Just got this from the Pittsburgh-based Education Management Corporation, the parent company of Argosy University in Eagan and Art Institutes International in Minneapolis.
It’s the company’s reaction to the lawsuit announced today by the Minnesota Attorney General’s Office.
The main argument is in bold. After that is a company memo on the law itself:
“Education Management Corporation believes the state of Minnesota’s pursuit of this case is wrong and that the Company’s 2003 compensation plan followed the law in both its design and implementation, as our forthcoming response to the Government’s complaint will show.
It is abundantly clear that federal regulations, issued in 2002, permitted companies to consider enrollments in admission officer compensation, so long as enrollments were not the sole factor considered.
To ensure compliance with this regulation, EDMC worked closely with outside experts in both human resources and education law to develop a plan that required consideration of five quality factors in addition to enrollment numbers to determine salaries. And, the Company worked vigorously to ensure that the plan was properly followed.
EDMC has been educating students for over 40 years and now has almost 150,000 students studying at 106 schools and online. Our schools are accredited institutions offering career-focused degrees to students, many of whom are underserved and often overlooked by traditional colleges and universities.”
Here’s the memo:
BACKGROUND ON LAW AND REGULATIONS GOVERNING COMPENSATION OF ADMISSIONS OFFICERS
The Law from 1992 – 2002
In 1992, amendments to the Higher Education Act of 1965 included a ban on “incentive compensation” for admissions and financial aid staff at proprietary colleges and universities receiving funding under Title IV of the HEA. The law states that colleges and universities cannot:
“provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons . . .” 20 U.S.C. 1094(a)(20)
The House-Senate conference report on the HEA amendments says that the law should not be understood to “imply that schools cannot base employee salaries on merit,” but rather that “such compensation cannot solely be a function of the number of students recruited, admitted, enrolled, or awarded financial aid.” H.R. Rep. No. 102-630, pt. G, at 499 (1992) (Conf. Rep.), as reprinted in 1992 U.S.C.C.A.N. 334.
Finding the statutory language ambiguous, many colleges and universities asked the Department of Education to review and comment on their specific compensation plans. This resulted in numerous and sometimes inconsistent interpretations of the law issued by the agency to individual schools during this time period.
Clarifying Regulations Issued in 2002
Because of this confusion and to reduce the need for individual staff interpretation of the law, the Department of Education issued clarifying regulations in 2002.
Under these regulations, proprietary colleges and universities were allowed to pay admissions officers and financial aid staff:
“fixed compensation, such as a fixed annual salary or fixed hourly wage, as long as that compensation is not adjusted up or down more than twice during any twelve month period, and any adjustment is not based solely on the number of students recruited, admitted, enrolled or awarded financial aid.” (emphasis added) 20 U.S.C. 1094(a)(20)
In the preamble to these regulations, the Department of Education said that “solely” in this context is to have a “dictionary” definition. Federal Student Aid Programs, 67 Fed. Reg. 67,055 (Nov 1, 2002).
The government also acknowledged in the preamble that “by the very job description, a recruiter’s job is to recruit”, and that Congress in adopting the statutory provision in the Higher Education Act concerning employee compensation “did not imply that institutions could not base salaries or salary increases on merit.” Federal Student Aid Programs, 67 Fed. Reg. 67,048, 67,053, 67,056 (Nov. 1, 2002).
Department of Education Directed Colleges to Outside Counsel
Even with the new regulations in place, many colleges and universities continued asking the Department of Education to review individual compensation plans. After 2002, the Department told the schools that it would no longer conduct such reviews. Instead, the agency directed the schools to work with outside counsel to ensure that their plans complied with the law.
The Current Law
Federal regulations for institutions like EDMC are constantly changing. In fact, the rules changed again starting July 1, 2011 prohibiting any compensation from being based on recruitment.