Congress’ Reconciliation Package Includes Provision to Close Loophole

Long-Sought by Veterans Organizations

March 10, 2021

3:00 p.m.

FOR IMMEDIATE RELEASE

Washington, D.C.

Veterans Education Success hails the House of Representative’s approval this afternoon of a provision to close the 90/10 loophole in Congress’ COVID relief budget reconciliation package, the American Rescue Plan Act of 2021.  Under a bipartisan deal reached March 5, the Senate voted by voice vote on Saturday morning to close the loophole, while delaying the effect of the law to 2023.  The package now heads to the desk of President Joe Biden, who is expected to sign it immediately.

“After nearly a decade of requests from veterans and military organizations, we are grateful Congress is moving to finally remove the target from the backs of veterans and servicemembers by closing the 90/10 loophole,” said President Carrie Wofford.  “For too long, bad actor colleges have treated veterans and servicemembers ‘as nothing more than dollar signs in uniform.’”  

Veterans Education Success thanks Congressmen Mark Takano (D-CA) and Bobby Scott (D-VA) for securing passage on February 27, 2021, in the House of Representatives of a provision to close the 90/10 loophole in the House version of the COVID relief budget reconciliation package, the American Rescue Plan Act.

“We are so grateful to Veterans Affairs Chairman Mark Takano for his persistence in getting this loophole closed!” Wofford said.

Veterans Education Success also thanks Tom Carper (D-DE), Bill Cassidy (R-LA), James Lankford (R-OK), and Jerry Moran (R-KS), as well as Senate HELP Committee Chair Patty Murray (D-WA) and Ranking Member Richard Burr (R-NC), for their work on this bipartisan agreement, following on the Carper-Cassidy-Lankford bipartisan legislation introduced last year to close the 90/10 loophole.

“A bipartisan solution is always a stronger solution and we are so grateful to the Members and staff who worked across the aisle over the past two years to close the loophole in a bipartisan and enduring fashion,” said Vice President Tanya Ang. “We look forward to continued work with them.”

Closing the loophole has long been a top priority of veterans and military service organizations. On March 5, more than 30 leading veterans and military serving organizations sent a letter to all Senators (and The American Legion sent a similar message to the Senate). Veterans and military organizations also made clear the priority in a 2019 letter from 37 such organizations.

Many for-profit colleges have been sued by federal and state law enforcement for illegally deceptive and aggressive recruiting of veterans, servicemembers, their families, and survivors, including “pain-based” recruiting, as the US Senate Committee on Health, Education, Labor and Pensions detailed in a groundbreaking report in 2012. Since then, numerous former recruiters and for-profit executives have detailed the emphasis on recruiting servicemembers and veterans, to access the “military gravy train.”  During COVID, many for-profit colleges increased their social media advertising — some by close to 15,000 percent.

Background

The 90/10 Rule in the Higher Education Act was intended as a market viability test: to ensure for-profit colleges are able to secure at least 10% of their revenue from sources other than federal education funds, but an inadvertent loophole was created when the definitions failed to include student aid from the US Departments of Defense (primarily, Tuition Assistance and Military spouse career advancement accounts (MyCAA)) and Veterans Affairs (primarily, the GI Bill).  Senate staff who wrote the loophole said it was accidental.

The 90/10 Rule can be found at section 487(a) of the Higher Education Act of 1965 [20 USC 1094(a)(24)]:

“In the case of a proprietary institution of higher education (as defined in section 1002(b) of this title), such institution will derive not less than ten percent of such institution’s revenues from sources other than funds provided under this subchapter and part C of subchapter I of chapter 34 of title 42, as calculated in accordance with subsection (d)(1), or will be subject to the sanctions described in subsection (d)(2).”

The Reconciliation language (section 2013) closes that loophole by:

  • amending Section 487(a)(24) of the Higher Education Act of 1965 (20 U.S.C. 1094(a)(24)) by striking ‘‘funds provided under this title’’ and inserting ‘‘Federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution (referred to in this paragraph and subsection (d) as ‘Federal education assistance funds’)’’;
  • amending Section 487(d) of the Higher Education Act of 1965 (20 U.S.C. 1094(d)) in the subsection heading, by striking ‘‘Non-title IV’’ and inserting ‘‘Non-Federal’’; and
  • amending Section 487(d) of the Higher Education Act of 1965 (20 U.S.C. 1094(d))in paragraph (1)(C), by striking ‘‘funds for a program under this title’’ and inserting ‘‘Federal education assistance funds.’’

The bipartisan amendment, which was approved by voice vote today, delays the negotiated rulemaking on this provision until October 2021, and delays implementation of the law until the institutional fiscal year beginning on or after January 2023, meaning no penalties for schools before 2024.

The loophole closure was included in the Reconciliation package because of the 90/10 Rule’s budgetary impact.  By way of background, the Supreme Court wrote in Cleland v. Nat’l College of Business, 435 U.S. 213, 220 (1978) about the rule’s predecessor, that it is “based upon the rational assumption that if ‘the free market mechanism [were allowed] to operate,‘ it would ‘weed out those institutions [which] could survive only by the heavy influx of Federal payments.’”

“Including this in Reconciliation makes perfect sense because the central purpose of the 90/10 rule has always been to protect taxpayer funds from artificially propping up otherwise failing private enterprises — which is why the Senate Parliamentarian ruled to include it in Reconciliation,” Wofford said.

“For-profit college chains that are wholly dependent on taxpayer funds can easily meet the rule by improving their quality enough to attract employers and private-paying students. We look forward to seeing their improved quality,” Wofford added.

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