Ed Department proposes tightening 90/10 rule and monitoring nonprofit conversions

Higher Ed Dive

Natalie Schwartz

July 26, 2022

The U.S. Department of Education released a spate of new regulatory proposals Tuesday that would restrict how much federal financial aid for-profit colleges can receive, add new rules for proprietary institutions converting to nonprofits, and extend Pell Grants to incarcerated students.

Ed Department officials cast the proposals as part of the Biden administration’s plan to reduce student debt and strengthen oversight of for-profit colleges.

“Today’s announcement is one important step that the Biden administration is taking as part of a broader effort to ensure that student debt is affordable and that colleges are held accountable for unaffordable debts,” said James Kvaal, the department’s top higher education official, during a call with reporters.

The Ed Department will soon officially publish the draft regulations, which the public will be able to comment on for 30 days. The agency expects to finalize the rules later this year so they can take effect July 1, 2023.

Closing the 90/10 loophole

The regulatory proposal would alter the 90/10 rule, which requires for-profit colleges to obtain at least 10% of their revenue from sources other than Title IV financial aid. Title IV aid includes federal student loans and Pell Grants.

For years, for-profit colleges have been able to count military education funding, such as GI Bill benefits, on the 10% side. Many policy advocates have argued that this creates a legal loophole and causes for-profit colleges to aggressively recruit veterans.

However, Congress passed a law last year to place all federal education funds into the 90% side of the calculation. The Ed Department’s proposal will make that change in regulations, a move it says will protect veterans.

“Prior to this change, this loophole led some institutions to aggressively target these populations because every $1 brought in from them meant they could receive $9 more in Department of Education aid without needing to secure any private investment,” the agency wrote in a fact sheet accompanying the proposals.

The proposal would also restrict when for-profit colleges could count institutional loans and other financing arrangements as nonfederal revenue. Colleges wouldn’t be able to include in the 10% calculation revenue that stems from the sale of their portfolios of loans owed by students, according to the draft document.

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