The U.S. Department of Education finalized a series of regulations Thursday, one of which limits how much federal financial assistance can go to for-profit colleges and corrects what the agency deemed a policy loophole that enticed these institutions to aggressively recruit and sometimes cheat members of the military.
This policy change is part of the Biden administration staking out an ambitious higher education regulatory agenda, which also includes attempting to overhaul elements of the beleaguered federal student loan system and colleges’ oversight of sexual misconduct on campus.
The new regulation alters what’s known as the federal 90/10 rule. It requires for-profit colleges to derive at least 10% of their revenue from areas other than Title IV financial assistance, which includes federal student loans and Pell Grants, aid that targets low- and moderate-income students.
But benefits like those from the U.S. Department of Defense’s Tuition Assistance program and GI Bill are not considered Title IV funding, historically enabling for-profit colleges to apply them toward the 10% requirement, similar to private financing sources.
This dynamic incentivized for-profit institutions to try to attract veterans and active service members to enroll, sometimes through deceptive means. It’s a longstanding practice — the results of a two-year Senate committee investigation released in 2012 noted how for-profit institutions would intentionally recruit among vulnerable military populations, like service members at veterans hospitals.
The regulation unveiled Thursday classifies military benefits as federal education funding in the 90% part of the calculation, presumably cramping for-profit colleges’ tactics. The Education Department will publish a list of financial sources it considers to be federal education revenue in the Federal Register, the government’s regulatory journal.
This will likely have tangible effects on these institutions. Research published last year by military advocacy organization the Veterans Education Project showed 87 for-profit colleges would fail the 90/10 rule test if military benefits counted.
Another military group, Veterans Education Success, celebrated the policy shift, saying in a statement that following “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.”
Institutions lose eligibility to receive Title IV aid if they fail the 90/10 calculation for two consecutive years. Colleges that fall short in the 90/10 test must inform the Education Department and enrolled students.
The new rule takes effect for colleges’ fiscal years that begin after Jan. 1. It implements a change made in the American Rescue Plan, a coronavirus rescue package Congress passed last year.
“Today, we’re raising the bar for oversight and accountability for colleges and career schools that prioritize profiting off federal financial aid programs over preparing students for success in the workforce,” Education Secretary Miguel Cardona said in a statement.
Though the Education Department arrived at a regulatory proposal earlier this year by negotiating with representatives from for-profit colleges, the association representing these institutions blasted the new regulation Thursday.
Jason Altmire, president and chief executive of Career Education Colleges and Universities, in a statement called the new 90/10 regulation “an ineffective measure of quality that focuses on a student’s ability to pay rather than willingness to pay.”
Though CECU disagrees with the “flawed metric,” Altmire said the group appreciated the Education Department hewing closely to the regulatory language negotiated earlier this year.
“We look forward to engaging with the Department to assist institutions in better understanding their legal and regulatory obligations and to ensure a smooth, efficient implementation of the changes,” Altmire said.
The new regulation does more than label military benefits as education aid for the purposes of the 90/10 rule. It specifies for-profit institutions cannot draw down financial aid past the end of a fiscal year to change how much funding they report in a single year and dodge the 90/10 mandate.
And the rule sets up guardrails for how for-profit colleges must treat income-share agreements, which allow college graduates to pay back tuition and fees with a set percentage of their salary over an established timeframe.
Institutions can only count principal payments borrowers make on ISAs as non-federal revenue. They cannot sell ISAs and count the proceeds toward meeting their 90/10 calculations.
Ownership restrictions and Pell for incarcerated students
Other rules the Education Department released Thursday put new restrictions on colleges attempting to change owners — particularly when for-profit institutions attempt to convert to nonprofit status — and greenlit incarcerated students' access to federal Pell Grants.
Dozens of for-profit colleges have attempted to transform themselves into nonprofit institutions when they have been acquired. However, policy experts have argued some of these colleges may still financially benefit their owners even as they escape regulatory restrictions on for-profit institutions.
The U.S. Government Accountability Office, an auditing arm of Congress, identified nearly five dozen nonprofit conversions between January 2011 and August 2020. In roughly one-third of those transactions, the newly nonprofit colleges still maintained relationships with their prior owners who could influence those institutions’ financial decisions.
A new regulation outlines that the Education Department would likely not approve a conversion to nonprofit status if an institution owes debts to a former owner. It also likely would not approve a conversion if an institution struck a revenue-sharing or similar agreement that doesn’t match the market value of the services it provides with those owners, a current or former employee, or a board member.
Colleges must notify the Education Department and their students of a planned switch in ownership at least 90 days in advance of the changeover.
Incarcerated students who participate in eligible prison education programs will also soon be able to receive Pell Grants — worth up to the cost of attendance — while enrolled in a public or private nonprofit college.
These students have largely been barred from receiving Pell Grants since the 1990s, when former President Bill Clinton implemented several tough-on-crime policies. However, more than 9,000 incarcerated students have earned a certificate or diploma through a federal experiment known as Second Chance Pell, according to a May report from the Vera Institute of Justice.
From 2016 through 2021, more than 28,000 incarcerated students used Pell Grants to enroll in college programs, the institute found.
Under the new rule, accreditors and the Education Department must approve institutions’ first prison education programs at the first two correctional facilities where the colleges operate them.
The rules governing ownership changes and Pell Grants for incarcerated students take effect July 1 next year.
