Paying the Salesmen

Stephen Burd, the author of the Monthly’s November/December feature,“The Subprime Student Loan Racket,” recently wrote a new piece on for-profit schools. In an article called “The Art of Spin Career-College Style,” he wrote for the New America Foundation’s blog, Burd argues that it’s time to think seriously about incentive compensation. This an illegal practice in which college admissions personal receive bonuses based on the number of students they enroll. According to Burd:

Now, with the Obama administration preparing to strengthen its rules banning incentive compensation, these very same lobbying groups are pointing to that lax enforcement to suggest that there weren’t any problems in the sector to begin with.

In 2002 the Education Department created “safe harbors” for colleges. The safe harbors allowed colleges to amend admissions employees salaries regularly, provided the salary adjustments were “not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid.”

Burd argues this change brought about a situation in which for-profit admissions staff got bonuses for enrolling many, many students, whether or not they could succeed.

For-profit schools argue this isn’t true. There’s no systemic problem, they say, often pointing to a February U.S. Government Accountability Office report that said there’s no trouble; in the last seven years the Education Department punished only 14 schools for illegal incentive compensation violations, and only half of them were for-profit schools.

The trouble is that the GAO report doesn’t really say that. The GAO report is merely a list of violations and doesn’t reach any conclusions about the effectiveness of the safe harbor provisions. Furthermore, says Burd:

The idea that policymakers can judge the scope of the abuses by looking solely at the Education Department’s enforcement actions over the last decade is completely absurd. After all, the Bush administration officials who led the Department for much of this time had little interest in enforcing the ban in the first place.

The whole thing about the safe harbor provisions, after all, was that they allowed schools to get away with paying admissions offers to enroll students. The fact that few schools were punished for violating the weakened compensation rule is not evidence of safe harbor’s effectiveness; that’s just what safe harbor does by definition.

The Career College Association objects, saying that Burd “views safe harbors as an incentive compensation blank check.” In fact, according to the CCA, safe harbor is “interpretive guidance pertaining to a complicated and often times ambiguous set of regulations.”

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer