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US recruiter allegedly violated incentive ban

A company recruiting American students to attend schools in the UK is being sued by the Justice Department under Massachusetts law, authorities have said.
May 8 2024
6 Min Read

A company recruiting American students to attend schools in the UK is being sued by the Justice Department under Massachusetts law, authorities have announced.

Prosecutors allege that Study Across the Pond LLC has “knowingly caused” UK schools to submit false claims to the Department of Education for federal student aid.

They say that the company, and its principal, John Borhaug, have demanded the schools to enter into arrangements that violated the federal ban on incentive-based compensation.

“Third-party recruiters who demand illegal financial incentives for recruiting students to institutions of higher learning, no matter where those institutions are located, undermine the integrity of our system of higher education,” said principal deputy assistant attorney general Brian M. Boynton, head of the Justice Department’s Civil Division.

“Prospective students are entitled to make their enrolment decisions without the improper influence of recruiters who pursue their own financial gain at the expense of students’ best interests.”

Title IV of the Higher Education Act stipulates an Incentive Compensation Ban whereby any institution of higher education that receives federal student aid cannot compensate student recruiters with a commission, bonus or other incentives based on securing student enrolments, the department added.

The ban “protects students against aggressive recruitment practices that serve the financial interest of the recruiter rather than the educational needs of the student”.

Industry stakeholders had feared that proposals around third-party guidance put forward by the Department of Education early last year would have dire consequences for the sector.

However an update to the Third-Party Servicer clarified that study abroad programs, recruitment of international students not eligible for Title IV aid, among other activities, were not included.

Authorities say that Study Across the Pond “knowingly collaborated” with at least 28 schools in the UK to violate the ban on incentive compensation, while the schools were participating in a federal student aid program.

Clients include University of Brighton, Cardiff University, University of Liverpool, University of York among others.

Since at least 2015, the company has recruited American students the schools and demanded commission for its services, prosecutors say.

The commission was a share of the money the schools claimed from a federal financial aid program, specifically the Federal Direct Loan Program, for the benefit of American students, the Justice department said.

“Today’s complaint alleges the company used illegal incentives to influence American students to attend foreign schools”

It also claimed that the company and its head, Borhaug, “created sham records to hide these arrangements”, and ultimately meant the schools submitted false claims to the Department of Education.

Records show that in 2021 the University of Liverpool agreed to pay Study Across the Pond 10% of fees paid by a recruited student for pre-sessional English Language courses, study abroad programs, fee-paying postgraduate research programs.

Additionally, for the first 30 students recruited during the cycle, 12.5% of each student’s first year tuition fees went to the company, while any additional students saw it receive 15% of each student’s first year tuition fees lasting at least one academic year.

While US authorities permit a “bundle of services” to schools – which extend beyond recruitment services to include marketing, enrolment application assistance, course support for online delivery of courses, the provision of technology, placement services for internships, and student career counselling – then a form of tuition sharing between partners is allowed.

But they stipulate that a school cannot pay recruiters separately for student recruitment services.

The Liverpool students included those who had received loans through the Direct Loan Program.

Additionally, Study Across the Pond is alleged to have paid incentive compensation to their employees, offering both “applicant commission” and “conversion commission”.

In the year beginning September 1, 2020, an employee offered to pay a Senior Student Advisor $50 in applicant commission for each student after the 50th that the advisor assisted in successfully applying.

The commission increased to $65 per student “during prime application season”, with the advisor being able to earn a conversion commission of $1,500 when upwards of 48% of the advisor’s applicants registered and paid their tuition fee to a partner school.

The company also imposed quotas on its Student Advisors, the complaint says.

It also states that the company was paid separately for recruitment services and invoicing clients for services – such as digital marketing campaigns, “annual representation fees” covering marketing benefits and fees and travel expenses for college fairs and recruitment events – separately.

The incentive compensation payments drove the advice the defendants gave to students and incentivised enrolment, authorities concluded.

The final complaint notes that in 2013 an employee from the University of Exeter asked Study Across the Pond if it was “illegal for us to pay commission on any US student in receipt of a US federal loan”.

The Exeter employee was advised that the rule did not apply to Study Across the Pond, but company offered to convert the existing commission contract with the University of Exeter to a flat fee contract, so long as the purported flat fee was “the equivalent of what commission would have been”.

Other universities expressed reservations about paying incentive compensation for recruitment services.

A University of Southampton employee was “play it safe” with a general marketing and promotional arrangement and an annual fee instead of a commission contract after asking about revised audit guide published by the Department of Education

“The Defendants consistently advised foreign schools, including the Defendants’ Clients, that their activities were not subject to the Incentive Compensation Ban,” the complaint reads.

Bangor University, which entered an agreement on February 1, 2019, to pay commission of 20% of the tuition fee for the first five students and 25% for any additional students for its English Language Program at the University’s English Language Centre, and an increasing rate for standard programs.

Prosecutors allege that a workaround was created for paying the company commission for American students receiving funds from the Direct Loan Program in the form of a marketing agreement in case of a Department of Education audit.

Prosecutors are now pushing for a jury trial.

“Today’s complaint alleges that Study Across the Pond and John Borhaug used illegal incentives to influence American students to attend foreign schools,” said acting US attorney Joshua S. Levy for the District of Massachusetts.

“With today’s action, my office demonstrates its commitment to upholding the ban on incentive compensation, rooting out undue financial influence in student recruitment and protecting the integrity of federal student financial aid programs.”

Special Agent in Charge Terry Harris of the Department of Education Office of Inspector General’s Eastern Regional Office added that the announcement is an example of a commitment to the mission of protecting public education funds for eligible students.

“The Office of Inspector General will continue to work with our law enforcement partners and pursue allegations of violations of the False Claims Act in carrying out our important public service,” Harris said.

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