed that during an investigation, test administrators and institution officials violated rules by providing students with answers and altering students answers on ATB tests. When students without skills needed to succeed in postsecondary education are allowed to enroll, the institution receives federal student aid dollars and the students are at greater risk for dropping out and defaulting on student loans. Given the abuses noted in the report, NACAC supports the Department s efforts to limit test administration abuses by holding institutions responsible if it or an employee compromises the testing process, as noted in the final regulations. Among many regulations, the new rules: Define precisely the various aspects of the test administration, including: assessment center, ATB test irregularity, test administrator, and test publisher; Require the Department follow specific test approval procedures of test publisher applications; Require tests be given by an assessment center by a certified test administrator who maintains the test in a secure location and submits the tests for scoring within two days of administration. Gainful Employment The entirety of final gainful employment regulations are not yet released; however, the initial rules released in October require proprietary and postsecondary vocational institutions providing programs of training that prepare students for gainful employment in a recognized occupation, as stated in Sections 102(b) and (c) of the Higher Education Act, annually submit to the Department of Education information about students who complete programs in this category. Examples of these programs include training in: auto mechanics, cosmetology, culinary arts, and heavy equipment operation. In addition to the reporting requirement, the new regulations require the aforementioned type of institutions disclose on their Web sites information about: 1) The occupations that its program prepare students to enter, along with links to occupational profiles on U.S. Department of Labor s Occupational Information Network (O*NET) online

7 2) The on-time graduations rate of students entering a program 3) The cost for completing each program, including costs for tuition and fees, room and board, and other institutional costs typically incurred by students enrolling in the program 4) The placement rate for students completing each of those programs, as determined by the Department of Education s National Center for Education Statistics; until then, if an institution s state or accrediting agency requires calculation of placement rates, those rates shall be used 5) The median loan debt incurred by students who completed each program, identified separately as Title IV Higher Education Act loan debt and debt from private education loans and institutional financing plans. The Department is still developing metrics to hold programs accountable for meeting federal requirements and intends to publish a final rule on this topic in spring 2011.