LEGAL ISSUES
ENROLLMENT MANAGEMENT NOW LIABLE FOR THIRD PARTY VENDORS
By Ron Holt and David LeFevre O
utsourcing is a fact of life for higher education, par- ticularly when it comes to recruitment. Colleges use
third-party marketing companies, ad agencies, social media contractors, enrollment management software solutions and a host of third parties to identify, communicate with and enroll prospective students. These vendors are by their very nature third parties—“independent contractors” in the law business. It is far too easy for schools to overlook how vendors go about doing what it is they are supposed to do and, as has been the subject of debate recently, how they get paid for doing it.
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ENTER THE FEDERAL PROGRAM INTEGRITY REGULATIONS The incentive compensation rules that became effec- tive July 1 changed the decade-old regulatory land- scape for how admissions and recruitment personnel were compensated. The underlying principle did not change: The Higher Education Act prohibits schools from giving commissions, bonuses or other incentive payments based directly or indirectly on success in securing enrollments to anyone engaged in student recruiting or admission activities. Among the changes to this relatively straightforward principle, the Depart- ment of Education redefined who someone “engaged in student recruiting or admission activities” is to include entities performing services on behalf of insti- tutions—i.e., vendors—and it reinterpreted what kinds of payments are prohibited.
THE RULES DON’T APPLY TO MY VENDORS… OR DO THEY? There is little argument that the intended target of the rule changes was the proprietary sector, but the new rules apply to all segments of higher education. Practices at all schools must be reevaluated. Under the Department’s new incentive compensation regula- tions, there is no difference between purchasing lists of prospective students—“leads,” if you will—and par- ticipating in college matching or college social net- working sites. They are all evaluated the same way by asking the same two questions: what is the vendor doing, and how is it getting paid?
3 NOVEMBER/DECEMBER 2011 |
TODAYSCAMPUS.COM 4
STEP 1: WHAT DOES THE VENDOR DO, EXACTLY? Not every recruitment-related vendor is subject to the incentive compensation ban. An advertising agency creating and placing ads (if that is all it is doing) does not fall within the activities the ED considers “recruit- ment” or “admissions.” An Internet media company that hosts a leader board site, collects contact infor- mation from students who click on a particular school or program and sends that information to the school is also not covered by the rule. Taking it a step further, consider a vendor that hosts a landing page for a spe- cialized program, provides enrollment applications for interested folks, reviews those applications for com- pleteness and forwards them to the school. As involved as that vendor appears to be in the recruit- ment process, it is not subject to the incentive com- pensation rules. The reason the vendors in these examples are not
subject to the Department’s incentive compensation ban is that none of them engaged in what the Depart- ment calls “covered activity.” To reduce a rather com- plex analysis down to a few words, the primary characteristic that distinguishes between covered activ- ities and activities that are not addressed by the rule is solicitation of individual students. Before wiping your brow, uttering “whew,” and moving on, consider this: Vendors are evolving past the Stone Age of col- lecting directories and selling them. It is a very low value-added proposition to simply resell lists of contact information, so more and more marketing and media
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