UCI Scrutinized for Accepting Funds; Attorneys Conclude No Wrongdoing

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The UC Irvine administration is under fire for accepting at least $15,500 from Capella University, a Minneapolis-based for-profit online accredited institution, in the past five years.
UCI entered an articulation agreement with Capella University in fall 2002. This agreement allows UCI students to transfer their credits to Capella in the hopes of earning a master’s degree in one of its graduate programs. UCI receives $500 for each student that is referred to the institution.
According to Michael Walsh, Public Relations Manager at Capella University, 36 students have taken advantage of the agreement over the past five years.
Due to recent court cases alleging student-loan fraud at other institutions, the relationship between Capella and UCI has come under scrutiny. Critics cried foul when the Chronicle of Higher Education revealed in an Oct. 5 article that UCI tried to hide the payments in a September 2002 e-mail written by Gary W. Matkin, dean of Continuing Education at UCI, to Michael J. Offerman, president of Capella.
Jeffry La Marca, a former student under the UCI Extension program, discovered the arrangement when he accidentally received e-mails and other documents regarding the referral payments after issuing a public records request to Capella. La Marca enrolled in Capella after earning three certificates in Information Technology at UCI Extension. When he became dissatisfied with the program at Capella, La Marca sued for tuition reimbursement.
Under the 1992 amendment to the 1965 Higher Education Act, the U.S. Department of Education bans institutions from giving compensation to recruiters. The goal of the amendment is to prevent financially-motivated recruiters from enrolling students in programs that offer federal aid. However, students might not be prepared for the fact that this issue arises when recruiters have a financial incentive to enroll as many students as possible instead of paying attention to their actual needs and capabilities. According to the Chronicle, many college officials criticized this policy as arbitrary.
In November 2002, the Bush Administration modified the ban on incentive-compensation with a series of ‘safe harbor’ exemptions that allow universities to receive per-student payments for recruiting students for programs. The new regulations are meant ‘to reduce administrative burden for program participants and to provide them with greater flexibility to serve students and borrowers.’ Thus, the U.S. Department of Education recognizes the articulation agreement made between UCI and Capella as legal.
New York State Attorney General Andrew M. Cuomo has dealt with two referral fee and revenue-sharing cases, one of which directly involved Capella. Now the question is whether Capella’s compensation provisions are being used to attract student-loan business. In the ‘Second Report on Marketing Practices in the Federal Family Education Loan Program,’ Senator Edward M. Kennedy, chairman of the Health, Education, Labor and Pensions Committee, claimed that these compensation practices go against college officials’ duty to offer fair and unbiased loan advice to students. He contended that reimbursements could create strong financial incentives for colleges to direct students to specific lenders.
On behalf of UCI Extension Assistant Director of the Business and Management Programs Stefano M. Stefan, UCI Extension Director of Marketing & Communications Kathy Tam explained that because Capella is a for-profit institution, UCI Extension is allowed some reimbursement for the value of the marketing services provided by informing students about the articulation agreement.
Matkin stated that the articulation agreement has been reviewed by UCI’s and Capella’s attorneys, and it is in accordance with the rules and regulations of the Education Department. He noted that ‘Capella is not a lender and it doesn’t have anything to do with financial aid.’

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