For-Profit Colleges Win Ruling Over Incentive Payments

Career College Central Summary:

  • The U.S. Department of Education can’t deny for-profit colleges federal funds because they offer postgraduation bonuses and reward employees for high enrollment, a federal judge ruled Thursday.
  • The Association of Private Sector Colleges and Universities sued the Department of Education in 2011 under the Administrative Procedure Act after the agency amended its rules for awarding federal grants.
  • The regulations prohibit for-profit colleges from awarding recruiters and managers pay raises based on recruitment quotas or graduation rates, according to court papers.
  • The department dishes out more than $150 million in federal money to higher education each year. To qualify for this money, colleges and universities must meet a list of regulations, according to court documents.
  • For-profit colleges have faced scrutiny for “questionable recruiting tactics” and coercing “underqualified students,” who drop out and default on loans, U.S. District Judge Rosemary Collyer wrote.
  • But the agency couldn’t justify its ban on graduation and recruiting rewards, she said. And the agency couldn’t explain how condemning recruiting incentives wouldn’t harm efforts to recruit minorities, Collyer wrote.
  • The association "correctly asserts that the department has failed to explain and substantiate its wholesale ban on graduation-based compensation,” Collyer wrote.
  • “In addition, the department has not furnished an adequate response to commenters’ concerns about the impact of its regulations on minority recruitment.”

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