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I've been told I may not include information about top-notch students in the department's annual report. Is this correct?

The answer is perhaps. It would be a FERPA violation to include information about any student who has directed the university not to release his/her information. Additionally, without advance written consent, it would be a violation to disclose grades or performance indicators for any student. If you obtain written permission from each student, it would be permissible to include the information. The department would need to retain the written permission as documentation about the release.

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