The Federal Student Aid Office of Enforcement announced a “Secret Shoppers” program as one of many tools to assess 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 supervisory authority under Title IV of the Higher Education Act of 1965, as amended, to provide a secret buyer to start program. The FSA may use intelligence from clandestine buyers as evidence to support an open investigation or program review, or to launch an investigation or program review.
Significantly, the FSA may forward intelligence from the classified buyer program to the Office of Inspector General or share its intelligence with other law enforcement partners, including other federal and state agencies and officials. In the past, the US Department of Education has coordinated such efforts with the Consumer Financial Protection Bureau (CFPB), among others. The CFPB has previously used “mystery shoppers,” young men or women posing as potential students, to study college and university practices. The CFPB then used evidence the mystery shoppers collected in an enforcement action against the educational institution.
The stealthy buyers will look for practices that include, but are not limited to, misrepresenting:
Transfer of credits in or out of school, job placement rates, graduation rates, dropout rates, future earning potential of graduates, career services offered by the school, total attendance costs, the amount of federal student aid available to students, and institutional or programmatic accreditation.
The FSA will use evidence from the Secret Shopper program to determine whether the college or university engaged in fraud, gross misrepresentation or other “predatory” recruitment and enrollment practices that violate Title IV regulations.
The FSA announces the Secret Shopper Scheme four months before the new borrower defense rules on Title IV repayment come into effect on July 1, 2023, 87 Fed. Registration number. 65,904 (Nov 1, 2022). The new borrower defense rules for repayment allow individual student borrowers, as well as legal aid clinics or attorneys general and other government entities, to bring claims, including class actions, against a college or university for material misrepresentation, material omission, breach of contract, or aggressive and deceptive recruiting, alongside other causes of action. If the FSA grants such demands, the student loans will be forgiven. The FSA may, in certain circumstances, reclaim the amount of forgiven loans from the institution.
In its announcement of the Secret Buyer Scheme, the FSA nods to these borrower defense regulations, specifically stating that “borrowers … may be entitled to service their student loans based on the borrower defense for repayment or other applicable regulations, and the institution may be responsible for the cost of those reliefs.” be held accountable.”
The FSA’s Secret Shopper Scheme follows another electronic announcement that significantly broadens the definition of third party to include OPMs, and OPMs often help provide the recruitment and registration services targeted by these secret shoppers. McGuireWoods addressed the electronic announcement about OPMs and other entities as third-party services in an alert dated February 21, 2023. Once the Department of Education begins applying its new definition of third-party providers on September 1, 2023, the FSA may be able to use evidence secret buyers collect in an enforcement action against an OPM that qualifies as a third-party provider in addition to the college or university.
Colleges and universities should review their recruitment and enrollment practices before a secret buyer calls. Targeted review of representations related to the specific categories set out in the FSA’s electronic notice will be important. These depictions often appear in a college or university’s marketing materials, as well as in any scripts used by admissions counselors, recruiters, or financial aid advisors. Colleges and universities should be aware that the Secret Shopper Program may review the practices of their OPMs and may wish to review the marketing materials and scripts used by their OPMs.