Education Department Closes ’90/10′ Funding Loophole Used by For-Profit Colleges

• For many years, for-profits have been able to skirt the 90/10 rule by attracting students with GI Bill benefits.
• The 90/10 rule was designed to help ensure an institution's program doesn't solely take advantage of federal funding.
• Starting in July, for-profit institutions must generate 10% of their revenue from nonfederal sources.

For-profit institutions will no longer be able to skirt the 90/10 revenue rule by aggressively recruiting veterans with GI Bill benefits.

The Department of Education (ED) published final regulations on Friday that close the so-called 90/10 loophole. The 90/10 rule states that for-profit institutions must generate at least 10% of their revenue from nonfederal sources. But for years, many schools have used student funds from the GI Bill to count toward that 10% requirement.

That will change beginning in July 2023.

ED's new 90/10 rule amends the language so that funds from any federal agency, including GI Bill benefits, cannot count toward the 10% requirement.

That will force schools to find students willing to pay for their programs without federal funds. Negotiators during rulemaking sessions earlier this year said the idea behind this rule is for institutions to create programs worth paying for, rather than programs designed solely to capitalize on federal funds to make a profit.

During rulemaking, the negotiator representing for-profit colleges and universities initially opposed much of the department's proposal. However, after behind-closed-door negotiations, the department altered some of its language, and negotiators — including the for-profit representative — reached a consensus on the draft language.

ED did, however, amend this language slightly with its final rule published in the Federal Register on Friday.

Those changes relate to how income share agreements (ISAs) may be counted as revenue to meet the 90/10 rule.

“Negotiators during rulemaking sessions earlier this year said the idea behind this rule is for institutions to create programs worth paying for, rather than programs designed solely to capitalize on federal funds to make a profit.”

ED changed the wording to state that any ISA revenue must be split. Part of the revenue must be designated as going toward paying down the initial money lent to the student, while part of it would go toward profit. The rule did not state how ISAs must calculate that split.

Additionally, the new rule clarifies that only ISAs tied to an institution or its ownership tree are subject to these regulations. If a student uses an ISA not tied to the school in any way, all payments count toward the 10% requirement.

Career Education Colleges and Universities (CECU), the leading advocacy organization for for-profit colleges, commended the department for mostly sticking to the agreed-upon language from March.

"Although we disagree with this flawed metric, we commend the department for publishing final regulations that conform in substance to the language approved by negotiators earlier this year, despite some modification to the language dealing with how revenue from [ISAs] is treated," CECU CEO Jason Altmire said in a statement.

Many consumer and veterans advocacy groups praised the final rule.

"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.

GI Bill® is a registered trademark of the U.S. Department of Veterans Affairs (VA). More information about education benefits offered by VA is available at the official U.S. government website at https://www.benefits.va.gov/gibill/.