90-10 Loophole Closed

After years of lobbying, the so-called 90-10 loophole that advocates argued encouraged some for-profit institutions to aggressively recruit military service members and veterans is closing under final regulations effective July 1 that were announced Thursday.

“We’re thrilled with it,” said Matthew Brennan, a policy analyst for the American Legion. “For over a decade, the American Legion along with other veteran service organizations have fought to close the 90-10 loophole.”

For-profit institutions are required to bring in 10 percent of their revenue from nonfederal sources—a market viability test stemming from the 1992 reauthorization of the Higher Education Act of 1965. However, federal money from the GI Bill and Department of Defense were not considered a federal source until Congress changed the law in March 2021 as part of the American Rescue Plan Act. Brennan and other advocates said the rule incentivized “unscrupulous organizations” to target veterans. The for-profit industry doesn’t plan to oppose the new regulations.

“These new rules crack down on some of the most deceptive practices we see in higher education, such as predatory marketing tactics that target U.S. service members and veterans,” Education Secretary Miguel Cardona said in a statement.

The department also has issued final regulations to add new accountability measures for when colleges and universities change ownership and to set standards that postsecondary prison education programs will have to meet in order to access Pell Grant funds, which will be open to incarcerated individuals next July.

“I’m also proud that starting July 1, 2023, incarcerated students will have access to federal Pell Grants to enroll in high-quality prison education programs that we know reduce their risk of returning to prison and prepare these individuals to lead productive and meaningful lives in their communities,” Cardona said.

The batch of regulations released Thursday is part of a package of new rules crafted in 2021–22 as part of the negotiated rule-making process. Earlier this week, the department issued its final rule for the Public Service Loan Forgiveness program, and new regulations for borrower defense are expected before Nov. 1.

“We can celebrate today as the day that the loophole was finally closed,” said Barmak Nassirian, vice president of higher education policy for Veterans Education Success, which helped lead the effort to rally public support for the change. “This issue has gone through a very long gestation of 30 years, literally, and better than 10 years of effort to actively highlight the perverse consequences and the adverse impact it was having on vets who were being robbed of their GI benefits.”

Nassirian, who was on the committee that negotiated the new 90-10 rules, said the regulations released Thursday mirrored what the committee reached consensus on.

Veterans Education Success joined with more than 50 other organizations to push for closing the loophole.

“After years of harassment by deceptive and aggressive for-profit college recruiters, veterans, service members, and their families will no longer be viewed as nothing more than dollar signs in uniform,” Veterans Education Success president Carrie Wofford said in a statement.

In addition to changing which federal sources count toward the 90-10 calculation, the new regulations call for the department to publish a list of institutions subject to the 90 percent revenue test. Those that fail to meet the threshold will be required to notify the department and their students “in a timely manner.”

Career Education Colleges and Universities, the association representing for-profit institutions, won’t oppose the new regulations, which represents a compromise between the department and the proprietary sector, organization president Jason Altmire said.

“We don’t agree that 90-10 is in any way a measure of quality,” Altmire said. “We don’t agree that it’s good public policy. In fact, we strongly disagree with the public policy. But given the political reality and the fact that they were going to proceed with this, as they have the authority to do, we’re at least content that our concerns were heard on some of the bigger issues that were at play.”

Altmire said he expects institutions located in economically disadvantaged communities or near a military base to struggle to meet the 90-10 threshold.

“Our schools, the proprietary sector, don’t get the big state subsidies that public universities and community colleges get,” he said. “All we have is what people are able to pay in tuition to take the programming that our schools offer.”

But CECU plans to help those institutions “to adjust and adapt in a way that’s going to allow them to continue to serve students,” he said.