Title IV Program Integrity Regulations: State Authorization Incentive Compensation Misrepresentation

April 16, 2012 Steven M. Gombos, Esq.

Ritzert & Leyton, P.C.

04/16/2012 Ritzert & Leyton, P.C. 1

Disclaimers

 The views expressed in this presentation and its accompanying materials are those of the speaker, and do not necessarily reflect the policy or position of PCCS.

 The contents of this presentation and its accompanying materials do not constitute legal or regulatory advice. No one should act or refrain from acting on the basis of this webinar without seeking individualized, professional counsel as appropriate. 04/16/2012 Ritzert & Leyton, P.C. 2

NOTE: Ongoing Developments

    

APSCU v. Duncan:

Challenging State Authorization, Incentive Compensation and Misrepresentation Regulations.

July 12, 2011 Ruling (Currently on Appeal. Oral Argument took place 2/21/2012 in DC Circuit Ct.)    State Authorization: Vacated State authorization rule vacated on procedural grounds – Dept. failed to provide sufficient periods of public notice and comment on the state authorization provisions through rulemaking process.

However, Dept. possesses authority to impose licensing mandate on states.

Dictum: APSCU lacks legal standing to challenge viability of federal mandate.

Incentive Compensation: Upheld Misrepresentation: Upheld 04/16/2012 Ritzert & Leyton, P.C. 3

Introduction – State Authorization

 State Authorization is a core component of the definition of “proprietary institution of higher education” (34 C.F.R. § 600.5):

(a) A proprietary institution of higher education is an educational institution that — (4) Is legally authorized to provide an educational program beyond secondary education in the State in which the institution is physically located;

 Department historically had viewed institution as authorized for purposes of Title IV if the institution’s State does not require licensure or authorization to operate in the State.

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State Authorization cont.

The Department’s Final Rule for Program Integrity Issues published October 29, 2010 (75 FR 66946) added the following to 600.5(a)(4):

(a) A proprietary institution of higher education is an educational institution that — (4) Is legally authorized to provide an educational program beyond secondary education in the State in which the institution is physically located in accordance with § 600.9

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What is State Authorization under § 600.9?

There are 4 categories of state authorization:     # 1: Institution is public, private nonprofit, or for-profit institution

established by name

by a State

through a charter, statute, or other action issued by an appropriate State agency or State entity as an educational institution authorized to operate educational programs beyond secondary education

, including programs leading to a degree or certificate .

Such an institution must comply with any applicable State approval or licensure process and be approved or licensed by name; may be exempted from such requirement based on its accreditation, or being in operation at least 20 years.

DCL GEN-11-05: A letter from the State acknowledging the institution is not sufficient “other action”.

DCL GEN-11-05: Institution must be authorized by all pertinent State agencies, which may extend beyond State educational agency.

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What is State Authorization under § 600.9?

 #2: Institution is established by State on the basis of an authorization to conduct business in the State, or to operate as a nonprofit charitable organization, but not established by name as an educational institution.

   State must have an approval or licensure process, and the institution must comply with that approval or licensure process and be approved or licensed by name.

Such an institution may not be exempted from State approval or licensure based on accreditation, years in operation, or a comparable exemption.

DCL GEN-11-05: Articles of incorporation are not sufficient unless specific to the establishment of a postsecondary institution by name under state law (i.e., not the same form of articles as for other businesses or nonprofit entities in the State) 04/16/2012 Ritzert & Leyton, P.C. 7

What is State Authorization under § 600.9?

 #3: Authorized to operate by Federal or tribal governments:   Includes Congressionally-chartered colleges and universities, military service academies.

Tribal colleges and universities, provided the tribal government has a process to review and act upon complaints.

 #4: Exemption for religious institutions:   Owned, controlled, operated, and maintained by a religious organization lawfully operating as a nonprofit religious corporation; and Awarding only religious degrees or certificates.

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What is State Authorization under § 600.9?

 All types of institutions authorized by a State must be subject to a process whereby the State reviews and addresses complaints directly or through referrals.

  DCL GEN-11-05: Applicable State laws can include general consumer protection and fair-advertising laws. Delegation permitted, but final authority must remain with State. DCL GEN-11-05: If multiple agencies are applicable to an institution, the institution must provide students and prospective students with contact information for filing complaints for all relevant agencies (e.g., nursing and cosmetology boards).

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What is State Authorization under § 600.9?



Requirements took effect July 1, 2011

 For physical campus locations, two one-year extensions are possible if an institution obtains from its state an explanation of how extension(s) will permit the State to modify its procedures to permit compliance.

 Dear Colleague GEN-11-11 provides some additional time to comply for Distance Education activities,

but efforts to comply must be underway

(more on that later…) 04/16/2012 Ritzert & Leyton, P.C. 10

Distance Education under § 600.9(c)

 If an institution is offering programs through distance or correspondence education to students in a State in which it is not physically located or in which it is otherwise subject to State jurisdiction

as determined by the State

, the institution must meet any State requirements for it to be legally offering postsecondary distance or correspondence education in that State.

 An institution must be able to document to the Department the State’s approval upon request.

  Regulation shifts focus, for distance education purposes, from where the institution is physically located to where students reside.

State requirements in this area can turn on how the state defines “doing business,” “offering educational programs” or “distance education.” 04/16/2012 Ritzert & Leyton, P.C. 11

Distance Education under § 600.9(c)

 Multiple Dear Colleague Letters:  DCL GEN-11-05   While the location of a student is initially determined at the time of enrollment, the student’s eligibility under the state authorization requirement must be reevaluated before each new award to the student.

There is no Federal minimum number of enrollments to trigger the Title IV requirements.

 DCL GEN-11-11  Department will not initiate enforcement actions to establish liabilities for “distance education activities undertaken before July 1, 2014 if the institution is making

good faith efforts to identify and obtain necessary State authorizations before that date .”

 Department will review carefully instances where institution is not acting in good faith, such as willfully refusing to comply with a State requirement for licensure.

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Distance Education under § 600.9(c)

  

Examples of “good faith efforts” from DCL GEN-11-11:



Documentation of a distance education management process for tracking students’ place of residence.



Documentation of correspondence with a State to discuss programs the institution is providing to students in that State.

 

An application to a State, even if it is not yet approved. Documentation from a State that an application is pending.



The Dept. has indicated that the above documentation need not be submitted to the Dept. directly and can be kept in the school’s files in the event the Dept. asks for it.

Department initially stated in DCL GEN-11-05 that it would not publish any list of State requirements for distance education.

Department reversed position in DCL GEN-11-11 and stated it would develop a comprehensive directory of State requirements.

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State Authorization Issues and Challenges

 How can an institution document to the Department that it has all required State Authorizations?

 What if licensed by more than one State agency?

  State laws, regulations and policies can change even for physical, ground-based campuses.

Licensure by Accreditation option may change or be eliminated (at least as an option for Title IV eligibility) in some States.

 What if a State in which any institution operates a physical campus does not have a process for approving postsecondary institutions?

 Is there a sufficient complaint review process?

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

State Authorization Issues and Challenges cont’d.

How does an institution know which States will deem its distance education activities to require licensure?

 Identify the institution’s activities in each State, including but not limited to:  Student enrollments      Admissions activities and call centers Advertising activities Faculty presence Computer servers Participation at events  Externships 04/16/2012 Ritzert & Leyton, P.C. 15



State Authorization What is a school to do?

Physical campuses

    Be sure that school holds all required state authorizations.

Review whether state authorizations meet the Department’s standards.

Talk with states where school is licensed in some measure by accreditation – what is the state’s view on whether it remains enough?

If warranted, coordinate with State officials to request extension(s) from the Department.

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 

State Authorization What is a school to do? cont’d.

Distance education – Don’t wait!

 Take an inventory of which States you have students, admissions reps or call centers, advertising, faculty, etc.

  Determine what States are meaningful, you may not want to operate in all 50 States due to the regulatory burden and cost.

Find an initial source/survey of state specific information until the Department releases a list to help understand individual State requirements (e.g. State Higher Education Executive Officers www.sheeo.org).   Begin reaching out to top states where you have students .

May need to terminate faculty, change programs by removing externship requirements in order to qualify for exemptions or may need to teach out students.

Develop a process to stay current

 State laws and requirements are changing, and will continue to do so.

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Incentive Compensation

     Compensation of any kind to recruiting, admissions, and financial aid employees and entities Existing regulations substantially changed New restrictions on incentives and compensation of any kind Covered parties expanded (“to the top”) New rules on payments to third parties 04/16/2012 Ritzert & Leyton, P.C. 18

Incentive Compensation

 Under New Regs, 12 “safe harbors”

eliminated

 Institution agrees that it will not provide

any

commission, bonus, or other incentive payment

based in any part

,

directly or indirectly

, upon success in securing enrollments or the award of financial aid  Applies to persons engaged in

any

student recruitment or admission activity or in making decisions about the award of financial aid,

any

employee who undertakes recruiting or admitting of students or who makes decisions about and awards title IV funds, and

any

higher level employee with responsibility for recruitment or admission of students, or making decisions about awarding title IV funds 04/16/2012 Ritzert & Leyton, P.C. 19

Incentive Compensation

 Activities include contact

in any form

with a prospective student, such as, but

not limited to

– contact through preadmission or advising activities, scheduling an appointment to visit the enrollment office or any other office of the institution, attendance at such an appointment, or involvement in a prospective student’s signing of an enrollment agreement or financial aid application  Multiple pay adjustments of a covered employee is prima facie evidence of an improper payment 04/16/2012 Ritzert & Leyton, P.C. 20

Incentive Compensation

    The Preamble 

ED’s two part test

: Is it a Commission, Bonus, or Incentive Payment and  Is it paid based in any part, directly or indirectly, on success in securing enrollments or the award of financial aid Salary increase based on merit, seniority, or length of employment allowed

subject to the new rule

Can apply

“to the top”

of the institution (i.e. Senior Management) Any additional guidance from ED will come in a broadly applicable format distributed widely to all participating institutions,

e.g., 03/17/2011 Dear Colleague Letter (GEN-11-05)

 Dept.’s reasoning: “senior management may drive the organizational and operational culture at an institution, creating pressures for top, and even middle, management to secure increasing numbers of enrollments from their recruiters.” 75 Fed. Reg. 34818.

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Incentive Compensation

 GEN-11-05: Table 1

Covered Activities Activities that are ALWAYS subject to the ban on incentive compensation Exempt Activities Activities not subject to the ban on incentive compensation include the following, unless the activities of the employee or entity also involve a covered activity.

Recruitment activities, including:

Targeted information dissemination to individuals; Solicitations to individuals; Contacting potential enrollment applicants; aiding students in filling out enrollment application information 04/16/2012

Marketing Activities, including:

Broad information dissemination; Advertising programs that disseminate information to groups of potential students; Collecting contact information; Screening pre-enrollment information to determine whether a prospective student meets the requirements that an institution has established for enrollment in an academic program; Determining whether an enrollment application is materially complete, as long as the enrollment decision remains with the institution Ritzert & Leyton, P.C. 22

Incentive Compensation

 GEN-11 05: Table 1 cont’d .

Services related to securing financial aid, including:

Completing financial aid applications on behalf of prospective applicants (including activities

Student support services offered after the point at which financial aid is allowed to be disbursed for a payment period, including:

General student counseling; which are authorized by the Department, such as the FAA Access tool, which can be used to enter, correct, verify, or analyze financial aid application data) Career counseling; Financial aid counseling, including loan management; Online course support - both professional services and computer hardware and software; Academic support services, including tutoring, aimed at student retention, whether that support is provided prior to attendance

Policy decisions made by senior executives and managers related to the manner in which recruitment, enrollment, or financial aid will be pursued or provided, such as, e.g., decisions to admit only high school graduates

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Incentive Compensation

   

GEN-11-05:

Examples of covered/exempt activities: Employee posts program information on the web and answers general inquiries re: enrollment application and forwards completed applications to school with no additional direct contact with applicants (

exempt

).

3 rd party servicer collects FA information and helps applicant locate other publicly available information about programs & resources in completing FA application with no additional contact with applicant (

exempt

). If servicer offers further counseling or assistance with completing the application, he/she is performing

covered

activity.

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Incentive Compensation

• • GEN-11-05: Examples of covered/exempt activities cont’d.: − Employee tutors students after they are admitted and become eligible for FA but before 1 st disbursement or start of classes (

exempt

).

− Employee encourages students to consider enrolling before purported enrollment deadline. Employee’s activity is considered recruitment (

covered

).

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Incentive Compensation

   GEN-11-05: Examples of covered/exempt activities cont’d.: Even though Employee is recruiter (

covered

), he/she is eligible for a merit annual salary increase based on

standard evaluative factors

that are independent of the number of students recruited, retained, or graduated.

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Incentive Compensation

Types of payment that are direct or indirect payment of incentive compensation

“Tuition sharing” as a measure of compensation when based on a formula that relates the amount payable to the entity to the number of students enrolled as a result of the activity of the entity Profit sharing plans from which distributions are made to individuals based on the number of students enrolled by virtue of covered activities by the recipient (section 668.14(b)(22)(ii)(B)) Salary adjustments that take the form of incentive payments based directly or indirectly on success in securing enrollments or financial aid Payments based on the application of an admissions policy Bonus or other payments based on success in securing enrollments or financial aid

Types of payment that are not direct or indirect payment of incentive compensation

Tuition as a source of revenue from which compensation is paid to an unrelated third party for a variety of bundled services (Example 2-B) Profit sharing plans, including 401(k) type plans, from which distributions are made to individuals on a basis that is neutral with respect to the role the recipient plays in student recruitment or the securing of financial aid Employee benefits plans offered to all employees on a basis that is neutral with respect to the role the recipient plays in student recruitment or the securing of financial aid Cost of living adjustments (COLAs) Compensation adjustments based upon seniority Payments to faculty based upon student class 04/16/2012 Ritzert & Leyton, P.C. 27

Incentive Compensation

 GEN-11 05: Table 2 cont’d.

Payments to faculty based upon student class size or academic achievement Payments to senior executives with responsibility for the development of policies that affect recruitment, enrollment, or financial aid Payments based upon securing student housing or other student services, including career counseling Volume driven arrangements based on services that are not recruitment or securing of financial aid 04/16/2012 Ritzert & Leyton, P.C. 28

Incentive Compensation

  GEN-11-05:   Examples of prohibited/permitted payments: 3 rd recruitment or awarding financial aid. Any payments made to 3 party servicer provides services that do not include rd party servicer are

permitted

because

activities

are

exempt

. E.g., lead generators paid per click through.

Unaffiliated 3 rd party providing school generated by the 3 rd

bundled

party’s activities are educational services (marketing, enrollment application assistance, recruitment, online course support services, provision of technology, placement services for internships, and student career counseling). Payments based on tuition

permitted

as long as the 3 rd party does not make prohibited incentive payments to its employees and the school does not pay 3 rd party separately for recruitment services.

04/16/2012 Ritzert & Leyton, P.C. 29

Incentive Compensation

 

GEN-11-05:



Examples of prohibited/permitted payments cont’d.

Vendor ensures that enrollment applications are complete and forwards them to the school. Vendor also receives financial aid files and verification documentation to complete the verification process before returning the FA files to the school. Payments made by Vendor to its own employees based on the number of files processed are permitted because they do not recruit or admit students, or make FA decisions.

04/16/2012 Ritzert & Leyton, P.C. 30

Incentive Compensation

  GEN-11-05: Q: Does incentive comp rule apply to all employees regardless of title or position?

 A: Yes, but …“Senior managers and executive level employees who are only involved in the development of policy and do not engage in individual student contact or other covered activities listed in Table 1 will not generally be subject to the incentive compensation ban.” 04/16/2012 Ritzert & Leyton, P.C. 31

Incentive Compensation

   GEN-11-05: Q: What “

standard evaluative factors

compensation of employees?

” other than seniority may an institution take into account in determining A: any qualitative factor not related to success in securing student enrollments or award of financial aid. e.g., job knowledge, professionalism, analytic ability, initiative in work improvement, clarity in communications, use & understanding of technology, accuracy, thoroughness, dependability, punctuality, adaptability, peer rankings, student evaluations, and interpersonal relations.



BEWARE: Despite the Dept.’s guidance on evaluative factors, the Dept. has indicated that it will take action when it perceives that non-enrollment criteria is being used to disguise enrollment based criteria. (“Disguise”, “Pretext”, “Sham”).

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Incentive Compensation

  GEN-11-05: Q: Can you make payments to employees engaged in recruitment or FA decisions based upon a student’s academic performance while enrolled?

 A:

No

. Any incentive comp. for recruiters or FA advisors violates the ban. However, to the extent employees are engaged in exempt activities in Table 1, their activities may be based on successful student performance. e.g., athletic coaches.

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Incentive Compensation

   GEN-11-05: Q: When is profit sharing allowed?

A: Institutions are allowed to use “profit” for 401(k) contributions and traditional pension plans, “

as long as such payments are not designed to benefit recruitment and financial aid personnel distinct from all other institutional employees

”.

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Hypothetical 1

School X institutes a performance evaluation system rating admissions reps on criteria such as professionalism, punctuality, job knowledge, proficiency with contact management system, and number of calls made and number of interview appointments made. Each criteria is assigned a point value and admissions reps are given a percentage increase in pay based on a sliding scale.

04/16/2012 Ritzert & Leyton, P.C. 35

Hypothetical 1

   Question: Does the plan use appropriate evaluative factors?

When asked for documentation as to how X ranked employees on the criteria, X’s HR manager explains that they did not keep records to support each employee’s score. Does this present a compliance issue?

04/16/2012 Ritzert & Leyton, P.C. 36

Hypothetical 2

School Y makes an arrangement with a community association to use workers as a “canvassing team”. The team will distribute literature about Y in the neighborhood and at the Association’s HQ. The Association’s president is to be paid a fee for each student referred to the School.

37 04/16/2012 Ritzert & Leyton, P.C.

Hypothetical 2

    Questions: Is the canvassing team covered under the incentive comp rule?

Is the canvassing team “recruiting”?

Is the distribution of information “targeted”?

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Hypothetical 3

School Z develops a plan to compensate its senior management team (SMT) which includes CEO, VP of Operations, CFO, director of marketing, director of admissions, director of education, and director of financial aid. The plan will provide each member of the SMT a bonus if the School increases its EBITDA more than 5% over the prior fiscal year.

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Hypothetical 3

   Questions: Are the members of the SMT

covered employees

?

Is this profit sharing plan permitted?

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Hypothetical 4

School AA has been suffering from lower than expected enrollment. AA’s President orders the director of admissions to

rank

its 5 admissions reps by number of enrollments to-date and

fire

the two reps with the fewest number of enrollments.

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Hypothetical 4

  Question: Can AA use this information to decide to terminate a covered employee?

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Hypothetical 5

School BB evaluates admissions employees on their job knowledge, seniority, and accuracy of data entry in its contact systems each year for possible

compensation adjustments

. BB also does a semi-annual

performance review

taking into account the number of outbound calls, appointments, interviews, and starts. BB

does not

use performance review data for

compensation

purposes, but uses this information to refer employees for training, to initiate progressive discipline, or to terminate an employee. BB has complete records of both evaluations.

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Hypothetical 5

  Question: Is BB’s use of this dual evaluation system proper under the incentive compensation rule?

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New Misrepresentation Rule

    

The HEA allows ED to suspend or terminate an institution from participation in Title IV Programs for “substantial misrepresentation” that may be made in four general areas: The nature of its educational program Its financial charges Employability of its graduates Relationship with ED Section 487(c)(3) of the HEA of 1965, as amended by the HEA Amendments of 1992 [20 U.S.C. § 1094(c)(3)].



Effective July 1, 2011, ED’s amended rule prohibits misrepresentation regarding an institution, including about the nature of the institution’s educational programs, financial charges and graduate employability on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.

34 C.F.R. §§ 668.71-75 .

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What has changed?



Misrepresentation is now defined more broadly and the sanctions for substantial misrepresentations are more expansive.

34 C.F.R. § 668.71 and Subsection G.

04/16/2012 Ritzert & Leyton, P.C. 46

Misrepresentation Defined

Any

false, erroneous or misleading

statement an eligible institution, one of its representatives, or any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs, or to provide marketing, advertising, recruiting or admissions services makes

directly or indirectly

any member of the public, or to an accrediting agency, to a State agency, or to the Secretary. to a student, prospective student or A misleading statement includes any statement that has the

likelihood or tendency to deceive or confuse

. A

statement

is any communication made in writing, visually, orally, or through other means. Misrepresentation includes the dissemination of a student endorsement or testimonial that a student gives either under duress or because the institution required the student to make such an endorsement or testimonial to participate in a program.

34 C.F.R. § 668.71(c).

04/16/2012 Ritzert & Leyton, P.C. 47

Misrepresentation



“Mislead”

– likelihood or tendency to deceive or confuse.



How?

Statements made in writing, visually, orally, or through other means.



By Whom?

Made by representatives, agents, vendors, as well as marketing, advertising, recruiting, and admissions services.



To Whom?

Made

directly or indirectly

to students, prospective students, accrediting agency, State agency, Secretary, or any member of the public.

04/16/2012 Ritzert & Leyton, P.C. 48

Dear Colleague Letter

 ED has issued sub-regulatory guidance regarding the misrepresentation rule in a Dear Colleague Letter (DCL). The DCL does not fundamentally change the requirements but it clarifies that institutions will have statutory rights* to notice and hearing before sanctions may be imposed, and that the rule applies only to those misrepresentations regarding the institution’s educational programs, financial charges and graduate employability, and not just any misrepresentation regarding an eligible institution.

U.S. Department of Education,

Dear Colleague Letter re Implementation of Program Integrity Regulations

, GEN-11-05 (Mar. 17, 2011).

*

NOTE: The due process protections of 668 Subpart G are not required when ED pursues a revocation of a PPA or denies an application for recertification.

04/16/2012 Ritzert & Leyton, P.C. 49

Nature of Education Program (

§

668.72)

      Type, Nature, and Status of Accreditation Transferability of credits Whether successful completion of course qualifies student for:   Acceptance to labor union Government issued license or nongovernmental certification  Satisfaction of conditions generally needed to secure employment in the occupation Requirements for successfully completing the program including grounds for terminating enrollment. Whether courses are recommended or have been the subject of unsolicited testimonials or endorsements.

Availability, frequency, and appropriateness of courses and programs to employment objectives 04/16/2012 Ritzert & Leyton, P.C. 50

Nature of Education Program (

§

668.72) (Continued)

       Nature, age, and availability of training devices or equipment Availability of part-time employment or other forms of financial assistance Nature and availability of any tutorial or other supplementary assistance needed before, during or after course completion Nature or extent of any prerequisites for enrollment in any course Subject matter, content of course of study, or any other fact related to the credential awarded upon completion of course of study Whether academic, professional, or occupational degree conferred has been authorized by appropriate State agency Matters required to be disclosed under 34 C.F.R. 668.42 (Financial Aid) & 668.43 (School Information) 04/16/2012 Ritzert & Leyton, P.C. 51

Nature of Financial Charges (

§

668.73)

      Offers of scholarships Whether a charge is customary charge Cost of program and refund policy Availability or nature of financial assistance Duty to repay loans regardless of whether student completes program or obtains employment Student’s right to reject financial aid or other assistance or whether student must apply for particular type of aid 04/16/2012 Ritzert & Leyton, P.C. 52

Employability of Graduates (

§

668.74)

      School’s relationship with any organization, employment agency, or other agency providing authorized training leading directly to employment School’s plans to maintain placement services for graduates or otherwise assist in obtaining employment School’s knowledge about current or likely future conditions, compensation, or employment opportunities in industry Whether employment is being offered by institution or that a talent hunt/contest is being conducted Government job statistics in relation to potential placement    Other requirements generally needed to be employed: commercial driving licenses license to carry firearms failing to disclose factors that would prevent applicant from qualifying for such requirements, such as existing prior criminal record or preexisting medical conditions 04/16/2012 Ritzert & Leyton, P.C. 53

Relationship with Dept. of ED (

§

668.75) School or Third-Party Vendor

may not

describe School’s participation in Title IV programs in manner suggesting approval or endorsement by ED.

04/16/2012 Ritzert & Leyton, P.C. 54

How to Prepare

     Review all website pages, marketing materials (including print, tv, and radio copy), catalogs, and any other written materials distributed to the public Review filings made with accreditors and state agencies to ensure accuracy Evaluate training materials to make sure they are compliant: e.g., scripts for admissions reps Review all contracts with Third-Party Vendors whose services may involve representations to the public about the School Periodic reviews or audits of Third-Party Vendor activities 04/16/2012 Ritzert & Leyton, P.C. 55

Third Party Contracts - Limiting Risk Via Contract Terms         

Content Pre-Approval Clause

Defining “Content” Broadly Require Pre-Approval for Broad Categories of Content Require Use of Disclaimers and Qualifiers Prohibit Publication Without Prior Written Approval and Prohibit Alteration Post-Approval Require Vendor to Include Context in Which the Content Will Appear Use of Call Center - Require Institution-Approved Script and Access to Call Recordings Require Vendor to Provide Location (URL) For All Content Require Vendor to Copy Institutional Contact on All Communications Sent by Vendor 04/16/2012 Ritzert & Leyton, P.C. 56

Limiting Risk Via Contract Terms cont’d.

        Comprehensive Indemnity Clause Clause Regarding Vendor Insurance Coverage Clause Regarding Mandatory Vendor Compliance Training Clause Regarding Compliance with Law Clause Stating Prohibitions Regarding Referrals and Inquiry of Referrals Clause Regarding Use of Partners of Sub-Vendors Obligations Upon Termination Clause Regarding Independent Contractor Relationship 04/16/2012 Ritzert & Leyton, P.C. 57

Misrepresentation

   

PENALTIES

 Revocation of Program Participation Agreement (the most extreme consequence: ends participation in Title IV without due process protections provided in 34 CFR 668 Subpart G) (Note: only applies to provisionally certified schools).

Denial of Participation Applications, e.g., denial of application for recertification.

Proceedings seeking fine, limitation, suspension, or termination (fine can amount up to $27,500 per misrepresentation).

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Potential Statutory Actions



False Claims Act – increased number of

qui tam

actions in sector.



State Deceptive Trade Practices



State Agency Rules and Regulations



Criminal Fraud

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Limitations in Scope

     GEN-11-05: Q: Do the misrepresentation regulations create a private right of action?

A:

No

.

Q: Do the misrepresentation regulations extend beyond substantial misrepresentations made re: educational programs, financial charges, employability of graduates, or relationship with ED?

A:

No

areas.

, the rule did not expand the scope of misrepresentation beyond the four listed 04/16/2012 Ritzert & Leyton, P.C. 60

Enforcement How might the Department Chose to Enforce?

“the Department has also always operated within a rule of reasonableness and has not pursued sanctions without evaluating the available evidence in extenuation and mitigation as well as in aggravation .” 75 FR 66914 (October 29, 2010) 04/16/2012 Ritzert & Leyton, P.C. 61

Enforcement

 “As noted elsewhere in this preamble, the Department enforces its regulations, including those in subpart F of part 668 with a rule of reasonableness. …For this reason, we agree to limit the reach of the ban on making substantial representations to statements made by any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs or those that provide marketing, advertising, recruiting, or admissions services.” Federal Register, April 13, 2011 (76 FR 20636) 04/16/2012 Ritzert & Leyton, P.C. 62

Enforcement

  “…As a result, statements made by students through social media outlets will generally not be covered by these misrepresentation regulations.” Also statements made by entities that have agreements with the institution to provide services other than those relating to educational programs, marketing, advertising, recruiting, or admissions services will generally not be covered by these misrepresentation regulations (Example: Food Service).

Federal Register, April 13, 2011 (76 FR 20536) 04/16/2012 Ritzert & Leyton, P.C. 63

Related Regulations



§668.16: Standards of administrative capability – Ability to adequately administer the Title IV Program



§668.24: Record retention – Title IV Documentation (Generally 3 Years).



§668.82: Standard of conduct – Institution as a fiduciary.

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Hypothetical # 1

Admissions Rep (“A.R.”) at the Institution contacts Prospective Student (“P.S.”) by telephone and invites P.S. to tour the campus. P.S. arrives at the Institution and takes the tour. Afterward P.S. and A.R. sit down in A.R.’s office to discuss the Institution’s programs and possible enrollments. P.S. asks A.R. how much the Institution charges for tuition for its Associate Degree program in Cartography.

A.R. replies “tuition, with all the fees, plus the books and supplies you will need should come to about $22,000, but you can get financial aid to pay for most of it.”

Has A.R. misrepresented the nature of financial charges?

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Hypothetical # 2

P.S. asks if he can get a bachelor’s degree at Institution. A.R. replies that Institution does not offer bachelor’s degree programs right now, but since Institution is accredited that P.S. is able to transfer credits to another Institution that is accredited by the same accrediting body if he wants to continue progressing toward a 4 year degree.

Is A.R.’s statement about the transfer of credits false? Does accreditation guarantee acceptance of transfer credits between institutions?

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Hypothetical # 3

P.S. asks A.R. if it will be necessary to get a loan to cover P.S..’s educational costs. A.R. replies, “That depends, if you can get a scholarship or a grant, you might not need a loan. If you get a loan but later decide that Institution is not for you, you will be able to leave school before you finish your program, because Institution has a refund policy and you will not have to pay your loans back .”

Is A.R. making a misleading statement to P.S. about the Institution’s refund policy? Does any institution have a refund policy as generous as the one A.R. describes?

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Hypothetical # 4

P.S. asks A.R. if he’ll be able to get a good job after graduation. A.R. hands P.S. a piece of paper which shows that Institution had a 88% placement rate in 2009. He then provides A.R. with a report from the Department of Labor showing that the average salary of Cartographers in the United States is $55,000 a year and that there was a “bright outlook” for jobs in that field. As he is handing these materials to P.S., A.R., mentions that “there is some more information on the web”. A.R. also tells P.S. “We have a placement services office here at Institution that will help you get a job.”

Is the data provided by A.R. accurate or misleading? Could A.R.’s statement be misinterpreted as a guarantee of employment?

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Hypothetical # 5

Your school must report placement data to an accrediting commission as well as the State Department of Education. Your placement rate when calculated by the accrediting commission is 72%. However, when you complete the calculation according to the State’s methodology, your placement rate is 95%. Your print and radio ads regularly mention that 95% of students are employed after graduation, but don’t provide more detail. In addition, Admissions Representatives highlight “95% placement” as an important factor prospective students should consider.

What potential regulatory problems might your school face under this scenario?

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Hypothetical # 6

Your school’s Advertising Manager intends to implement a new advertising campaign. He shows you the ad copy, which includes photos of enrolled students and attributes quotations to them. Examples of the quotes he wants to use include, “What a great education, I found a job right after I graduated!”; “The School delivered the type of hands-on training I expected!”; “I’m making $40,000 a year in my new career!”; “I finished the program in only 6 months, you can too!”; “I loved the small classes and my classmates at the School!”; and “Without the School’s training, I could never have started my new career!” When you ask, the Advertising Manager says he has releases giving the school permission to use each student’s name and likeness in its advertising. However, he made up some of the quotations and states the release he has will protect the school.

Do any of the quotations attributed to students raise compliance – related concerns? What if the Advertising Manager obtained a release from each student giving permission to use those quotations?

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Questions?

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Steven M. Gombos represents institutions of higher education in all areas of the Firm’s education practice and is the Firm’s senior litigator. Those areas include compliance, accreditation, business transactions, litigation in federal and non-federal court related to Title IV or Title IV related compliance issues, as well as state and accreditation actions. His representation related to R&L’s higher education practice has included litigation in federal courts throughout the United States, internal investigations, OIG investigations, qui tam and government false claims actions, and the defense of owner/management in white collar criminal cases. Mr. Gombos also has significant trial experience in cases involving commercial disputes, business torts, employment, and professional liability matters. He brings considerable expertise to the negotiation of mergers and acquisitions and corporate investments in higher education.

Telephone: (703) 934-9831 Email: [email protected] www.ritzert-leyton.com

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