REGucation

Institutions of higher education routinely engage third‑party recruiters, and many provide valuable services that help schools connect with prospective students whom they might not otherwise reach. But institutions must choose their recruiting partners carefully and take care when outsourcing compliance obligations. Relying on the legal advice of an unqualified third-party can be costly for an institution of higher education that participates in the Title IV Programs. With there being so many issues in the air these days, it is important that institutions have a clear understanding of their obligations and receive competent, independent counsel when questions arise.

In this REGucation post, we examine a recent settlement involving a third‑party recruiter whose compensation structure and related advice to institutions ran afoul of the federal incentive compensation ban, and we highlight lessons institutions should take from the case.

International Institutions Participation in Title IV

Many REGucation readers may be surprised to learn that international institutions are eligible to participate in the Title IV Programs. In fact, hundreds of colleges and universities around the world currently receive Title IV funds, as reflected in the Department’s list of International Schools Participating in the Federal Student Loan Programs.

The eligibility criteria and compliance requirements for international schools appear in a separate section of federal regulations: 34 C.F.R. Part 600, Subpart E. Under these rules, an international institution must comply with all Title IV Program requirements unless a provision is expressly made inapplicable by the Higher Education Act (HEA) or the Secretary identifies it as inapplicable through notice in the Federal Register. 34 C.F.R. § 600.51(c)(1).

As with domestic institutions, the terms governing an international school’s participation are set out in its Program Participation Agreement (PPA), which functions as the binding contract between the institution and the Department. One of those obligations, applicable to both international and domestic institutions, is compliance with the Department’s prohibition on incentive compensation, as required by 20 U.S.C. § 1094(a)(20) and 34 C.F.R. § 668.14(b)(22).

The Incentive Compensation Ban

The HEA and the Department’s implementing regulations have long prohibited institutions participating in the Title IV programs from offering recruiters commissions, bonuses, or other incentive‑based payments based, directly or indirectly, on their success in securing student enrollments.

This blog will not unpack the full complexity of the incentive compensation rule or its enforcement history (though institutions interested in a deeper analysis may review our detailed discussion here: (Examining ED’s Incentive Compensation Rule – YouTube). Instead, we focus on two exceptions most relevant to the issues addressed in this post: the foreign student exception and the bundled services exception.

1. The foreign student exception. Found at 34 CFR §668.14(b)(22)(i)(A), the exception provides that the incentive compensation ban does not “apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal student assistance.”

This exception applies equally to international and domestic institutions. In practical terms:

The incentive compensation ban does not apply when recruiting a student who:

1. resides outside the United States and 
2. is not eligible to receive Title IV funds.

The ban does apply when recruiting any student who:

1. resides in the United States or 
2. is eligible to receive Title IV funds.

The key distinction is not whether the institution is foreign or domestic, it is whether the prospective student being recruited is foreign or domestic (and eligible to receive Title IV). This distinction is especially important for institutions that enroll both U.S. and non‑U.S. students.

2. The bundled services exception. This exception is not codified in statute or regulation but instead is articulated in the Department’s Dear Colleague Letter (GEN-11-05) issued on March 17, 2011. Under this guidance, an institution may contract with a third‑party entity to provide a bundle of services, including recruitment, and be paid based on its success in carrying out that bundle of services, so long as:

1. Recruitment is not the sole or primary service being compensated, and
2. The compensation is not structured or paid based on success in securing enrollments.

This exception has been central to the growth of online program managers (OPMs) and other third‑party service providers. However, because it is grounded in sub-regulatory guidance rather than law, its scope and future viability have been the subject of ongoing policy debate.

Settlement Agreement with the U.S. Department of Justice

Recently, the ban received renewed attention in higher education news when the student‑recruiting firm Study Across the Pond, LLC (SATP), and its co‑owner, John Borhaug, agreed to pay $1.3 million to settle a qui tam action under the False Claims Act (FCA) arising from SATP’s recruitment activities.

Between 2013 and 2024, SATP contracted with several Title IV-participating universities in the United Kingdom (UK) to recruit American students. Under these agreements, the UK institutions paid SATP a percentage of the tuition paid by the American students they enrolled, including tuition funded through Title IV.

As explained in a press release announcing the settlement:

“The United States alleged that SATP knew of the Incentive Compensation Ban and nevertheless collaborated with at least 28 schools in the UK to violate the Ban while those schools were participating in the Direct Loan Program.  Specifically, the United States alleged that SATP demanded a commission for its recruitment services, which was a share of the tuition paid by any students the company recruited for the schools… The United States further alleged that SATP created sham records to hide these tuition-sharing arrangements from the Department of Education and ultimately caused foreign schools to submit false claims to the Direct Loan Program.”

Here, neither the foreign student nor bundled services exception applied.

1. The foreign student exception did not apply because SATP was recruiting Title IV-eligible students residing inside the United States to attend Title IV participating institutions located outside of the country.
2. The bundled services exception did not apply because, as alleged in the Complaint, SATP both paid incentive compensation to its own employees and was paid by institutions of higher education for student recruitment services separately from any other services. Paragraph 58.

Significantly, as alleged in the Complaint, SATP advised their client institutions that the incentive compensation ban did not apply to their situation and to continue making incentive payments. Paragraph 85.

To review the Complaint, go to: USA v. Study Across the Pond – Complaint in Partial Intervention. To review the Settlement Agreement, go to 2026.02.20_Study Across the Pond Settlement Agreement_Executed.pdf.

Takeaways

1. Institutions must continue to consider the incentive compensation ban. The SATP settlement underscores that the incentive compensation ban is active and in force. Institutions must evaluate the ban not only when hiring recruiters, but also when engaging enrollment‑management vendors, marketing partners, online program managers, call‑center or lead‑generation services, and any party performing activities tied to student recruitment or enrollment. The ban applies to all institutional employees, including, but not limited to, admissions staff, financial‑aid personnel, and employees whose duties relate to recruiting or securing enrollments. The Department expects institutions to comply with the incentive compensation ban in all internal and external relationships.

2. Liability exposure is significant, and violations can trigger both Department and FCA consequences. Violations of the incentive compensation ban can lead to serious consequences imposed by the Department, including administrative recoupment, fines, corrective conditions. In extreme cases, the Department can move to limit, suspend, or terminate the institution’s ability to participate in the Title IV Programs entirely.

Institutions may also face exposure under the FCA, a federal statute that imposes liability for knowingly submitting, or causing another to submit, false claims for federal funds. FCA liability is severe: damages are trebled, and civil penalties are added on top. The FCA also includes a qui tam mechanism, which allows private individuals (known as “relators”) to file lawsuits on behalf of the federal government alleging misuse of federal funds. If successful, the relator receives a share of the recovery.

That is what occurred in the SATP case, where a relator initially filed the action and ultimately received $240,500 as its share of the recovery. This means members of the public are financially incentivized to report potential violations, increasing the likelihood that improper arrangements will come to light.

3. The bundled services exception is alive and well (at least for now). While it originates from sub‑regulatory guidance and has faced scrutiny in recent years, both the Complaint and the Settlement Agreement expressly rely on the terms of the 2011 Dear Colleague Letter, confirming that the Department continues to treat the exception as valid and applicable. That said, institutions intending to rely on the bundled services exception should adhere closely to its conditions.

4. Institutions should only rely on trusted sources for legal or compliance guidance. The SATP matter illustrates the risk of relying on assurances about the permissibility of compensation structures from unqualified or conflicted sources. Institutions should obtain competent, independent legal and compliance advice to ensure that contracts with third‑party recruiters are structured in a manner that complies with applicable laws and protects the institution.

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