Why does the 90/10 rule exist?

Congress enacted the 90/10 rule as a market-viability test:  To ensure federal funds are not used to prop up otherwise failing for-profit companies that are unable to attract private-paying students.

The U.S. Supreme Court upheld the rule’s precursor by explaining it is “a device intended by Congress to allow the free market mechanism to operate and weed out those institutions [which] could survive only by the heavy influx of Federal payments” and “a way of protecting [students] by allowing the free market mechanism to operate.”  The Court noted that, “[I]f an institution of higher learning cannot attract sufficient…. nonsubsidized students to its programs, it presents a great potential for abuse of our educational programs.”

So were GI Bill dollars & Defense Department Tuition Assistance classified as private dollars in the law?

No!  The GI Bill & Defense Department Tuition Assistance (TA) were never get classified as private dollars in the 90/10 statutory provision.  Instead, GI Bill & TA were simply not named in the statute because the statute referred to Education Dept. funds.  For-profit colleges figured out that GI Bill isn’t controlled by the Education Department, so they decided they technically didn’t need to count it as federal funds.  But nearly two dozen state Attorneys General wrote to Congress that this accounting gimmick is an abuse of this inadvertent loophole and amounts to a violation of the “intent of the statute,” if not the letter of the law.  Read the Attorneys General’s letter because it recounts some of the legislative history.

When the for-profit college association lobbyist tried to assert before the DOD Appropriations Committee hearing on DOD Voluntary Education Programs that DOD Tuition Assistance dollars are private dollars, Sen. Dick Durbin, the chairman of the Senate Defense Appropriations Subcommittee responded angrily, “If this Appropriations Committee is being asked to appropriate half a billion dollars of taxpayer money, then it sure is public dollars.”  Here’s a link to the committee hearing: http://www.appropriations.senate.gov/hearings-and-testimony/hearing-voluntary-military-education-programs.  Senator Durbin introduces a bill every Congress to close the 90/10 loophole.  Senator Carper also has a similar bill every Congress.

So why did the Congressional staff forget to include GI Bill and Tuition Assistance when the law was written?

Some legislative history:  The Senate Education Committee staff person who drafted the law explained the loophole to Bloomberg News:

“When the law was enacted, for-profits hadn’t yet moved into the military market, so the legislation’s sponsors weren’t focused on Defense Dept. tuition assistance,” says Sarah A. Flanagan, who helped draft the law as the Senate’s specialist in federal student aid. The law was intended to ensure that for-profit colleges offered an education good enough that some students were willing to pay for it, says Flanagan, now vice-president of the National Association of Independent Colleges and Universities, a Washington-based lobbying group. “Counting Defense Dept. funding for servicemen’s education as part of the money that’s supposed to come out of consumers’ pockets violates the purpose of the original legislation,’ Flanagan says.” Read more on Bloomberg.

What Does the Statute Actually Say?

The restrictions on revenue percentages at for-profit colleges were initially introduced in 1992 as the 85/15 rule and subsequently modified into the 90/10 rule in 1998.

• The Higher Education Amendments of 1992 (PL 102-325, 7/23/1992) amended subsection 481(b) of the Higher Education Act of 1965 [20 USC 1088(b)] to introduce the 85/15 rule effective October 1, 1992. The legislation added paragraph (6): “which has at least 15 percent of its revenues from sources that are not derived from funds provided under this title, as determined in accordance with regulations prescribed by the Secretary”.
• The Higher Education Amendments of 1998 (PL 105-244, 10/7/1998) moved the language defining the 85/15 rule to section 102(b)(1)(F) of the Higher Education Act of 1965 [20 USC 1002(b)(1)(F)] and substituted “10 percent” for “15 percent” and “Title IV” for “this title”, effective October 1, 1998.
• The Higher Education Opportunity Act of 2008 (PL 110-315, 8/14/2008) moved the language to section 487(a)(24) of the Higher Education Act of 1965 [20 USC 1094(a)(24)] and replaced the regulations for calculating the percentage of revenues with a statutory encoding in a new section 487(d), effective upon enactment on August 14, 2008. It also clarified the reference to “Title IV” for technical reasons: “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).”

Now the law has been fixed, to cover all federal funds. Specifically, the new statute adds: ‘‘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’)’’’ in Section 487(a)(24) of the Higher Education Act. The statutory change also replaced ‘‘Non-title IV’’ with ‘‘Non-Federal’’ and ‘‘funds for a program under this title’’ with ‘‘Federal education assistance funds’’ in  Section 487(d).

For More Information:

• Veterans Education Success, Press Release: 90/10 Loophole Closure Is On its Way to the President’s Desk! (March 2021)
• Veterans Education Success Report: Department of Education Data Shows Increased Targeting of Veterans and Servicemembers, Highlighting Urgency of Closing 90/10 Loophole  (November 2017)
• Veterans Education Success Analysis of the Impact of Closing the 90/10 Loophole (August 2019)
• U.S. Education Department: New Analysis Finds Many For-Profit Colleges Skirt Federal Funding Limits (2016) and related Data on For-Profit Colleges’ Violation of 90/10 Law
• U.S. Education Department annual reports on schools’ 90/10 ratios (not counting VA and DOD funds).
• CBO Score of Closing the 90/10 Loophole (March 2015)
• U.S. Education Department data:  133 for-profit colleges receive more than 90% of their revenue from federal taxpayers (2014).
• Congressional Research Service memo, “Examination of the Current 90/10 Rule and its Legislative and Regulatory History” (January 2011)