The Biden administration finalized a new rule Thursday, cracking down on predatory for-profit colleges by doing away with a longstanding loophole that created a financial incentive to target veterans and service members.
For years, closing the loophole, known as the “90/10 rule,” has been a top priority of veterans and military organizations. They have argued that some for-profit colleges use aggressive practices and deceptive marketing to recruit veterans and service members in particular.
Congress included a provision to close the loophole in the American Rescue Plan, a pandemic aid package that was signed into law by President Joe Biden in 2021. The provision delayed the implementation of the change for two years. In the meantime, the Department of Education has been consulting with experts in a formal rule-making process in order to finalize the details of the new regulation.
The new rule will take effect in January 2023. Schools will have to comply beginning whenever their new fiscal year starts.
The 90/10 rule is meant to limit the amount of revenue that for-profit colleges receive from the federal government. It requires that 10% of an institution’s revenue come from non-federal sources.
But the rule has allowed these colleges to count G.I. Bill and Defense Department Tuition Assistance benefits toward the 10% of revenue supposed to be coming from non-federal sources. This created a financial incentive for for-profit colleges to enroll more veterans and military members.
Starting in 2023, for-profit colleges will no longer be able to count money from veteran and service member benefits toward that 10% revenue requirement.
As is the case now, schools will lose eligibility to participate in the Title IV student aid programs if they fail the 90/10 calculation for two consecutive years. That would make their students ineligible from receiving federal student loans and grants, a move that could deliver a devastating blow to a school’s enrollment.