Department of Education Seeks to Crack Down on Incentive Compensation

On June 2, 2015, Under Secretary of Education Ted Mitchell issued a memorandum announcing new enforcement standards for violations of the incentive compensation prohibition under the Higher Education Act of 1965.  Under that prohibition, institutions receiving federal funds under Title IV of the Higher Education Act may not provide incentive or bonus payments to anyone involved in student recruiting, admissions activities or financial aid decisions if the incentive or bonus payment is based on securing student enrollment or financial aid awards.  As a condition of receiving Title IV funds, institutions must certify that they will comply with the incentive compensation prohibition, among other rules.

Under the new enforcement standards, if an institution violates the incentive compensation rule, the Department of Education may go back and recoup all Title IV funds received by the institution based on its false representation that it would comply with the incentive compensation rule.  The Department may also issue fines and seek to bar the institution from participating in Title IV programs.  This marks a significant change in Department policy and markedly increases the potential penalties an institution may face.

Client Tip: Institutions should evaluate their compensation practices for their recruiting, admissions and financial aid staff and should modify those practices as necessary to comply with the incentive compensation prohibition.

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