March 16, 2023 — Letter

The undersigned student, consumer, and borrower advocacy groups write in response to the Education Department’s examination of bundled services (Docket ID ED–2023–OPE–0030) and an incentive compensation loophole we believe has had significant negative consequences for students and our system of higher education.

We have long supported the strong statutory ban on incentive-based student enrollment compensation, which prohibits institutions from making commission-based payments to admissions and financial aid representatives. Several of us advocated in 2010 for the revocation of “safe harbor” provisions that had previously gutted the statutory requirement. This ban has long been in place to help prevent incentives for institutions and the companies with which and individuals with whom they contract for recruiting students to use misleading and high-pressure recruiting tactics. We continue to believe that the ban has been an important tool in helping to curb some of the most predatory recruiting conduct that occurred in the 2000s.

Unfortunately, the bundled services loophole established through guidance shortly after the 2010 rulemaking remains inconsistent with the statute and regulations. The loophole has allowed institutions to make incentive-based payments to companies with which they contract if the companies provide other services “bundled” with their recruitment activities. At the time the Department issued this guidance, a small number of companies offered bundled services to a small number of colleges. But this loophole has incentivized the dramatic expansion of bundled service agreements, leading to hundreds of colleges paying companies based on the number of students recruited, enrolled, and packaged with financial aid – the exact conduct prohibited by statute. The guidance has had significant negative effects.