90/10 Loophole2020-10-15T19:55:41+00:00

Infographic: How the 90/10 Loophole Creates an Incentive to Target Veterans

What Is The 90/10 Loophole?

Why do for-profit colleges target service members and veterans with particularly aggressive and deceptive marketing and recruiting?

Because of a loophole in federal law that the for-profit colleges manipulate to use GI Bill dollars & Defense Department Tuition Assistance to offset a cap on federal student aid the schools otherwise face.  As Holly Petraeus, head of service member affairs at the US Consumer Financial Protection Bureau, has explained:

“Put simply, the rule says that a for-profit college must obtain at least 10 percent of its revenue from a source other than Title IV education funds, the primary source of federal student aid. Funds from Tuition Assistance and the G.I. Bill are not defined as Title IV funds, so they count toward the 10 percent requirement, just like private sources of financing.

Therein lies a problem. For every service member or veteran (or spouse or child, in the case of the post-9/11 G.I. Bill) enrolled at a for-profit college and paying with military education funds, that college can enroll nine others who are using nothing but Title IV money.

This gives for-profit colleges an incentive to see service members as nothing more than dollar signs in uniform, and to use aggressive marketing to draw them in and take out private loans, which students often need because the federal grants are insufficient to cover the full cost of tuition and related expenses.”

Holly Petreaus, “For-Profit Colleges, Vulnerable GIs” New York Times Op-Ed.

The US Education Department documented that many for-profit colleges abuse the GI Bill and Defense Department Tuition Assistance to skirt the 90/10 regulation:   U.S. Department of Education, New Analysis Finds Many For-Profit Colleges Skirt Federal Funding Limits: 90/10 Data Released (Dec. 2016)

How the 90/10 Rule Loophole Harms Veterans

This video by Third Way peels back the layers on what is likely the most well-known loophole in higher education: the 90/10 rule loophole, which has created a dangerous incentive for predatory institutions to target student veterans for their military education benefits. Learn more here.

Why does the rule exist?

Congress enacted this 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 are GI Bill dollars & Defense Department Tuition Assistance classified as private dollars in the law?

No!  The GI Bill & Defense Department Tuition Assistance (TA) do not get classified as private dollars in the 90/10 statutory provision.  Instead, GI Bill & TA are simply not named in the statute because the statute refers 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.

The current language for the 90/10 rule appears in 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).”

For More Information:


Veterans Education Success Letter in Support for SB 1544

"We at Veterans Education Success are writing in support of Senate Bill 1544. This bill will protect veterans and servicemembers from fraud and abuse by predatory colleges that target them with aggressive and deceptive recruiting just to get their GI Bill."

New York Times: Protect Veterans from Fraud

On January 1, 2020, the New York Times ran a full-page editorial by the Editorial Board featuring Veterans Education Success' work: "Nevertheless, a 2018 report from Veterans Education Success, a nonprofit that provides legal help [...]

Press Release: Veterans Education Success Releases New Report Showing 90/10 Loophole is Worse Than Previously Thought: Department of Education Data Shows Increased Targeting of Veterans and Servicemembers, Highlighting Urgency of Closing 90/10 Loophole

FOR IMMEDIATE RELEASE: November 9, 2017 CONTACTS: Walter Ochinko, (202) 838-5050 walter@veteranseducationsuccess.org   Department of Education Data Shows Increased Targeting of Veterans and Servicemembers, Highlighting Urgency of Closing 90/10 Loophole   Today, Veterans Education Success [...]

National Guard Association Implementing New Changes

National Guard Association of the United States Resolutions to close the 90/10 loophole, require schools to disclose credit transfer and other policies, and reinstate GI Bill for veterans at closed schools https://vetsedsuccess.org/wp-content/uploads/2018/09/NGAUS-Resolutions-2017.pdf

New York Times: Preying on Veterans

The for-profit education industry has been pushing back hard against new Education Department rules that will make it easier to rein in predatory schools that strip students of financial aid, saddle them with crushing debt [...]

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