Incentive Compensation
A key consumer protection in The Higher Education Act (HEA) is the 1992 ban on incentive compensation. The HEA prohibits institutions from paying individuals or third parties commissions or bonuses based on the number of students enrolled. Allowing these payments incentivizes recruiters to deceive prospective students. The ban was enacted to reduce high-pressure, deceptive sales tactics in college admissions documented in a major Congressional investigation in the early 1990s.
The ban has been periodically weakened by the Department of Education through guidance. Most recently in 2011, the Department issued guidance that allows third parties including Online Program Managers (OPMs) engaged in financial aid packaging and recruitment of students to be paid based on the number of student enrollments. This guidance goes against the intent and the plain language of the incentive compensation ban in statute, and the coalition strongly supports closing the loophole created by this guidance.
Additionally, the Department of Education’s Inspector General called for greater oversight and enforcement of the ban on incentive compensation in order to provide greater protection for students and taxpayers. Instead, there has been little enforcement of the ban, while predatory conduct and other abuses by OPMs continue to come to light. The incentive compensation ban must be better enforced to prevent abusive recruiting and sales tactics by colleges.