For-profit colleges will be barred from paying recruiters based on the number of students they sign up under rules approved yesterday by the federal government.
The regulations are aimed at questionable practices, especially in recruiting and financial aid, used by the fast-growing industry. The Government Accountability Office and the Senate are investigating such practices.
Student and education advocates applauded the guidelines as much-needed and years overdue.
"The ban on incentive compensation is a key front-end protection for federal student aid programs," said David Hawkins, director of public policy at the National Association for College Admission Counseling in Arlington, Va.
"This important change closes loopholes that led to boiler-room-style sales tactics at some colleges, with recruiters doing and saying whatever it took to get students to sign on the bottom line," said Pauline Abernathy, vice president at The Institute for College Access & Success in Washington.
The institute called for "an effective definition" for "gainful employment" to apply to rules going into effect in 2012. For-profit colleges refer to job-placement records in terms of graduates finding gainful employment, but they sometimes embellish those records, investigators found.
A draft of the restrictions on sales practices released in June slowed enrollment growth at Apollo Group Inc., the nation’s largest operator of for-profit schools and owner of the University of Phoenix.
Pittsburgh-based Education Management Corp. is the second-largest for-profit, with total enrollment of 136,000 students. It operates The Art Institute of Pittsburgh, one in a chain of 101 schools that includes Argosy University, Brown Mackie College and South University.
Argosy was one of 15 colleges that a GAO investigative report released Aug. 4 cited as having misled students in order to boost enrollment.
An Education Management spokesman declined comment. Its stock closed at $11.97 a share yesterday, up 26 cents.
The GAO found that recruiters at 15 schools, including those owned by Apollo, Washington Post Co.’s Kaplan education unit, and Education Management, misled undercover investigators about the costs and quality of programs.
The federal rules establish guidelines for course credits and require schools to notify the government of new job-training courses, the Department of Education said. The package affects for-profit and nonprofit universities and is scheduled to take effect in July.
For-profit colleges changed recruiting practices after the draft rules were published. Apollo, whose University of Phoenix is the nation’s largest for-profit college with 470,800 students, said it eliminated enrollment targets as a component of recruiters’ pay, often called "incentive compensation."
"These new rules will help ensure that students are getting from schools what they pay for — solid preparation for a good job," said Education Secretary Arne Duncan.
After Phoenix-based Apollo said Oct. 13 that new student enrollment will fall in the coming year in the changing regulatory environment, its shares dropped 23 percent the next day, and an index of 13 education companies fell 18 percent.
The Education Department is telling states to strengthen their regulations for higher education. The rules call for states to ensure they have a list of all schools authorized to operate within their borders and to designate an office where students can lodge complaints about colleges.
For-profit colleges received $26.5 billion in government student aid last year, according to the Education Department. Students at for-profit colleges represent about 11 percent of higher education students, yet they account for 26 percent of government student loans and 43 percent of loan defaults, the department said.