When I returned from the event, a colleague asked me to explain the issues and concerns around the Department of Education’s rulemaking on Federal financial aid programs. I thought I’d just send her a link, but I couldn’t find a site that pulled the relevant details together in one place. So, for anyone who is trying to understand these issues, I thought I’d share the summary I pulled together.

A Primer on the Department of Education’s Negotiated Rulemaking for Title IV Programs

1. What is negotiated rulemaking?
   When a government agency (ie. The Department of Education) proposes a change to a regulation, it is usually develops the proposed changes without public input and then publishes them in the Federal Register for comment by the public. In some cases, an agency is required to use a process called “negotiated rulemaking” which allows those parties that will be most affected by the regulation/rule change to participate in the development of the proposed rules before they are published in the Federal Register. The Department of Education is specifically required by law to use negotiated rulemaking for Title IV, Higher Education Act (HEA) programs.

   A complete FAQ on the negotiated rulemaking process is available here: http://www2.ed.gov/policy/highered/reg/hearulemaking/hea08/neg-reg-faq.html

2. Why did the Department of Education establish a negotiated rulemaking committee?
   The Department of Education established two negotiated rulemaking committees for 2009-2010 – one to develop proposed regulations governing foreign schools, and the other (which is the one we are concerned with) was established to develop proposed regulations to maintain or improve “Program Integrity” in the Title IV, HEA programs (Student Assistance programs). The goal of this committee is basically to prevent abuse of the federal financial aid programs. A more complete explanation by Robert Shireman, the Deputy Undersecretary of Education, can be found in the transcript of a call with Career College representatives held on May 29, 2009 ( http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/call-career-colleges.pdf )
   
3. What issues are the “Program Integrity” negotiated rulemaking committee addressing?
   The committee is negotiating on 14 rules/rule changes in the following areas:
   Definition of High School Diploma; Ability to Benefit; Misrepresentation of Information to Students; Incentive Compensation; State Authorization as a Component of Institutional Eligibility; Gainful Employment in a Recognized Occupation; Definition of a Credit Hour; Agreements Between Institutions of Higher Education; Verification of Information Included on Student Aid Applications; Satisfactory Academic Progress; Retaking Coursework; Return of Title IV Funds: Term-based Programs with Modules or Compressed Courses; Return of Title IV Funds: Taking Attendance; Disbursements of Title IV Funds

   A full explanation of each of these issues can be found here: http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-session3-issues.pdf .

4. What issues are the most contentious and why?
   The two issues causing the most concern for career and community colleges are around the definition of “gainful employment” and the issue of “incentive compensation”. An explanation of each follows.

   Gainful Employment: Most for-profit, career and community colleges & universities are eligible for federal aid based on their ability to “prepare students for gainful employment in a recognized occupation.” The proposed goal of the negotiated rulemaking was to define/create a standard for what is considered “gainful employment”. The final proposal for defining gainful employment involves capping annual debt repayments at no more than 8 percent of a program graduate’s expected salary over 10 years.

   Serious concerns were raised with this approach. First, it singles out students attending proprietary career, technical, and vocational colleges. Many of these programs serve predominantly adult learners, single parents, and low-income students who need the flexibility that for-profit career colleges can provide. These students are also the most in need of Title IV funding. If the real concern is with the high debt burden incurred by some students, any proposed changes should affect students attending non-profit and public institutions as well. Other concerns raised during the negotiations include a potentially “slippery slope” of price controls for all higher education institutions; the significant work/time required to implement this on a program-by-program basis; and concerns with whether the DoE has the necessary authority to regulate on this issue. More details on this issue can be found here in an article in Inside Higher Ed.
   
   Incentive Compensation: In order to receive Title IV funding, institutions are prohibited from providing staff with any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid. There are 12 “safe harbors” or types of payment and compensation plans that do not violate this statutory prohibition. The proposed rule changes would eliminate those safe harbors. Although the two sides were much closer at the end of negotiations, according to Inside Higher Ed, issues around language remained.

5. Where do things stand now?
   Following months of negotiations between the DoE and the panel of negotiators (representing two- and four-year nonprofit institutions, for-profit colleges, students, consumer advocates and campus administrators), a consensus was reached on nine of the 14 issues being proposed. On the remaining five issues (including, most notably, the definition of gainful employment and incentive compensation), no consensus could be reached. According to Inside Higher Ed, “Without overall consensus, the department is free to revise all 14 rules as it sees fit before releasing them for a final round of public comment.” The lobbying continues and we’ll wait to see how it all works out.

We are exhibiting this year. Come find the Sparkroom team at booth 213 at the Mirage.

What is going to change for Sparkroom? Our clients should know it starts with “business as usual” with the same great team, same great products, and same commitment to driving innovation in the marketplace. On top of that, we are going to be able to execute against our mission with a lot more resources behind us. Over the coming months, you will see us working closely with CUnet to deliver a broad array of interactive marketing products to the higher education marketplace.

Why does this acquisition make sense? Primarily because CUnet and Sparkroom share a common vision for how marketing will evolve for career colleges. We see increasing investments in interactive marketing together with increasing investments in technology to manage that spend more efficiently. Some schools will want cutting edge technology solutions and we deliver it. Some schools will want performance media and interactive media management solutions and we deliver it. Some will want an integrated suite of products and services delivered on a common platform and we will deliver that as well.

We expect the deal to close in February of this year and the entire Sparkroom team is excited to join the CUnet team. We are looking forward to increasing our investment in our software platform and dramatically scaling our customer base.

*QuinStreet’s fiscal year ends on June 30th

Two key takeaways

1. DeVry is a huge chunk of QuinStreet’s EDU business and it is likely to decline given Starcom’s AOR relationship

2. Actual growth with clients other than DeVry in the EDU vertical has been anemic compared to the market over the past 24 months. They have grown 4% YOY for the past two years vs. 20% for the market.

This data speaks to the importance of the M&A machine to QuinStreet’s future growth.

Although the adoption of Salesforce today is not widespread in the for-profit higher education arena, our guess is that their presence will grow over the next couple of years. Today, many schools simply utilize the basic CRM capabilities that are already built into their Student Information Systems – typically this is vendor software which is broadly installed throughout their campuses and which was bought and paid for years ago. The downside is that it is much harder for schools to adopt sales and marketing best practices because their data and processes are hemmed inside a legacy SIS platform.

At Dreamforce, my eyes were opened to a world filled with a rich ecosystem of partners. Salesforce’s AppExchange has been very successful – it is a marketplace where customers can select software from hundreds of third-party vendors offering value-added solutions across a myriad of categories such as integration, data cleansing, marketing automation, analytics, to name a few.

I was also interested to note the steady adoption of Salesforce by the not-for-profits. The Salesforce Foundation offers deep discounts to not-for-profit schools – up to 80% off list price. At one panel session, Northeastern University demonstrated an impressive number applications that they had built out on top of the Force.com platform to manage donors, placements, at-risk students, alumni, enrollments and many other things. With the total cost of ownership so low, building out custom applications on the Force.com platform becomes a compelling option for these schools.

After witnessing the energy and momentum at Dreamforce, we at Sparkroom have concluded that a stronger Salesforce presence in for-profit edu is inevitable and could be of great benefit to the industry. Why? Because if it happens, it will likely lead to:

• Deeper adoption of sales and marketing best practices. Many schools are limited by their current vendor solutions, and unable to fully implement capabilities and best practices that can help maximize their enrollments and reduce their acquisition costs.

• Greater choice and flexibility for schools. Salesforce’s platform is open. Open APIs make it easier to integrate best-of-breed software solutions together. An open platform also makes it easier for schools to extend and augment native functionality. And the AppExchange would provide schools with access to a rich ecosystem of complementary vendor solutions.

• Greater adoption of cloud computing. As a software-as-a-service vendor, Sparkroom is naturally a firm believer in the cloud. Salesforce was the original pioneer of SaaS, and in under 10 years has fundamentally changed the mindset around software and enterprise data living in the cloud.

We will be watching with great interest to see if our prediction becomes true.

TargusInfo issued a press release announcing the departure and the formation of the new company.  First of all, this doesn’t happen – ever. TargusInfo must really like Dave. Secondly, they also said ” TARGUSinfo will be Shouk’s first customer.” Let the speculation on what Shouk is now and what it will be in the future begin. I have often asked Jay how he plans on monetizing his lead gen relationships and the platform that he has built with LeadsCon. This is obviously part of that play.

So what is Shouk Media going to be? (point of parliamentary procedure: I think Shouk is typically spelled souk).

I never thought I would be able to use photos from a recent trip to Marrakech to make a point about lead generation but here goes.  The souks in Marrakech:

* are incredibly, busy marketplaces

* have lots of vendors selling, what appears on the surface, to be exactly the same thing

* make it nearly impossible to authenticate and verify the identity/trustworthiness of sellers/buyers

* have zero price transparency – everything is negotiable

* are full of tiny niches (my favorite Marrakech souk was the one selling exotic birds)

Perhaps Dave and Jay can solve some of the issues above and provide a trustworthy marketplace where buyers and sellers can meet. LeadsCon in February will be even more interesting as I expect we will learn more about this new business.

Sparkroom will be exhibiting. Looking forward to catching up with the lead gen ecosystem there.

Look for results from the survey in early 2010.