Changes to the 90-10 Rule and What it Means for For-Profit Colleges
What the 90-10 rule for for-profit colleges means, and how schools can stay in compliance with potential changes.
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 help from federal funding.
While nonprofit vocational schools receive grants and other funding, for-profit institutions rely heavily 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. Many consider this a “loophole” to the rule, and it is subject to future change.
Why does the 90-10 rule exist for for-profit colleges?
The 90-10 rule exists to protect students and phase out poor-performing schools by ensuring no school can rely on federal funding alone. For-profit schools did not have any revenue restrictions when they initially became eligible for federal aid. While most schools worked hard to educate future essential workers, others emerged with goals that were not so altruistic.
In 1992, the Higher Education Act established new restrictions requiring schools to receive no more than 85% of revenue from Title IV financial aid. Legislators later reauthorized the act and raised the funding cap to 90%.
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. While some legislators are concerned that the regulation encourages schools to recruit veterans aggressively, others believe it gives veterans quality education options.
An amendment to the original bill delayed adjustments to the rule until October 1, 2021, and changes are still subject to a negotiated rulemaking at the Department of Education. If the change goes through in October, veterans’ benefits will be included in the 90% cap beginning in 2023 and schools cannot include veterans’ benefits in the separate 10% revenue bucket. For-profit institutions that do not comply with the 90-10 rule will be subject to financial penalties in 2024.
Despite this delay on the federal level, some states have already closed the loophole. The Maryland House of Delegates declared that military benefits count toward the 90% federal funding cap, and California may soon follow. 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.
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