March 16, 2023
Federal Student Aid’s Office of Enforcement announced a “secret shoppers” program as one of many tools to evaluate a college or university’s recruitment, enrollment, financial aid and other practices. The secret shoppers program will focus on student recruitment and enrollment practices, which may include the practices of online program managers (OPMs).
Federal Student Aid (FSA) issued an electronic announcement, GEN-23-14, on March 14, 2023, stating that it will use its oversight authority under Title IV of the Higher Education Act of 1965, as amended, to start a secret shoppers program. FSA may use findings from secret shoppers as evidence to support an open investigation or program review or to open an investigation or program review.
Significantly, FSA may refer findings from the secret shoppers program to the Office of Inspector General or share its findings with other law enforcement partners, including other federal and state agencies and officials. In the past, the U.S. Department of Education has coordinated such efforts with the Consumer Financial Protection Bureau (CFPB), among other agencies. The CFPB has previously used “mystery shoppers,” young men or women presenting themselves as prospective students, to investigate the practices of colleges and universities. The CFPB then used evidence the mystery shoppers collected in an enforcement action against the educational institution.
The secret shoppers will look for practices that include, but are not limited to, misrepresentations related to the following:
FSA will use evidence from the secret shoppers program to determine whether the college or university engaged in deception, substantial misrepresentation or other “predatory” recruitment and enrollment practices in violation of Title IV regulations.
FSA announces the secret shoppers program four months before the new borrower defense to repayment regulations under Title IV become effective, on July 1, 2023, 87 Fed. Reg. 65,904 (Nov. 1, 2022). The new borrower defense to repayment regulations allow individual student-borrowers as well as legal aid clinics or state attorneys general, among other state entities, to file claims, including group claims, against a college or university for a substantial misrepresentation, substantial omission, breach of contract, or aggressive and deceptive recruitment, among other causes of action. If FSA grants such claims, then the student-borrowers’ loans will be forgiven. FSA may under certain circumstances recoup from the institution the amount of the loans forgiven.
In its secret shoppers program announcement, FSA gives a nod to these borrower defense to repayment regulations and expressly states that “borrowers ... could be entitled to discharge of their student loan(s) based on borrower defense to repayment or other applicable regulations, and the institution could be held accountable for the cost of those discharges.”
FSA’s secret shoppers program comes on the heels of another electronic announcement that significantly expands the definition of third-party servicers to include OPMs, and OPMs often help provide the recruitment and enrollment services these secret shoppers will target. McGuireWoods addressed the electronic announcement about OPMs and other entities as third-party services in a Feb. 21, 2023, alert. Once the Department of Education begins to apply its new definition of third-party servicers on Sept. 1, 2023, the FSA arguably may use evidence that secret shoppers collect in an enforcement action against an OPM that qualifies as a third-party servicer in addition to the college or university.
Colleges and universities should evaluate their recruitment and enrollment practices before a secret shopper calls. A targeted review of representations related to the specific categories identified in FSA’s electronic announcement will be important. These representations often appear in a college or university’s marketing materials as well as any scripts admissions counselors, recruiters or financial aid counselors use. Colleges and universities should be aware that the secret shoppers program may scrutinize the practices of their OPMs and may wish to review the marketing materials and scripts their OPMs use.
McGuireWoods has a deep bench of attorneys who are well-versed in federal regulatory and statutory requirements for institutions of higher education that receive federal financial student aid. Please contact the authors with any questions regarding the guidance and other education enforcement or compliance concerns.