New Litigation Targets Both On-line OPM Relationships And Broader Issues Regarding Institutions Relationships With ALL THIRD-PARTY Entities

Overview
Last Tuesday, September 17, 2024, the National Student Legal Defense Network (Student Defense) filed a lawsuit against the University of Maryland Global Campus (UMGC) “regarding its (1) payment of compensation to a third party that is based, in violation of federal law, upon that third party’s success in securing undergraduate student enrollments, and (2) representatives to current and prospective students that it complies with federal law and does not engage in such incentive-based compensation.”

The focus of Student Defense’s litigation is based upon UMGC’s contractual relationship with Coursera Inc. (Coursera), an online program management company, which provides a variety of services to UMGC. The litigation asserts that UMGC’s contractual agreement with Coursera violates both federal regulations regarding prohibitions based upon the Incentive Compensation regulations and Consumer Protection Procedures regarding deceptive trade practices.

The Student Defense suit seeks declarations from UMGC that it has violated the CPPA by paying incentive compensation based upon the success in securing enrollments despite that fact that UMGC has been expressly represented to current and prospective students that it does not engage in such conduct and has engaged in unfair trade practices, among other relief. While the litigation does not seek any direct declarations from Coursera, the third-party OPM’s compensation model is at the heart of the issue and would appear to have to be changed if the litigation is successful.

Potentially Broader Implications of the Litigation
The institutional and vendor community has relied on 2011 Education Department guidance that stated that institution/third-party relationships which included multiple services as part of a contractual agreement were exempt from the incentive compensation rules. The process, commonly referred to as “bundling” or “bundled services,” interpreted the regulations in such a way that as long as marketing services were part of a package of services the incentive compensation regs would not apply. The litigation challenges the long-standing guidance.

Under the Biden-Harris Administration, the relationships between institutions of higher education and the third-party servicers have been under scrutiny. The Department previously issued, then retracted/postponed regulatory revisions seeking to broaden many institutional requirements directly to entities who provide services to Title IV participating institutions. The Department retracted the guidance, noting issues raised by the higher education community (both institutions and servicers), stating that they were going to review the concerns. The Administration’s Unified Agenda includes references to the desire to conduct a Federal Negotiated Rulemaking on the institution/vendor relationships, but to date no official announcement has been posted and no new updates regarding third-party oversight by the Department has been published either.

What’s Next
CSPEN will provide key details and additional information regarding the litigation, the pending Federal Negotiated Rulemaking on the relationships between institutions of higher education participating in the federal student financial aid programs, and how far-reaching this discussion could go.