Alarm bells are ringing in some quarters of higher education in the wake of President Trump’s victory—but not the ones you might expect.
Some believe that the outgoing leadership at the U.S. Department of Education will soon rewrite the 2011 Dear Colleague Letter to undercut how colleges enter into contracts with external providers that offer a bundle of services, as Phil Hill reported.
The concerns are significant enough that Congresswoman Virginia Foxx, chairwoman of the House Committee on Education and the Workforce, recently wrote the Department a letter warning them not to make any changes to the guidance and expressing “strong reservations about any last-ditch efforts by an outgoing administration that would disrupt current educational delivery.”
In a piece a few weeks ago, I had asked whether, in a post-Chevron world, the Department of Education’s 2011 Dear Colleague letter that has allowed online program manager (OPM) companies to enter into revenue-sharing agreements with universities might be impermissible in the first place.
Astute readers with legal backgrounds wrote me after my piece was published and argued convincingly that my worries were misplaced—for two major reasons:
1) Chevron deference applied only when an agency undertook a formal rulemaking process and issued an actual regulation;
2) And, independent of Chevron, the interpretation permitting an exception to the incentive compensation ban for entities offering a bundle of services arguably dates back to the 1990s when the ban first appeared—and therefore rests on more durable ground than a Dear Colleague Letter alone would suggest.
Thus, if the Department of Education tried to revoke the 2011 Dear Colleague Letter, it would actually be highly problematic, even in a post-Chevron world. This would mean that OPMs’ ability to continue to enter into revenue share agreements with universities should be safer than has been widely assumed.
The Higher Education Act bans incentive compensation—paying money—to employees or third parties in exchange for enrolling students.
The 2011 Dear Colleague Letter said that the ban didn’t apply, however, to third parties that provided a bundled set of services, which could include recruitment. Revenue-sharing agreements with these firms—and OPMs specifically—were therefore OK, so long as the institution retained control over admission.
Chevron deference never applied to Dear Colleague Letters
My original concern was that in a post-Chevron world, which reversed deference to regulatory agencies like the Department of Education, I didn’t see how a Dear Colleague Letter could stand.
But a 2001 Supreme Court ruling in United States v. Mead Corp. had clarified that Chevron deference applied only when an agency undertook a formal rulemaking process and issued an actual regulation. A Dear Colleague Letter doesn’t go through a formal rulemaking process, nor is it an actual regulation.
Therefore, the undoing of Chevron deference didn’t actually impact the standing of Dear Colleague Letters more generally.
Not only that, but courts still use what’s called Skidmore deference—dating back to a 1944 Supreme Court decision. In this case, if a statute is ambiguous, then Courts defer to agency interpretation—and the Dear Colleague Letter falls under that category of interpretations.
Interpretations dating back to the 1990s suggested Congress never meant to ban rev-share agreements
Here’s where the Supreme Court’s ruling in LoperBright, which reversed Chevron, arguably strengthened the weight of that 2011 letter.
In its decision, the Supreme Court once again recognized that there are certain circumstances when there are long-standing principles of interpretation that an agency has held over a long period of time that have weight. Although the Court now has the final word on regulatory matters, one of its tools to do so is to look at how a statute was understood at the outset.
In the case of a bundled services exception to incentive compensation, this arguably dates back to the 1990s.
On the heels of the writing of the incentive compensation ban into the 1992 reauthorization of the Higher Education Act, the Clinton administration didn’t expressly ban revenue-sharing agreements with outside, independent entities that provided a bundle of services, including recruiting, in its 1994 regulation. Nor did it go after those organizations following this practice throughout the 1990s.
Then, in 2002, the Bush administration created a regulation that stated that “Congress did not intend to limit an institution’s ability to contract with outside entities for recruitment, admissions, enrollment, or financial aid services if the outside entity adheres to the same limitations that apply to institutions.” Among other things, this means that the outside entity can’t make incentive payments to its employees based on the number of students who enroll.
As a result, both the Clinton and Bush 43 administrations maintained this approach—an important fact given that OPMs date to even before 2U in 2008, despite claims otherwise.
When Congress reauthorized the Higher Education Act in 2008 and left the language around incentive compensation untouched—meaning it didn’t insert language to reverse or further clarify the Department of Education’s interpretation—there’s a strong case to be made that they were acquiescing in the regulatory approach of the past 14 years.
Moreover, when the Obama administration repealed the 2002 regulation in 2010, it quickly reified the bundled services exemption interpretation in 2011 through the Dear Colleague Letter, which offered even more guidance. That Letter has then stayed intact through the duration of the Obama and Trump administrations, and through Biden’s as of this writing.
In other words, five presidential administrations have all consistently interpreted this exemption the same way. The Dear Colleague Letter proactively sought to maintain this understanding.
If the Department of Education were now to repeal the Dear Colleague Letter, it wouldn’t be hard, in other words, to challenge its repeal. And had the administration tried to repeal it through negotiated rulemaking, in a post-Chevron world that would likely have been challenging as well.
All of this suggests that the provision allowing bundled service providers to partake in revenue-share agreements with Universities may be safer than most think.
And that’s a good thing in my view, as I’d much prefer to see the Department of Education regulate universities around their student outcomes rather than how universities choose to operate.
This piece was originally published on Forbes here.
