Clarification of Regulations Related to Incentive Compensation

The U.S. Department of Education issued updated guidance on incentive compensation last week after APSCU v. Duncan led the court to find that that the Department had not  adequately explained or supported its decision to ban compensation to an educational institution’s recruiters of students based on the students’ graduation from or completion of educational programs offered by the institution.

The regulations at 34 CFR §668.14(b)(22),implementing the statutory ban on enrollment-based compensation to recruiters of students, 20 U.S.C. 1094(a)(20), do not contain a ban on graduation – based or completion-based compensation.

The Department has changed its interpretation because, at this time, it lacks sufficient evidence to demonstrate that schools are using graduation-based or completion-based compensation as a proxy for enrollment-based compensation. In assessing the legality of a compensation structure, the Department will focus on the substance of the structure rather than on the label given the structure by an institution.

Thus, although compensation based on students’ graduation from, or completion of, educational programs is not per se prohibited, the Department reserves

the right to take enforcement action against institutions if compensation labeled by an institution as graduation-based or completion-based compensation is merely a guise for enrollment-based compensation, which is prohibited. Compensation that is based upon success in securing enrollments, even if one or more other permissible factors are also considered, remains prohibited.

You can read the full Federal Register here: http://bit.ly/1Uq1PDR

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