[Federal Register Volume 80, Number 228 (Friday, November 27, 2015)]
[Rules and Regulations]
[Pages 73991-73995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30158]



34 CFR Parts 600, 602, 603, 668, 682, 685, 686, 690, and 691

[Docket ID ED-2010-OPE-0004]
RIN 1840-AD02

Program Integrity Issues

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations; clarification and additional information.


SUMMARY: On October 29, 2010, the Department of Education published in 
the Federal Register final regulations for improving integrity in the 
programs authorized under title IV of the Higher

[[Page 73992]]

Education Act of 1965, as amended (HEA) (October 29, 2010, final 
regulations). The preamble to those regulations was revised in a 
Federal Register notice of March 22, 2013. This document clarifies and 
provides additional information about the October 29, 2010, final 

DATES: This clarification and additional information apply to the 
October 29, 2010, regulations (75 FR 66832), which were generally 
effective July 1, 2011.

FOR FURTHER INFORMATION CONTACT: Scott Filter, U.S. Department of 
Education, 1990 K Street NW., Room 8014, Washington, DC 20006. 
Telephone: (202) 219-7031 or by email at Scott.Filter@ed.gov.
    If you use a telecommunications device for the deaf (TDD), call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., braille, large print, audiotape, or compact 
disc) by contacting the contact person listed in this section.

SUPPLEMENTARY INFORMATION: The October 29, 2010, final regulations (75 
FR 66832) amended the regulations for Institutional Eligibility Under 
the HEA, the Secretary's Recognition of Accrediting Agencies, the 
Secretary's Recognition Procedures for State Agencies, the Student 
Assistance General Provisions, the Federal Family Education Loan (FFEL) 
Program, the William D. Ford Federal Direct Loan Program, the Teacher 
Education Assistance for College and Higher Education (TEACH) Grant 
Program, the Federal Pell Grant Program, and the Academic 
Competitiveness Grant (AGC) and the National Science and Mathematics 
Access to Retain Talent Grant (National Smart Grant) Programs. On March 
22, 2013 (78 FR 17598), the Department revised the preamble discussion 
to the October 29, 2010, final regulations in response to the remand in 
Ass'n of Private Sector Colls. & Univs. (APSCU) v. Duncan, 681 F.3d 427 
(D.C. Cir. 2012) (78 FR 17598). This document clarifies and provides 
additional information about the October 29, 2010, final regulations in 
accordance with a subsequent district court order in APSCU v. Duncan, 
70 F. Supp. 3d 446 (D.D.C. 2014).

Electronic Access to This Document

    The official version of this document is the document published in 
the Federal Register. Free Internet access to the official edition of 
the Federal Register and the Code of Federal Regulations is available 
via the Federal Digital System at: www.gpo.gov/fdsys.
    At this site you can view this document, as well as all other 
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    Specifically, through the advanced search feature at this site, you 
can limit your search to documents published by the Department.

Clarification and Additional Information

    Graduation-Based and Completion-Based Compensation. In APSCU v. 
Duncan, 70 F. Supp. 3d 446 (D.D.C. 2014), the district court determined 
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. 
Although the Department removed the safe harbor that permitted certain 
graduation-based or completion-based compensation and previously 
indicated that it interpreted the amended regulations to ban such 
compensation, see, e.g., 75 FR 66874, the Department hereby indicates, 
in response to the district court's decision, that the Department has 
reconsidered its interpretation and does not interpret the regulations 
to proscribe compensation for recruiters that is based upon students' 
graduation from, or completion of, educational programs. 
Correspondingly, the Department will not view the references in the 
regulations to recruiter enrollment activities that may occur ``through 
completion'' by a student of an educational program, 34 CFR 
668.14(b)(22)(iii)(B) (introduction), and (iii)(B)(2)(ii), as 
prohibiting graduation-based or completion-based compensation to 
    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.
    Impact on Minority Enrollment. The district court found that the 
Department failed to respond adequately to two commenters who 
questioned whether the amended regulations ``might adversely affect 
minority outreach.'' Id. at 456; see also APSCU v. Duncan, 681 F.3d 
427, 449 (D.C. Cir. 2012). The district court remanded the matter for 
the Department to address ``the potential effect on minority 
recruitment, i.e., whether minority enrollment could decline under the 
new regulations.'' APSCU v. Duncan, 70 F. Supp. 3d at 456.
    The particular comments were included in two submissions that also 
included comments on other aspects of the proposed regulations. The 
first commenter asked:

    Can schools increase compensation to personnel involved in 
diversity outreach programs for successfully assembling a diverse 
student body? Does the Department intend to foreclose schools' 
ability to compensate their staffs for successfully managing 
outreach programs for students from disadvantaged backgrounds like 
the eight TRIO programs administered by the Department?

DeVry to Jessica Finkel (August 1, 2010), AR--3386. The second 
commenter asked:

    How will the new regulations apply to employees who are not 
involved in general student recruiting, but who are involved in 
recruiting certain types of students? Examples would include college 
coaches who recruit student athletes, and employees in college 
diversity offices who recruit minority students. We see nothing in 
the proposed regulations that excludes these types of employees from 
the scope of the incentive compensation law. Thus, coaches who 
recruit student athletes would not be able to be compensated, in any 
part, on the number or caliber of students they recruited or the 
volume of university revenue generated by the teams on which the 
athletes played. Similarly, employees responsible for

[[Page 73993]]

recruiting minority students would not be able to be compensated, in 
any part, on an increase in minority students who enroll at the 
college. We believe both of these practices are widespread and 
promote desirable goals, and are another example of how unclear, and 
potentially far-reaching, the Department's proposed regulations are. 
We request the Department's guidance on how to apply the law to 
compensation of these particular practices.

Career Education Corporation to Jessica Finkel (August 1, 2010) AR-
    The ban on the payment of incentive compensation precludes 
institutions from paying their recruiters, or enrollment counsellors, 
bonuses based upon the number of students they enroll, irrespective of 
the student's minority or other status and irrespective of whether the 
goal of the recruiters is to increase diversity. The statute and 
accompanying regulations address the powerful incentive that such pay 
provides for the recruiter to close the sale--whether or not the 
training offered is really what the individual needs. The ban exists to 
shelter all students from abusive practices that have historically 
occurred when recruiters were rewarded based on the number of students 
enrolled, as opposed to a more fulsome evaluation of a student's 
particular needs and an institution's capacity to meet those needs. 
Congress had no basis to expect (nor do we) that recruiters paid by 
incentive-based compensation who focus their recruitment efforts on 
minorities (or any other group, including athletes) would disregard 
their personal gain as they persuade individuals to enroll.
    Minority student enrollment is not a goal in itself; minority 
student success matters, not just enrollment. Although the ban on 
incentive compensation may cause minority student enrollment numbers to 
decline, we expect that the minority students who do ultimately enroll 
will have a better chance at success, because they will have enrolled 
based on a decision made free of pressured sales tactics, and they 
presumably would be a good fit for the school they select. Indeed, as 
the Department has stated, ``[m]inority and low income students are 
often the targeted audience of recruitment abuses, and our regulatory 
changes are intended to end that abuse. It is our expectation and 
objective that enrollment of students, including minority students, 
against their best educational interests would be reduced with the 
elimination of improper incentive compensation.'' 78 FR 17600 (2013).
    In response to the district court's remand and the commenters' 
questions, the Department hereby acknowledges that the amended 
regulations could negatively affect outreach and enrollment generally, 
as well as student outreach that is specifically targeted at promoting 
diversity, which could result in fewer minority students recruited and 
enrolled. However, neither the statute nor any information presented by 
the commenters or in the administrative record provides a basis for 
treating a recruitment program directed at minority students 
differently than an institution's general or other specific recruitment 
programs. And, as explained below, there are ample ways for schools to 
maintain or increase their enrollment of minority students (and other 
students) that are likely to achieve a positive result from their 
enrollment besides providing compensation based on recruiters' 
enrollment numbers.
    For several reasons, estimating how significant the effect on 
minority recruitment or enrollment may be is difficult. A robust 
assessment of the effect of incentive-based compensation on minority 
outreach and enrollment would require a comparison between schools with 
similar characteristics, one group of which paid its recruiters with 
incentive-based compensation for minority enrollments, and the other 
group which did not. We have not conducted such an experiment, and we 
have found no such study or analysis of this issue in the literature.
    Another way to estimate the effect of the incentive compensation 
ban on institutions' recruitment of minority students would be to 
estimate how schools that pay incentive compensation to staff who 
recruit minorities would change their practices as a result of the ban 
on enrollment-based incentive compensation. If recruiting minority 
students is more difficult than recruiting other students, we expect 
schools would need to take steps to achieve the same level of success 
achieved by paying recruiters compensation based on the number of 
minority students they enroll, and that this would include, among other 
things, hiring more recruiters or changing their salary schedules in 
order to attract more talented recruiters, or both. We believe that 
schools that devote special efforts to recruit minority students and 
that used incentive compensation payments to drive those efforts in the 
past devoted significant resources to those payments, though we have no 
data quantifying those costs. We would expect those schools to redirect 
those resources if they wanted to ensure continued success in 
recruiting and enrolling minority students. Such steps could include 
increasing salaries to attract more capable recruiters or developing 
new or enhancing existing outreach activities. We expect that those 
for-profit schools that currently enroll substantial numbers and high 
percentages of minority students would take such steps.
    Accepting for purposes of this analysis the assertion that efforts 
to recruit minority students are specialized and thus require more 
resources than ordinary recruiting efforts generally used, we consider 
it reasonable to expect that some schools may conclude that the cost of 
those resources outweighs the benefits of maintaining or increasing 
special recruiting efforts for minority students. The group of schools 
more likely to choose not to allocate the added resources needed for 
specialized minority recruiting would appear to be those schools which 
depend less on minority enrollments, specifically: For-profit schools 
that offer longer programs (2 year and 4 year programs), and public or 
non-profit institutions. Minority enrollment might decline at some 
institutions in this group, because institutions in this group, 
compared to those for-profit institutions offering shorter programs, 
appear to depend less on minority enrollment than for-profit 
institutions offering shorter programs. They would be more likely to 
consider the expenses of increasing salaries or adding staff for 
specialized minority recruiting to outweigh the benefits of maintaining 
their minority recruiting efforts at the same level as before the ban. 
Nevertheless, the size of reductions in minority enrollments that would 
be fairly attributable to the ban--as opposed to other causes--remains 
difficult to predict.
    Next, we would need to determine to what extent recruiters engaged 
under any revised schemes would be likely to succeed in recruiting 
minority students without the sales tactics that the ban is intended to 
deter. Last, for schools affected by the ban, we would need to 
distinguish those effects that are fairly attributed to the incentive 
compensation ban itself from those effects that could be attributed to 
other factors such as competitors' minority student recruitment efforts 
or a program's performance under the Department's gainful employment 
regulations, which apply to the same kinds of programs at for-profit 
schools that are being promoted by such recruiters. No data exists from 
which one can make these determinations.
    While there is uncertainty about the size of any adverse effect of 
the ban on institutions' recruitment of minority students, the evidence 
that is available does not support an assertion that the Department's 
rule will seriously

[[Page 73994]]

undermine efforts to obtain educational diversity. In ``For Profit 
Higher Education: The Failure to Safeguard the Federal Investment and 
Ensure Student Success,'' \1\ the Senate HELP Committee referred to 
GAO's 2011 study of student outcomes at for-profit schools. In that 
study, GAO observed that African American and Hispanic students already 
comprised some 48 percent of all students enrolled in for-profit 
schools--more than the percent of students enrolled at for-profit 
schools who are non-Hispanic white (46 percent; Asian-Pacific Islanders 
and other non-Hispanic white students account for the other 6 percent 
of for-profit school students), double the percentage of students 
enrolled at private non-profit schools who are minority students, and 
far more than the percentage (28 percent) of students enrolled in 
public institutions who are minority students.\2\ In addition, we note 
that the pattern observed in the GAO report continued in succeeding 
years, and was reflected at each credential level.\3\ These data 
demonstrate that for-profit schools at each credential level already 
enroll disproportionately large percentages of minority students 
compared to non-minority students and therefore call into question one 
of the commenter's claims that minority recruitment efforts by the for-
profit institutions to which the ban applies are needed to successfully 
assemble a diverse student body. (AR -3386, 3429, 3430). For-profit 
schools clearly already have diverse student bodies, dramatically 
different than student bodies at public or private non-profit 

    \1\ For Profit Higher Education: The Failure to Safeguard the 
Federal Investment and Ensure Student Success, Senate HELP 
Committee, Majority Committee Staff Report, July 30, 2012, at 46, 
    \2\ Id.
    \3\ Smith, Peter & Parrish, Leslie (2014), Do Students of Color 
Profit from For-Profit College? Poor Outcomes and High Debt Hamper 
Attendees` Futures, Center for Responsible Lending, at 9, available 
at http://higherednotdebt.org/tag/center-for-responsible-lending. 
2011 data show that of African Americans who enroll in schools that 
offer only short-term (non-degree) programs (less than 2-year), 91 
percent do so at for-profit schools; of Hispanic students who 
enrolled in those schools, 85 percent enrolled at for-profit 
schools, but of white students in such programs, only 76 percent 
enrolled at for-profit schools. Of students who enroll at 2-year 
institutions, the pattern continues: 10 percent of African Americans 
and 8 percent of Hispanic students who enroll in 2-year institutions 
do so at for-profit schools, while only 5 percent of white students 
who enroll in 2-year schools do so at for-profit schools. Of African 
American and Hispanic students who enroll at 4-year institutions, 28 
percent and 15 percent, respectively, enroll at for-profit schools, 
while only 10 percent of white students who enroll at 4-year 
institutions do so. Id. at 9.

    Although the data show that for-profit schools already enrolled a 
significant percentage of minority students, estimating whether this 
diversity has been the result of the payment of incentive compensation, 
and whether the incentive compensation ban will negatively affect this 
already very diverse enrollment, would require a reliable estimate of 
the prevalence of incentive-based compensation in recruiting efforts 
directed at these minority students, as opposed to other students. The 
Department has no evidence to show what percentage of these minority 
students were enrolled on account of incentive-based compensation, as 
opposed to other features of for-profit schools.\4\ However, we do know 
that the percentage of enrolled students who were minority students in 
degree-granting institutions increased from fall 2010 to fall 2013, 
after the regulations became effective: minority enrollment as a 
percentage of all enrollment increased from 39.5 percent in 2010 to 
43.1 percent in 2013.\5\ Similarly, minority student enrollment as a 
percentage of total enrollments in for-profit degree-granting 
institutions increased from fall 2010 to fall 2013: from 49.3 percent 
(4-year institutions) and 56 percent (2-year institutions) in 2010 to 
54 percent (4-year institutions) and 61 percent (2-year institutions) 
in 2013.\6\ These changes may be the result of many factors that are 
difficult to weigh or distinguish with respect to their effects on 
enrollment, including that institutions have already made changes 
needed to recruit in a manner compliant with the ban. However, these 
data do not support a claim that the incentive compensation ban has in 
fact negatively affected minority enrollment.

    \4\ Although the percentage of revenue spent by for-profit 
institutions on advertising and recruiting, the numbers of 
recruiters, and the abusive recruiting tactics used by for-profit 
schools have been reported in, e.g., the HELP committee report, that 
report simply states variously that ``some companies'' or ``many 
companies'' used the practice. Id., at 3, 4, 50, 51. A commenter 
asserted that incentive compensation payments are ``widespread'' (AR 
    \5\ National Center for Education Statistics (NCES) (2014) 
Digest of Education Statistics (Table 306.50) available at http://nces.ed.gov/programs/digest/d14/tables/dt14_306.50.asp, and NCES 
(2011) Digest of Education Statistics (Table 241), available at 
http://nces.ed.gov/programs/digest/d11/tables/dt11_241.asp. The 
numbers of students are those identified as the ``fall enrollment'' 
students, from the Integrated Postsecondary Education Data System 
(IPEDS) maintained by the National Center for Education Statistics 
and derived from periodic reports from postsecondary institutions. 
The fall enrollment is the annual component of IPEDS that collects 
data on the number of students enrolled in the fall at postsecondary 
institutions. Students reported are those enrolled in courses 
creditable toward a degree or other formal award; students enrolled 
in courses that are part of a vocational or occupational program, 
including those enrolled in off-campus or extension centers; and 
high school students taking regular college courses for credit. 
Institutions report annually the number of full--and part-time 
students, by gender, race/ethnicity, and level(undergraduate, 
graduate, first-professional); the total number of undergraduate 
entering students (first-time, full-and part-time students, 
transfer-ins, and non-degree students); and retention rates. In 
even-numbered years, data are collected for State of residence of 
first-time students and for the number of those students who 
graduated from high school or received high school equivalent 
certificates in the past 12 months. Also in even-numbered years, 4-
year institutions are required to provide enrollment data by gender, 
race/ethnicity, and level for selected fields of study. In odd-
numbered years, data are collected for enrollment by age category by 
student level and gender. http://nces.ed.gov/ipeds/glossary/?charindex=F
    \6\ Id. Some of the data cited here post-dates the promulgation 
of the final regulations, but the Department is including such data 
for illustrative purposes.

    The Department continues to support all lawful efforts to promote 
diversity in enrollment, and nothing in the amended regulations changes 
that fact. Schools can implement effective recruiting programs 
generally, and effective minority outreach programs specifically, 
without compensating recruiters based on the number of students 
enrolled. Considerable efforts have already been made by this and other 
agencies, and non-governmental entities, to explore techniques to reach 
minority students and persuade them that postsecondary education is 
both available to them and worth their investment.\7\ It is beyond the 
scope of this clarification and additional information to incorporate 
that literature or summarize the findings. The commenters did not seek 
Department guidance on how to conduct outreach to minority students, 
and any institution interested in methods of such outreach can access 
resources and information on methods of outreach through Department and 
other sources.\8\ The commenters directly asked only for guidance about 
how to apply the compensation ban to minority recruitment practices, 
and we respond simply that the ban prohibits compensating those 
performing outreach and recruitment activities for minority students on 
the basis of the number of students enrolled. As we note above, 
minority students are often the target of recruitment practices that 

[[Page 73995]]

to enrollment in courses of study that do not further their educational 
or vocational goals and are contrary to their economic interests, and 
the rule is intended to reduce that occurrence.

    \7\ In addition, as one commenter notes, Title IV of the Higher 
Education Act authorizes the Trio Grant Programs to finance 
activities to encourage ``qualified individuals from disadvantaged 
backgrounds'' to prepare for and enroll in postsecondary education, 
and that for-profit institutions qualify for grants under these 
programs. 20 U.S.C. 1070a-11 et seq.
    \8\ See, e.g., list of resources on minority student outreach 
available through the Department's Web site: http://findit.ed.gov/search?utf8=%E2%9C%93&affiliate=ed.gov&query=minority+outreach+.

    We acknowledge that some institutions may need to revise their 
diversity outreach operations if they depend more on the financial 
motivation of the recruiter than the design of the recruiting or 
outreach plan or the relative value of the programs touted by the 
recruiter. The regulations address only the payment of incentives to 
recruiters, not the activities the school requires recruiters to 
perform. Thus, the regulations do not prevent an institution from 
holding a recruiter accountable for implementing an effective 
recruiting or minority outreach plan adopted by the institution.
    In sum, the Department acknowledges that the amended regulations 
may result in some negative impact on minority recruitment and 
enrollment. But neither the statute nor any information presented by 
the commenters or in the administrative record provides a basis for 
treating a recruitment program directed at minority students 
differently than an institution's general or other specific recruitment 

List of Subjects

34 CFR Part 600

    Colleges and universities, Foreign relations, Grant programs-
education, Loan programs-education, Reporting and recordkeeping 
requirements, Student aid, Vocational education.

34 CFR Part 602

    Colleges and universities, Reporting and recordkeeping 

34 CFR Part 603

    Colleges and universities, Vocational education.

34 CFR Part 668

    Administrative practice and procedure, Aliens, Colleges and 
universities, Consumer protection, Grant programs-education, Loan 
programs-education, Reporting and recordkeeping requirements, Selective 
Service System, Student aid, Vocational education.

34 CFR Part 682

    Administrative practice and procedure, Colleges and universities, 
Loan programs-education, Reporting and recordkeeping requirements, 
Student aid, Vocational education.

34 CFR Part 685

    Administrative practice and procedure, Colleges and universities, 
Loan programs-education, Reporting and recordkeeping requirements, 
Student aid, Vocational education.

34 CFR Part 686

    Administrative practice and procedure, Colleges and universities, 
Education, Elementary and secondary education, Grant programs-
education, Reporting and recordkeeping requirements, Student aid.

34 CFR Part 690

    Colleges and universities, Education of disadvantaged, Grant 
programs-education, Reporting and recordkeeping requirements, Student 

34 CFR Part 691

    Colleges and universities, Elementary and secondary education, 
Grant programs-education, Student aid.

    Dated: November 23, 2015.
Arne Duncan,
Secretary of Education.
[FR Doc. 2015-30158 Filed 11-25-15; 8:45 am]