Vol. 2 — School Eligibility and Operations, 2008-2009
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Schools may not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any individual or entity engaged in recruiting or admission activities or in making decisions regarding the award of FSA program funds.
ED identified 12 types of payment and compensation plans that do not violate this statutory prohibition. These 12 safe harbors are divided into two categories.
The first safe harbor comprises the entirety of the first category, and describes whether a particular compensation payment is an incentive payment. It explains the conditions under which a school may pay compensation without that compensation being considered an incentive payment.
The second category is composed of the remaining 11 safe harbors. It describes the conditions under which a school may make an incentive payment to an individual or entity that could potentially be construed as based upon securing enrollments or financial aid. The safe harbors in this category describe the conditions under which such a payment may be made. If an incentive payment arrangement falls within any one safe harbor, that payment arrangement is not covered by the statutory prohibition.
Adjustments to employee compensation
This safe harbor strikes a balance between a school’s need to base its employees’ salaries or wages on merit, and the Department’s responsibility to ensure that such adjustments do not violate the statutory prohibition against the payment of commissions, bonuses, and other incentive payments. Under this safe harbor, a school may make up to two adjustments (upward or downward) to a covered employee’s annual salary or fixed hourly wage rate within any 12-
T
he 12 “safe harbors”
The payment or compensation plans included in the safe harbors cover the following subjects:
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adjustments to employee compensation—34 CFR 668.14(b)(22)(ii)(A),
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recruitment into programs that are not eligible for FSA program funds—34 CFR 668.14(b)(22)(ii)(B)
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payment for securing contracts with employers—34 CFR 668.14(b)(22)(ii)(C)
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profit-sharing or bonus payments—34 CFR 668.14(b)(22)(ii)(D)
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compensation based upon students completing their programs of study—34 CFR 668.14(b)(22)(ii)(E)
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payments to employees for pre-enrollment activities—34 CFR 668.14(b)(22)(ii)(F)
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compensation paid to managerial and supervisory employees not involved in admissions or financial aid—
34 CFR 668.14(b)(22)(ii)(G)
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token gifts—34 CFR 668.14(b)(22)(ii)(H)
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profit distributions—34 CFR 668.14(b)(22)(ii)(I)
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Internet-based recruiting activities—34 CFR 668.14(b)(22)(ii)(J)
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payments to third parties for services to the school that do not include recruitment activities—34 CFR 668.14(b)(22)(ii)(K)
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payments to third parties for services that include recruitment activities—34 CFR 668.14(b)(22)(ii)(L)
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month period without the adjustment being considered an incentive payment, provided that no adjustment is based solely on the number of students recruited, admitted, enrolled, or awarded financial aid. One cost-of-living increase that is paid to all or substantially all of the school’s full-time employees will not be considered an adjustment under this safe harbor. In addition, with regard to overtime, if the basic compensation of an employee is not an incentive payment, neither is overtime pay required under the Federal Fair Labor Standards Act.
Enrollments in programs that are not eligible for FSA funds
A school may provide incentive compensation to recruiters based upon their recruitment of students who enroll only in programs that are not eligible for FSA funds.
Contracts with employers to provide training
In general, the business-to-business marketing of employer-provided education is not covered by the incentive compensation prohibition. This safe harbor addresses payments to recruiters who arrange contracts between a school and an employer, where the employer pays the tuition and fees for its employees (either directly to the school or by reimbursement to the employee).
As long as there is no direct contact by the school’s representative with prospective students, and as long as the employer is paying at least 50% of the training costs, incentive payments to recruiters who arrange for such contracts are not covered by the incentive payment prohibition, provided that the incentive payments are not based on the number of employees who enroll, or the amount of revenue generated by those employees.
Profit-sharing or bonus payments
Profit-sharing and bonus payments to all or substantially all of a school’s full-time employees are not incentive payments based on success in securing enrollments or awarding financial aid. As long as the profit-sharing or bonus payments are substantially the same amount or the same percentage of salary or wages, and as long as the payments are made to all or substantially all of the school’s full-time professional and administrative staff, compensation paid as part of a profit-sharing or bonus plan is not considered a violation of the incentive payment prohibition. In addition, such payments can be limited to all or substantially all of the full-time employees at one or more organizational levels at the school, except that an organizational level may not consist predominantly of recruiters, the admissions staff, or the financial aid staff.
Compensation based upon program completion
Compensation that is based upon students successfully completing their educational programs, or one academic year of their educational programs, whichever is shorter, does not violate the incentive compensation prohibition. This safe harbor recognizes that a major reason for the incentive compensation prohibition is to prevent schools from enrolling unqualified students. Completing a program
Covered employee
One who is involved in recruitment, admissions, enrollment, or financial aid activities
Compensation based on program completion: credits must be earned in residence
For this purpose, a school may not count transfer credits, credits awarded through successful completion of testing, credits for life experience, and any other credits not earned through attendance at that school toward the successful completion of an academic year.
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of education or, in the case of students enrolled in a program longer than one academic year, completing the first academic year of that program, is a reliable indicator that the students were qualified to enroll in the program.
Successful completion of an academic year means that the student has earned at least 24 semester or trimester credit hours or 36 quarter credit hours, or has successfully completed at least 900 clock hours of instruction at the school . (Time may not be substituted for credits earned.) In addition, the 30 weeks of instructional time element of the definition of an academic year does not apply to this safe harbor. Therefore, this safe harbor applies when a student earns, for example, 24 semester credits, no matter how short or long a time that takes.
Pre-enrollment activities
Generally, clerical pre-enrollment activities are not considered recruitment or admission activities. Accordingly, a school may make incentive payments to individuals whose responsibilities are limited to pre-enrollment activities that are clerical in nature.
However, soliciting students for interviews is a recruitment activity, not a pre-enrollment activity, and individuals may not receive incentive compensation based on their success in soliciting students for interviews. In addition, since a recruiter’s job description is to recruit, it would be very difficult for a school to document that it was paying a bonus to a recruiter solely for clerical pre-enrollment activities.
Managerial and supervisory employees
The incentive payment prohibition, therefore, does not extend beyond first line supervisors or managers. This safe harbor recognizes that the incentive payment prohibition applies only to individuals who perform activities related to recruitment, admissions, enrollment, or the financial aid awarding process and their immediate supervisors. Direct supervisors are included in this prohibition because their actions generally have a direct and immediate impact on the individuals who carry out these covered activities.
Token gifts
Under this safe harbor, the regulations have been amended to take into account an increase in the value of what is considered a token gift. The Department has increased the maximum cost of a token, noncash gift that may be provided to an alumnus or student to $100, provided that:
• the gifts are not in the form of money; an