WASHINGTON -- Negotiators appeared to make progress Tuesday on incentive compensation, one of the most contested issues under consideration as the U.S. Department of Education revises its regulations governing institutions’ eligibility for federal financial aid.

The day began with a small group of negotiators releasing to the department and to the public a proposed revision -- drafted since the previous round of rule making in December -- of an incentive compensation rule specifying the kinds of pay to recruiters that are banned by a 1992 amendment to the Higher Education Act.

In the rules released ahead of December's meeting, representatives of the Education Department proposed eliminating all 12 “safe harbors” that were intended to make clear the kinds of compensation to admissions and aid officers that were permissible under the 1992 law. But at that meeting panelists voiced concerns that ending the exceptions would create a lack of guidance on how to pay employees involved in recruitment and the potential for more lawsuits like those that spurred the adoption of the safe harbors in 2002. Several members of the negotiating team agreed to write an alternative proposal.

The leader of the group, Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, said the proposal it presented Tuesday was built on the premise that college recruiters “should not be compensated in the same way as people who sell timeshares.” Compensation adjustments should be merit-based, the groups agreed, but not on the number of students brought in.

Hartle drafted the proposed regulation with Elaine Neely, of Kaplan Higher Education; Michale McComis, of the Accrediting Commission of Career Schools and Colleges; Susan Lehr, of Florida State College at Jacksonville; and David Hawkins, of the National Association for College Admission Counseling.

Hawkins voiced strong support for the elimination of the safe harbors during the first two rounds of rule making, a position he said was consistent with the group’s work. “We realized there was a need to sit down and try to figure out how all of us could come together and articulate some sort of … proposal that would essentially adhere to the strict standard that I think all of us want to adhere to,” he said.

The primary representative for consumer advocates, Margaret Reiter, a former California deputy attorney general, was not included in the drafting. She said she supported the concept behind the proposal, but hoped to see some specific revisions.

Department officials did not see the proposal until Tuesday morning and spent much of the day revising the subgroup's draft and released its revisions in the afternoon.

The most substantive difference between the two drafts -- and a possible sticking point among negotiators -- was the proposed elimination by the department of a declaration that “merit-based adjustments may consider performance against institutional goals, such as total enrollment, completion or graduation, but shall be primarily based on qualitative factors as determined by the institution.”

Carney McCullough, a senior policy analyst in the Office of Postsecondary Education, said department officials “think institutions know what merit-based adjustments are” and don’t need further regulatory guidance. “We don’t need to get so prescriptive, because that’s where we get into trouble.”

But Neely, of Kaplan, and Reiter, the consumer advocate, both expressed concern that the omission could lead to more confusion. The department referred to the original statute’s line barring “incentive payment based directly or indirectly upon success in securing enrollments or financial aid,” which seems to leave room for interpretation.

Both drafts of the proposal eliminated all 12 safe harbors, and negotiators debated whether that would create the impression that those specific practices were categorically permissible or impermissible. Hartle said he and his proposal's coauthors had struggled with the issue in drafting their rule. “The fact that the safe harbors are no longer explicitly mentioned does not mean that those activities are now necessarily prohibited,” he said, suggesting that it might make sense to add such a qualification in an introduction to the regulation.

The department is set to return before Friday with revisions taking into account those concerns.

Though progress was slow, but seemingly steady, on incentive compensation, the panel did reach tentative agreement on one issue Tuesday: the definition of a high school diploma. The agreed-on language includes only slight adjustments from the draft released earlier this month.

The panel also began discussion of rules on “state authorization as a component of institutional eligibility” for Title IV funds and “agreements between institutions of higher education,” both of which will be taken up again before the end of the week, after further revisions from the department.