Tighter Regulations for For-Profits?

The Department of Education begins the process of writing new regulations limiting what for-profit institutions can count as nonfederal sources of revenue with two public hearings this week.

October 27, 2021
 
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Advocates hope closing the 90-10 loophole will stop for-profit institutions from aggressively recruiting veterans and military service members.

The Department of Education held the first of two public hearings Tuesday on regulatory changes to the 90-10 rule, as it kicks off another negotiated rule-making process to carry out provisions passed by Congress earlier this year that close a loophole in the law affecting military service members and veterans.

Previously, the 90-10 rule required for-profit institutions to receive no more than 90 percent of their revenue from Title IV federal student aid programs, with the idea that high-quality institutions would have diverse sources of revenue outside the federal government.

The American Rescue Plan Act of 2021, signed into law in March, broadened the 90 percent cap to include all federal education benefit programs, such as those for military service members and veterans. According to veterans’ organizations and advocates, the congressional action closed the so-called 90-10 loophole that gave for-profit institutions an incentive to target current and former members of the military in their recruitment.

If a for-profit institution fails to collect at least 10 percent of its revenue from nonfederal sources for two consecutive years, it loses its eligibility to participate in Title IV programs for at least two years. Research by the Veterans Education Project estimates that 87 for-profit colleges will fail a single-year test of the 90-10 rule under the changes -- of the 127,000 students enrolled at those institutions, 27 percent use GI Bill benefits, and 43 percent use the Department of Defense’s tuition assistance program benefits.

Colleges will have time to adjust their policies and procedures so that they’re in compliance with the rule change -- it won’t go into effect until 2023, as mandated by Congress.

Advocates allege that bad-acting for-profit institutions have used deceptive practices to recruit military service members and veterans to their colleges so the institutions could receive federal funds that weren’t limited by the law.

“I know accounts of predatory behavior to be factual from firsthand experience witnessing institutions who go to extreme and desperate measures to secure enrollments from military federal benefits,” said Emily DeVito, associate director at Veterans of Foreign Wars, who described an instance of a recruiter physically blocking prospective students from leaving an education fair on a military base.

The legislative language amends the law to include “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution” in the 90 percent federal cap. Both supporters and opponents of closing the loophole urged the department to carefully define the statutory text in developing the regulations.

“As you proceed with determining how to define ‘federal education assistance funds’ and therefore, which federal funds should be counted in the formula and how, I plead you to act very cautiously and not make this counterproductive rule worse than it already is,” said Aaron Shenck, executive director at the Mid-Atlantic Association of Career Schools, who said he believes the 90-10 rule should be abolished.

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Many supporters of the change specifically asked for strong regulations to match the intent of the law. David Proferes, employment and education policy coordinator for the American Legion, said the law needs to be translated “accurately and explicitly” into regulations using “clear and strong language.”

“We encourage the Department of Education to ensure service members, veterans and their families can enjoy high-quality educations and positive student outcomes,” Proferes said.

Supporters also urged the department to be vigilant against attempts by negotiators and others to create any carve-outs or exemptions for the new rules, as the statutory language “is intended to close, not create, new loopholes,” said Amy Laitinen, director for higher education at the think tank New America.

The department will hold a second public hearing today and will accept written comments on the 90-10 rule until Nov. 3. The negotiated rule-making committee is expected to convene early next year.

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