The Tip of the Iceberg

Living With the (Rest of the) New “Program Integrity” Regulations in an Online Environment Presentation © Dow Lohnes pllc 2011

Michael B. Goldstein Practice Leader, Higher Education Dow Lohnes, pllc

October 29, 2010 Federal Register Pages 66832 thru 66975 (143 pages)

The above cartoon by Peter Steiner has been reproduced from page 61 of July 5, 1993 issue of The New Yorker, (Vol.69 (LXIX) no. 20)only for academic discussion, evaluation, research and complies with the copyright law of the United States as defined and stipulated under Title 17 U. S. Code. On the Internet Nobody Knows You’re a Dog

Areas Relevant to Online Learning* Definition of a “Credit Hour.” Prohibition against “Incentive Compensation.” Definition of “Misrepresentation.” Clarification of “Last Day of Attendance” Definition of “Gainful Employment” and “Recognized Occupation.” *other than State Authorization

Hour” Credit Hour The “New” Credit Hour

The New Credit Hour The regulations describe a credit hour as: an amount of work represented in intended learning outcomes verified by quantifiable evidence of student achievement, as measured against the standard of the Carnegie Unit.

The “New” Credit Hour Based on the early 20 th Century “Carnegie Unit” – a unit of faculty workload. One credit hour = one hour of classroom work + two hours of outside of class study for a minimum of 15 semester weeks or 10-12 quarter weeks, or the equivalent amount of work over an equivalent amount of time.

The “New” Credit Hour The regulations “affirm” that Credit hour determination is an institutional responsibility , The definition is a minimum expectation, but Credit hour policies and procedures must be reviewed by an institution’s accreditor and found consistent with the regulatory standard .

The “New” Credit Hour Recognition of Accrediting Agencies: (f) Credit hour policies. The accrediting agency, as part of its review of an institution for initial accreditation or pre-accreditation or renewal of accreditation, must conduct an effective review and evaluation of the reliability and accuracy of the institution's assignment of credit hours. 34 CFR § 602.24

The “New” Credit Hour Written policy and procedures that address the review and evaluation of the institution's assignment of credit hours as defined for Federal program purposes. Procedures that include criteria for assessing an institution's assignment of credit hours, adequacy of the institutionally-identified policies and procedures, and evidence of an accurate, reliable application provided by the institution. Review processes that encompass a varied sample of the institution's degree and non-degree programs in terms of academic discipline, level, delivery modes, and types of academic activities. An agency's review does not need to look at all courses.

The “New” Credit Hour May use sampling to determine credit hour assignments if the agency provides guidance to site review teams on selecting a sample that adequately encompasses a variety of disciplines, degree levels, teaching/learning formats, and delivery modes. Determinations of whether an institution's processes and procedures result in the establishment of reasonable equivalencies for the amount of academic work described in paragraph (1) of the credit hour definition within the framework of acceptable institutional practices at comparable institutions of higher education for similar programs * * *. The accrediting agency must take action if it identifies an institution that has deficiencies in its credit allocations. If the problems result in systemic non-compliance, the agency must notify the Secretary.

Hour” Credit Hour Incentive Compensation

Incentive Compensation The institution will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance

Incentive Compensation The institution will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance, except that this paragraph shall not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal student assistance.

Incentive Compensation People covered: Any person or entity engaged in any student recruiting or admission activities, or in making decisions regarding the award of financial aid. Payments covered: Any commission, bonus or other incentive payment. Basis of payments: Based directly or indirectly on success in securing enrollments or financial aid.

Incentive Compensation “ Safe Harbors” in Effect July 2003-June 2011 Fixed compensation (salary or fixed wages) Programs not eligible for Title IV aid Arranging contracts between institution and employer, for employer’s employees Profit-sharing and bonus plans Completion of program or one academic year Clerical pre-enrollment activities Managerial and supervisory employees Token gifts to students and alumni Profit distributions based on ownership interests Internet-based recruitment activities Payments to third parties whose activities do not include recruitment, admissions Payment to third parties whose activities do include recruitment, admissions,

Incentive Compensation New regulations effective July 1, 2011: All safe harbors repealed Emphasis on statutory language: Institutions may not provide any commission, bonus, or other incentive payment based [in any part,] directly or indirectly, upon success in securing enrollments or award of financial aid, to any person or entity engaged in any student recruitment or admissions activity or in making decisions regarding award of Title IV funds

Incentive Compensation In lieu of safe harbors, ED adds two global definitions – expansive in scope, restrictive in effect Commission, bonus or other incentive payment: Sum of money or something of value paid or given to person or entity for services rendered Securing enrollments: Any activities for purpose of admission of students, or matriculation of students for any period of time Includes contact in any form with prospective students

Incentive Compensation Payments to Outside Organizations Old Rule: Permitted any payment arrangement by an institution to an outside organization that provided services involving recruiting or admissions activities or awarding of Title IV funds Specifically permitted tuition-sharing arrangements Provided that: An outside organization could not compensate individuals performing recruitment/admissions/financial aid services for school in any manner that was impermissible for institution to compensate its own employees

Incentive Compensation New regulations are complicated, some would say “muddled” Institution may not provide incentive compensation to any entity engaged in any student recruitment (or admissions or financial aid awarding) activity ED says same restrictions apply to school’s payment to third parties, as apply to school’s payment of own employees

Incentive Compensation Dear Colleague Letter attempt at clarification… Not permissible: Tuition-sharing payments based on formula that relates amount payable to entity, to number of students enrolled as result of activity of entity Permissible: Tuition as source of revenue from which compensation is paid to unrelated third party for variety of bundled services However, ED says it does not consider payment based on amount of tuition generated by institution to violate incentive compensation law if: That payment compensates an unaffiliated third party That third party provides a “bundle” of services that may include recruitment services

Incentive Compensation Example offered by ED: An institution may pay a third-party entity an amount based on tuition generated for the institution by the entity’s activities, provided each of the following conditions are met: The entity is not affiliated with institution or any other institution The entity is providing “bundled services” to the institution The institution pays the entity a consolidated amount for all bundled services provided collectively The institution does not pay the entity separately for student recruitment services The entity does not make prohibited compensation payments to its employees

Incentive Compensation And the prohibition is comprehensive -- Under prior rules, excluded from coverage of incentive compensation restrictions was: Any compensation to recruiters based on their recruitment of students who enrolled only in programs that were not eligible for Title IV funds (For example, short-term training programs not leading to a degree or certificate, that were not approved for students to receive Title IV funds).

Incentive Compensation New regulations no longer have this exemption ED repealed this safe harbor, saying it was inappropriate to carve out a further exception to the statutory language The only exception explicitly contained in the statute is for recruitment of foreign students residing in foreign countries who are not eligible to receive Title IV funds ED says incentive compensation restrictions apply to the entire institution, regardless of nature of the particular program of instruction The definition of “enrollment” in the new regulations simply means the admission of a student into any part of an eligible institution For enrollment in any program offered by the institution.

Hour” Credit Hour Misrepresentation

Misrepresentation “ Misrepresentation” is: Any false, erroneous or misleading statement made to a student, prospective student or any member of the public , or to an accrediting agency, a State agency or ED by the institution, one of its representatives or persons with whom an institution has an agreement to provide educational programs or marketing, advertising, recruiting or admissions services.

Misrepresentation “ Substantial misrepresentation” is: any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.”

Misrepresentation Misrepresentation specifically includes representations about: accreditation status or scope, or requirements for specialized accreditation to practice in a field or employability, or the prospect for employment, including employability of graduates, or transferability of credits, as well as conditions for accepting credits earned at another institution, or false, erroneous or misleading statements about whether successful completion of a course of instruction qualifies a student to receive, apply to take or take required licensure or certification examinations.

Misrepresentation Definitional Traps: An institution does not have to be a “Bad Actor” There is no “materiality” standard or requirement of bad intent Statements prohibited even if they merely have “a tendency to deceive or confuse” The rule effectively attaches the concept of “strict liability” to all institutional communications. Virtually any institutional communication is subject to the rule, which establishes institutional liability for statements made by any third-party agent or vendor, to any member of the public, or to an accrediting agency or any state agency

Hour” Credit Hour Last Day of Attendance (LDA) The “Sleeper” Issue for Online Programs

Last Day of Attendance (LDA) What is it? “ LDA” is the date an institution is expected to use to calculate the amount of a Title IV refund when a student withdraws from a program. The later the LDA, the less the refund.

Last Day of Attendance (LDA) A majority of institutions with significant online programs reported that they calculated LDA based on the last day a student entered a secure classroom site – That is, “last click.” Source: WCET/ITC Survey, 2010

Last Day of Attendance (LDA) Guidance included with new regulations requires evidence of “ academic engagement ” for online enrollments. Versus requiring evidence of “ physical presence in the classroom ” for on-the-ground programs.

Last Day of Attendance (LDA) ED reviewers have rejected student logging into his or her secure online class as sufficient evidence of “attendance” to determine LDA. This can dramatically change calculation of refunds due back to ED, and can create huge institutional liabilities. ED admits there is no prior general guidance supporting its position. However, it has retroactively applied the new standard to prior years’ program practices.

Last Day of Attendance (LDA) The ultimate bad outcome: The Inspector General has now issued an audit finding that because an institution’s online program lacked sufficient “engagement” it would be classified as “Correspondence Study.” If an institution enrolls a majority of its students in correspondence study it ceases to be eligible to participate in the Title IV programs . The IG has recommended that the institution refund several tens of millions of dollars of student aid. The institution is a small independent (non-profit) college.

Hour” Credit Hour Gainful Employment

Gainful Employment The law: An eligible institution [is one that] offers a postsecondary education program that is: At least a one-academic-year training program that leads to a certificate, degree or other recognized educational credential, and Prepares students for gainful employment in a recognized occupation.

Gainful Employment “ Recognized occupation”: An occupation that is— (1) Identified by a Standard Occupational Classification (SOC) code established by the Office of Management and Budget or an Occupational Information Network O*NET–SOC code established by the Department of Labor and available at http://online.onetcenter.org or its successor site; or (2) Determined by the Secretary in consultation with the Secretary of Labor to be a recognized occupation.

Gainful Employment That has been the interpretation of the law from 1965 to June 30, 2011.

Gainful Employment New Rule: The nature of the program (leads to a known occupation) is replaced by a set of metrics based on employment rates, salary outcomes and default rates. A program that does not meet the GE standard would cease to be Title IV-eligible.

Gainful Employment GE is Applicable to Public and Non-Profit Institutions in Certain Circumstances – A new FAQ from ED: Question: “I am confused about whether a program that is at least two years in length and is fully transferrable to a four year degree program is a GE Program. Does it matter whether the two year program leads to a certificate or other credential awarded by the institution?”

Gainful Employment Answer: The short answer is that only programs that are at a non-profit or public institution and are at least two academic years in length and that are specifically designed to be a transfer program and that do not lead to a certificate or other credential awarded by the institution are Title IV-eligible non-GE Programs.

For Further Information Contact us at www.dowlohnes.com/education Or call/email Mike Goldstein 202.776.2569 or [email_address] Blain Butner (incentive compensation) 202.776.2579 or [email_address] Greg Ferenbach (state authorization) 202.776.2792 or [email_address] Ken Salomon (last day of attendance) 202.776.2566 or [email_address]

Thank you! Michael B. Goldstein Member of the Firm and Practice Leader Higher Education Dow Lohnes pllc 1200 New Hampshire Ave NW Washington, DC 20036 202.776.2569 [email_address]

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