Sec. 302. Strengthening the Incentive Compensation Ban
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It is the sense of Congress that— the use of commission-paid sales practices, also known as incentive compensation, leads to overly aggressive, manipulative, and often misleading tactics in advertising, recruiting, and counseling students; such practices are inappropriate at any institution benefitting from Federal funding and an implied Federal endorsement through participation in programs under title IV of the Higher Education Act of 1965 ( 20 U.S.C. 1070 et seq.); previous investigations by the Federal Trade Commission, as well as by Congress, including the Permanent Subcommittee on Investigations of the Senate (referred to as the Nunn Commission ) in 1991 and the Committee on Health, Education, Labor, and Pensions of the Senate in 2012, found that incentive compensation schemes frequently contribute to high-pressure sales and other predatory abuses at federally supported schools; the ban on incentive compensation under section 487(a)(20) of the Higher Education Act of 1965 ( 20 U.S.C. 1094(a)(20) ), as amended by subsection (b), is intended to preclude the use of such abusive practices at any point in the process of recruiting or enrolling students, or assisting students in securing employment; and an institution that receives assistance under title IV of such Act remains responsible for the actions of any entity that performs functions and tasks on the institution’s behalf, and these responsibilities include ensuring that employees, third party servicers that contract with such institutions, and third party contractors are not paid for services that would convert these payments into prohibited incentive compensation because of the activities in which the employees, third party servicers that contract with such institutions, or third party contractors engage.
Section 487 ( 20 U.S.C. 1094 ) is amended— in subsection (a), by striking paragraph
(20)and inserting the following: The institution, any third party servicer that contracts with such institution, and any third party contractor will comply with the ban on prohibited incentive compensation ban under subsection (j). ; and by adding at the end the following: In this subsection: The term covered activity means any of the following activities: Securing enrollment of students into the institution of higher education, which includes— activities that an individual or entity engages in at any point in time during an educational program for the purpose of the admission or matriculation of students for any period of time, including contact in any form with a prospective student, such as contact through preadmission or advising activities, scheduling an appointment to visit the enrollment office or any other office of the institution, attendance at such an appointment, or involvement in a prospective student’s signing of an enrollment agreement or financial aid application; and other recruitment and marketing activities. Securing or awarding financial aid to students for attendance at the institution, including— any involvement in a prospective student’s signing of a financial aid application; and completing financial aid applications on behalf of a prospective applicant (including activities authorized by the Department, such as the FAA Access tool, which can be used to enter, correct, verify, or analyze financial aid application data). Improving job placement activities for students attending, or who have attended, the institution. Reducing the number of students who default on their student loans. The term covered activity does not include— the provision of student contact information for prospective students, if any payment for such service is not based on— any additional conduct or action by the third party servicer that contracts with such institutions or third party contractor or the prospective student, such as participation in preadmission or advising activities, scheduling an appointment to visit the enrollment office or any other office of the institution or attendance at such an appointment, or the signing, or being involved in the signing, of a prospective student’s enrollment agreement or financial aid application; or the number of students (calculated at any point in time of an educational program) who apply for enrollment, are awarded financial aid, or are enrolled for any period of time, including through completion of an educational program; or student support services not included in the covered activities under clause (i). The term prohibited incentive compensation includes— any commission, bonus, or other incentive payment, of a sum of money or other item of value, paid to or given to a person or an entity that is not a fixed salary or wages and that is paid or given for meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities; other direct or indirect forms of payment for meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities, including— tuition sharing as a measure of compensation when based on a formula that relates the amount payable to the entity to meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, as a result of the covered activity of the entity; profit-sharing plans from which distributions are made to individuals based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, as a result of covered activities by the recipient; salary adjustments that take the form of incentive payments based directly or indirectly on meeting a quota or numerical target, or avoiding penalties for a benchmark set in Federal law, with respect to a covered activity; payments based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities; and bonuses or other payments based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities; a decrease or removal of a payment or benefit described in subclause
(I)or
(II)(and not excluded under clause (ii)), if that decrease or removal is based directly or indirectly on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities; and a change in employment status, such as a promotion, demotion, or termination if based on meeting a certain quota or numerical target, or avoiding penalties for a benchmark set in Federal law, relating to covered activities. The following payments or benefits shall not be considered prohibited incentive compensation, if the payment or benefit is determined in a way that is not related to the role the recipient plays in any covered activity: A profit sharing plan, including a qualified cash or deferred arrangement (as defined in section 401(k)(2) of the Internal Revenue Code of 1986) offered to all employees on a basis that is neutral with respect to the role the recipient plays in any covered activity. An employee benefits plan offered to all employees on a basis that is neutral with respect to the role the recipient plays in any covered activity. A cost of living adjustment. A payment to a senior executive with responsibility for the development of policies that affect marketing and recruitment, enrollment, financial aid, or student support services, including job placement services. The term recruitment and marketing activity means— broad information dissemination and disseminating targeted information to individuals; soliciting individuals regarding an institution; advertising a program that disseminates information to potential students; collecting contact information; contacting potential applicants for the admission or matriculation of a student into an institution; screening pre-enrollment information to determine whether a prospective student meets the requirements that an institution has established for enrollment in an academic program; aiding individuals in filling out any information relating to an application for admission or matriculation into an institution; determining whether an enrollment application is materially complete, as long as the enrollment decision remains with the institution; or any other activity described in section 126(d)(2). The term student support services means any of the following services: Counseling or other nonacademic support activities provided to students that is not a covered activity. Institutional services provided to students, such as information technology assistance, food service, or housing, that is not a covered activity. Other services involved in the administration of support for students that is not a covered activity. The institution, any third party servicer that contracts with such institution, and any third party contractor shall not provide any prohibited incentive compensation to any person or entity. The ban on prohibited incentive compensation under this subsection applies to any entity or individual engaged in any covered activity, including— with respect to an entity engaged in any student recruitment or admission activity or in making decisions about the award of financial aid, any institution or entity that undertakes the recruiting or the admitting of students or that makes decisions about and awards program funds under this title; and with respect to an individual engaged in any student recruitment or admission activity or in making decisions about the award of financial aid— any employee who undertakes recruiting or admitting of students or who makes decisions about and awards program funds under this title; and any higher-level employee with responsibility for recruitment or admission of students, or making decisions about awarding program funds under this title. The ban on prohibited incentive compensation under this subsection shall not apply to any senior manager or executive level employee who— is involved only in the development of policy related to the manner in which marketing and recruitment, enrollment, financial aid, or student support services will be pursued or provided; and does not engage in individual student contact or other covered activities. An employee of an institution, a third party servicer that contracts with such institution, or a third party contractor, who receives multiple adjustments to compensation in a calendar year and is engaged in a covered activity shall be considered to be engaged in prohibited incentive compensation if the adjustments create compensation that is based in any part, directly or indirectly, upon meeting certain quotas or numerical targets, or avoiding penalties for a benchmark set in Federal law, regarding those covered activities. The institution shall provide notice of the ban on prohibited incentive compensation under this subsection at least once a year to each third party servicer and third party contractor that contracts with the institution. The institution, and any third party contractor or third party servicer that contracts with such institution, shall— provide notice of the ban on prohibited incentive compensation under this subsection at least once a year to employees; and publish a clear statement in all internal recruitment materials, including guides or manuals, acknowledging the ban on prohibited incentive compensation under this subsection. The Secretary, in coordination with the Office of the Inspector General of the Department of Education, shall develop a written policy for the enforcement of the ban on prohibited incentive compensation under this subsection, and shall update that policy as needed. The policy developed under subparagraph (A)— shall require that compliance review occur on an annual basis; may include automatic triggers for inquiries by the Department or regular secret shopper or audit-based investigations to ensure that institutions of higher education remain in compliance with the ban; and shall explain the range of sanctions, as described in section 489A, that the Secretary may carry out to enforce this subsection. The Department shall publish an annual report, and shall submit that report to the authorizing committees and the For-Profit Education Oversight Coordination Committee established under section 125, which shall include— a description of the status of any investigations conducted under this subsection; the names of institutions found to be not in compliance with this subsection; the sanctions the non-compliant institution of higher education faced; and in the case of an institution subject to liability for funds under this title pursuant to subparagraph (B)(iii), the amount of such liability. .
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