Incentive Compensation: A Compliance Reminder For Community Colleges

A recent U.S. Department of Education Office of Inspector General (OIG) audit alert highlights continuing risks under the federal incentive compensation ban. For community colleges participating in Title IV programs, the alert is a useful reminder that recruiting arrangements must be evaluated based on how they operate—not simply how a contract is labeled.

What Is Prohibited?

Under the Higher Education Act and related Department guidance, a Title IV institution generally may not provide any commission, bonus, or other incentive payment to a person or entity engaged in student recruitment when the payment is based directly or indirectly on success in securing student enrollments.

The issue is not limited to compensation paid directly to college employees. Third-party recruiters, marketing organizations, enrollment vendors, and bundled-service providers may also create compliance risk when their compensation is tied to applications, enrollments, attendance, or other enrollment outcomes.

Why The Recent Alert Matters

The OIG alert follows a February 2026 settlement involving Study Across the Pond, LLC and its principal. The settlement resolved allegations under the False Claims Act and required payment of $1.3 million to the United States. Among the conduct described in the alert were tuition-sharing arrangements that increased when recruitment exceeded specified thresholds, as well as recruiter bonuses tied to applications and attendance.

The alert also describes risks that may arise when an arrangement appears compliant in form but is not compliant in substance. For example, relabeling a commission arrangement as an annual “flat fee” may not resolve the issue if the fee is calculated by reference to recruitment results or is effectively equivalent to a commission. Similarly, a bundled-services arrangement may warrant additional scrutiny when recruitment services are priced separately or when the provider pays its own employees based on recruiting outcomes.

Practical Steps For Colleges

Community colleges should consider the following actions:

• Inventory current and recent agreements involving recruitment, enrollment marketing, lead generation, admissions support, or similar services.
• Review compensation formulas, invoices, amendments, and side agreements for references to applications, enrollments, starts, persistence, attendance, or recruitment thresholds.
• Confirm that bundled-service contracts clearly describe the services provided and explain how fees are determined.
• Compare contract terms to actual invoices, payment records, and vendor practices. A contract alone may not provide a complete picture.
• Coordinate among financial aid, enrollment management, procurement, legal counsel, and finance personnel before renewing or modifying a vendor arrangement.
• Maintain contemporaneous documentation supporting the college’s compliance analysis and the basis for payments.

During an audit or examination, colleges should expect questions about whether third-party arrangements operate as represented and whether the information provided to auditors is complete. Inconsistent contracts, invoices, vendor explanations, or internal descriptions should be investigated promptly rather than resolved solely through reliance on a contract label.

The OIG’s message is straightforward: colleges should apply a questioning mindset to incentive compensation arrangements and evaluate both their written terms and their economic substance. Early review of vendor relationships can help identify issues before they affect Title IV participation, audit results, or the reliability of representations made to federal agencies.

This article is provided for general informational purposes and is not a substitute for institution-specific legal or compliance advice.

Source: U.S. Department of Education Office of Inspector General, “CPA-26-01 Audit Alert—Incentive Compensation Ban and the Study Across the Pond Case,” July 21, 2026.