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Friday, September 28, 2007
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U. of California Campus Benefits From Referring Students to a For-Profit College
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As President Bush signs bill increasing student aid, several lenders announce cuts in staff or benefits
U. of California campus benefits from referring students to a for-profit college
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At a time when some American colleges stand accused of illegally profiting from unsavory associations with businesses involved in awarding federal student aid, at least one major public university has found an apparently legal partner: a for-profit university.
For the past five years, the University of California at Irvine has had an arrangement with Capella University, an online for-profit institution based in Minneapolis, in which Capella pays the public university $500 for every continuing-education student referred to it. Capella has paid at least $12,000 under the program.
The U.S. Education Department considers such arrangements legal. But critics are not so sure, saying the payments appear to violate the spirit, if not the letter, of a general federal ban on per-student recruitment incentives.
Such an agreement between two universities "raises serious questions about the breadth of potential conflicts of interest at college campuses using funds, at least in part, from federal student aid," U.S. Rep. Thomas E. Petri, a Wisconsin Republican and former vice chairman of the House of Representatives education committee, said when informed of the relationship by The Chronicle.
The University of California refused to answer questions about either the payments or related documents that have been uncovered. But a spokeswoman for the Irvine campus, Cathy Lawhon, issued a written statement after six days of consultation with university lawyers, in which she said: "We believe that our business relationship with Capella was conducted in full compliance with the law. However, we have asked legal counsel to review the agreement."
In addition to accepting the money from Capella, the University of California at Irvine appears, according to e-mail messages and a student who uncovered them, to have tried to hide the payments.
While setting up the relationship, Gary W. Matkin, dean of continuing education at Irvine, wrote an e-mail message in September 2002 to Capella's president, Michael J. Offerman, to tell him that Capella's "lawyers still have problems with our marketing arrangement, even though we have been careful not to talk about per-student arrangements."
"At no time did either Capella nor UCI ever tell me" about the referral payments, said the student, Jeffry La Marca, of Rancho Santa Margarita, Calif., who enrolled at Capella in 2003 after earning three certificates in information technology at Irvine.
Mr. La Marca discovered the fee structure when he obtained e-mail messages and other documents through a public-records request as part of an unrelated lawsuit against Capella.
Safe Harbors
Under its 1992 renewal of the Higher Education Act, Congress banned commission-based recruiting by colleges that receive federally guaranteed student aid. The intent was to take away an incentive for recruiters, motivated only by the commissions they would receive, to enroll students in programs they were not prepared for. Senate staff members at the time described cases in which recruiters had visited welfare offices and low-income housing projects, hoping to find people willing to sign up as college students and receive federal aid.
But the Bush administration published regulations in November 2002 that modified the ban on incentive payments. The regulations created a series of conditions, known as "safe harbor" exemptions, that expanded the types of recruitment payments that would be allowed under the law.
Capella's relationship with Irvine, which started in the fall of 2002, dates from that period.
Under the 2002 regulations, universities are not considered to be among the entities barred from receiving per-student payments for recruiting, said an Education Department spokeswoman, Jane Glickman. She said that the department would not discuss individual cases such as the arrangement between Irvine and Capella, but that "the payment of a per-student fee for the marketing services is not in itself a violation of the incentive-compensation prohibition."
The administration's regulatory interpretation of the law is improper in the view of the American Association of Collegiate Registrars and Admissions Officers, which led college and student representatives in arguing against the administration's language in 2002.
The regulations "would be establishing a policy that will undoubtedly result in future scandals," the groups -- including the American Association of State Colleges and Universities and the United States Student Association -- warned at the time.
The discovery of the arrangement between Irvine and Capella comes as American colleges and student-loan companies are facing a series of criticisms and investigations concerning their handling of more than $83-billion annually in federal student aid. Much of the pressure has been driven by New York State's attorney general, Andrew M. Cuomo, who has been exploring whether the lenders have been providing illegal inducements to win student-loan business.
The chairman of the Senate education committee, Sen. Edward M. Kennedy, Democrat of Massachusetts, issued a critical report on student-loan marketing practices early this month that repeatedly complained about lenders paying referral fees to colleges based on the volume of private loans taken out by students. "Such arrangements violate college officials' fiduciary duty to provide neutral, unbiased loan advice to students, since the kickback the college receives creates a strong financial incentive to steer students toward a particular lender," the report says.
The payments to Irvine by Capella raise similar concerns, said Barmak Nassirian, an associate executive director of the American Association of Collegiate Registrars and Admissions Officers. "Even if it is legal, is it seemly and appropriate in light of everything else that's going on?" Mr. Nassirian said.
Credit and Blame
Irvine and Capella describe their partnership as an articulation agreement, a common type of alliance in which one institution agrees to recognize the credits and course work of another.
Mr. La Marca, who is 49, enrolled at Capella hoping to use his credits from Irvine toward a master's degree. He withdrew after completing one quarter, complaining about the quality of a new software program that operated Capella's online service, and sued for tuition reimbursement. The case is pending.
Like Ms. Lawhon, of Irvine, a spokesman for Capella initially declined to comment, then issued a written statement. In the statement, Michael Walsh said 36 students had "taken advantage of the articulation agreement over the past five years."
The payments by Capella help "offset the costs to Irvine for informing their students and alumni of the articulation agreement," Mr. Walsh said. More than 70 percent of Capella students receive some form of financial aid, including government-backed loans, the university says on its Web site.
Both Ms. Lawhon and Mr. Walsh declined to say whether their universities were involved in similar practices with other institutions.
The Education Department believes it is "not uncommon" for colleges to sign contracts with other colleges to develop and provide academic programs, with compensation paid on a per-student basis, Ms. Glickman said.
The University Continuing Education Association agrees. "There are a lot of different models," said Kay J. Kohl, the group's executive director and chief executive, for working out how one institution reimburses another.
But the Irvine contract with Capella appears to be substantially different in that colleges don't typically pay each other purely for student referrals, said Virginia Moxley, a director of the Institute for Academic Alliances, which advises colleges on such arrangements.
"I have had conversations with for-profit" institutions, said Ms. Moxley, dean of the College of Human Ecology at Kansas State University, "and their models and the public models just don't mesh easily, to form a good partnership."
"I think it could be done, but maybe what you tend to end up with is something more like this -- UC-Irvine has become a vendor supplying students to Capella," she said.
The potential conflict in such a relationship is higher if the students were not informed about the fee payments, or their academic adviser was, Ms. Moxley said.
Representative Petri said he shared such concerns. Colleges should accept students "based on academic merit -- not on a college's financial gain," he said, and students should be made aware of any fees exchanged.
For such a small amount of money, Ms. Moxley said, Irvine may now be regretting the arrangement.
"This is not a relationship I would get into as a public institution," she said.
Background articles from The Chronicle:
- Financial-Aid Officials at Capella U. and Widener U. Lose Jobs in Loan Investigation (6/7/2007)
- 2 More Universities Settle With Cuomo in Lender Controversy, Including One That Vowed a Court Fight (5/16/2007)
- Education Department Eases Rules on Incentive Payments to College Recruiters (11/4/2002)
- Education Department Proposes Guidelines for Compensating Student Recruiters (3/8/2002)