Changes to the 90-10 Rule and What it Means for For-Profit Colleges
What the 90-10 rule means for proprietary schools and new federal changes from 2022 negotiated rulemaking sessions.
For many students who choose vocational education, the lower cost of trade schools and the promise of placement in a well-paying job is a big draw. Career college students graduate with less debt than students at four-year schools due to lower costs and shorter programs. Plus, many students have jobs lined up before graduation.
While nonprofit vocational schools are allowed to receive grants and other funding, for-profit institutions are forced to rely on federally-funded student tuition to remain in operation and continue educating future essential workers. To receive federal dollars, for-profit schools must remain hyper-compliant with the 90-10 rule.
What is the 90-10 rule for for-profit colleges?
The 90-10 rule for for-profit institutions means that schools cannot make more than 90% of their revenue from federal funding. At least 10% of revenue must come from other sources like out-of-pocket payments from students.
Not all federal aid falls under the 90% cap. The GI Bill and Department of Defense Tuition Assistance program are not subject to this rule and can count towards the 10% of revenue from other sources. Some consider this a “loophole” to the rule and are “closing the loophole.”
What is the future of the 90-10 rule?
The American Rescue Bill, signed in March of 2021, seeks to close the loophole and include veteran funds in the 90% cap. An amendment to the original bill delayed adjustments to the rule until October 1, 2021, but further changes were held until January 2022 when the US Department of Education kicked off its negotiated rulemaking committee on Institutional and Programmatic Eligibility. In January-March negotiations, ED sought to better define what funds count towards federal funding. In the final session of negotiated rulemaking, the committee did reach a consensus on 90/10 after several hours of private discussion between the negotiators representing proprietary schools and veterans affairs.
The group made a good faith effort to negotiate and came out with more positive language for revenue generated from non-Title IV programs.
90-10 Rule: Revenue Generated From Non-Title IV Programs
Initially, ED wanted to limit revenues generated from not Title IV eligible programs, including continuing education programs. Schools would not be able to count revenue from non-Title IV programs if the courses or coursework were also offered as part of an eligible Title IV program. ED also wanted to eliminate revenue generated from programs for students who are maintaining licensing requirements.
After negotiation, the new language allows schools to count revenue from non-Title IV training programs. In addition, schools can hold programs onsite at their accredited location or at an employer facility, recognizing the value that schools bring to essential employers with continuing education programs.
The new language also allows schools to:
- Share coursework between Title IV and non-Title IV programs while counting non-Title IV programs as outside revenue.
- Count revenue from training for students maintaining license requirements.
Other key changes included:
- Limiting revenue from income share agreements. ISAs are essentially treated as private loans.
- Considering state funds matched by the federal government as federal funds when calculating 90/10.
Proposed consequeses for-profit schools face for failing the 90-10 rule
Schools that fail to meet the 90-10 rule for any fiscal year will become provisionally certified for two fiscal years after failing to meet the requirements. The provisional certification will terminate when the program participation agreement that was in effect when they failed 90-10 expires, or when the school loses eligibility to participate in the program.
If a school fails for two consecutive years, it loses its eligibility to participate in Title IV programs for two years. To regain eligibility, schools must demonstrate compliance with accreditors and 90-10 for two years after becoming ineligible.
ED aims to finalize regulations by November 1, 2022 to go into effect on July 1, 2023.
State-by-state changes to the 90-10 rule
Changes are going into effect on the federal level on July 1, 2023, but be aware of changes to 90-10 at the state level. The Maryland House of Delegates already declared that military benefits count toward the 90% federal funding cap. Starting in 2023, for-profit colleges that receive more than 90% of revenue from federal funds will be unable to enroll Maryland residents. While federal regulations are not set in stone, and there is some conversation surrounding whether federal law supersedes Maryland’s, for-profit schools should go on the offensive and begin planning other ways to secure 10% of non-federal funding without military benefits.